There are many challenges that small businesses face in South Africa, and getting paid is one of them. More and more people are turning away from cash and looking to transact electronically and, as a whole, this means credit cards. For small businesses that may be just covering their costs, this presents a challenge in that the overheads for card acceptance have typically made it an unviable option.
This was brought home to me at the beginning of the year when I needed to get my kids their back-to-school haircuts. I was at a small, home-based hair salon. Since I had no cash on me, I started to look around to see if the hairdresser had a card machine. She didn’t, but was nice enough to let me transfer the money later. When I asked why she didn’t take cards, she said that it was just too expensive for her.
This isn’t a unique situation.
According to Carl Wazen, one of the founders of mobile payment player Yoco, there are between 500 000 and one million small and medium businesses in South Africa that could be accepting card payments, but aren’t. This isn’t all the SMEs in the country – there are about five million small businesses in SA in total.
Yoco was founded in 2012 by four friends – Wazen, Katlego Maphai, Bradley Wattrus and Lungisa Matshoba – but only launched commercially in October 2015. Wazen says that once it became clear to them that there was a real business opportunity, they put together the service and then had to find an acquiring bank to work with.
“We spent most of 2013 going through an extensive due diligence with Mercantile Bank, and then 2014 and most of 2015 was spent on piloting the service.
“The final pilot phase was with 500 merchants to iron out the kinks in the system and ensure that we are able to scale the service effectively. Last year was all about growing the business and we now have more than 5 000 merchants using Yoco, and the business processed over R1 billion worth of card transactions per year.”
The Yoco service really consists of two components: a wireless card reader that works in tandem with a smartphone app to capture the card transactions, and, more importantly, says Wazen, a portal that provides retailers insight into their business. The company sells two versions of its card reader, the basic model that allows for chip and pin transactions, and the newer – Pro – model that also accepts NFC transactions. This allows merchants to offer the new ‘Tap and Go’ functionality that is starting to come to market. The readers are sourced internationally, but it’s in the app and the portal where Yoco adds value.
“Fintech sits at the intersection of financial services and data and this is where the real value is in our service,” he says. “Running a small business can be quite an isolating experience and it can be hard to get access to useful information. The Yoco portal allows companies to track their income and extract useful information from the data.
“We are also focused on building a service that is open. We have an open API that allows other services to plug into Yoco, something that helps us integrate our offering into other systems such as specialised point of sale systems like you find in the hospitality industry.”
Hospitality is one of the company’s key target areas, along with retail and health and beauty.
In addition, the API has allowed the company to integrate into cloud-based accounting services. At the moment, only Xero is supported, but Wazen says that the company is currently testing integration into Sage.
It’s these components that Wazen feels sets Yoco apart from its competitors. And there are a few competitors in this space. These include offerings from Absa, Nedbank and Standard Bank, as well as other independent players such as ZipZap, iKhokha and Sureswipe. There are also the pure app-based services such as Zapper and SnapScan, but Wazen feels that these are more complementary to what Yoco offers rather than direct competitors.
He adds that the company has two goals in mind at the moment; the first is growth in the South African market and while he is unwilling to share the short-term targets, he says that the company would like to have in the region of 100 000 merchants signed up in four to five years’ time. He adds that the priority is for the company to grow sustainably and that it doesn’t intend to get involved in a land grab scenario.
At the same time, it’s eyeing expansion north into the rest of Africa.
“We know that just because something works in South Africa, there’s no guarantee of success elsewhere on the continent,” he says. “And for each additional country, we will have to partner with an acquiring bank, but we hope that the process of finding those partners will be faster as there is a greater emphasis on growth north of our borders.” The lower penetration of card acceptance infrastructure elsewhere in Africa has also created a situation where traditional institutions have less interest in protecting their existing business than local institutions.
Wazen comments that the opportunity for growth is what the team is focused on. Having already raised $4 million in funding from angel investors, the company is in the process of closing its next round of funding, which will allow it to tackle the next stage in its evolution.