Closing the payment gap with Yoco

Published on March 16th, 2016

Africa is a land of markets, spaza shops and informal business. In South Africa these dynamics combine with a developed economy and sophisticated banking systems that fall short of many of its citizens. In the gap between big retail and small business are opportunities for entrepreneurs looking to solve the payment challenges facing South African consumers and the businesses that serve them. Katlego Maphai is Co-founder and CEO of Yoco, in his words, “an easy way for SMEs in South Africa to securely accept card payments at the store or on the go.”

The company offers businesses a choice of two mobile card readers that connect to a phone or tablet and transform it into a card acceptance terminal that can be used just about anywhere.

“We designed our solution for businesses that want to accept card payments simply and quickly. Because Yoco runs from a phone or tablet, a merchant only needs a device and an Internet connection to operate it,” says Maphai.

Yoco also provides a free point-of-sale app and business intelligence portal, enabling business owners to monitor store performance. The company was founded by Maphai with partners Bradley Wattrus, Lungisa Matshoba and Carl Wazen.

We sat down with Maphai to find out more about the founding of Yoco, its market and what the experience has taught him as an entrepreneur.

Where did the spark for Yoco originally come from?

We first saw Square in 2011, during an annual visit to San Francisco. A year later we saw it everywhere. The light bulb moment was seeing an African American lady running a run-down eatery, with great barbeque, taking a card payment. With no point-of-sale or till on the countertop, it was the type of place that you wouldn’t expect to accept cards, but the lady processed a $40 transaction on a basic Android smartphone with ease. The impact this could have on small businesses back home in South Africa became apparent.

South Africa has a massive payment acceptance gap. There are lots of cards in the market but not enough places that accept them. Millions of businesses in South Africa still struggle to accept money in a country with over 75% card penetration.

We believe that running a small business is difficult enough, there are a plethora of challenges faced daily. Accepting payments should not be one of those challenges. We saw a massive opportunity and we jumped in head first.

What was the biggest challenge you had in starting up?

For most startups, raising capital and execution are the primary challenges. In our case, there were many components needed to pull together the venture. Most of which carried substantial external dependencies: obtaining a license to operate, raising capital, building the product, integrating to the payments network, and getting certified by the card networks were all required before going to market. Our model did not allow for an MVP approach, so we only had one chance to get it right.

All these elements were interdependent too, some possessing chicken and egg dynamics. An example was applying for the license to operate as a third-party payment facilitator, a process that took approximately a year. As part of the due-diligence with our partner bank we needed to have investors on board, but to solicit investors we needed to show that we had a license. Without the license, we couldn't start any product development work. We only knew a year or so into the venture that we could even build the business. We were a bit crazy but believed in what we were doing and the underlying fundamentals required to reach our long term goals. These experiences taught us patience and how to chip away at a large problem by deconstructing it, going one measured step at a time.

What makes the payment space in South Africa unique (if anything)?

Non-bank entities cannot accept deposits in South Africa. We do not see the regulatory landscape for this reality changing. In truth, this is not particularly unique. However, it is a fundamental reality that needs to be accepted. ATMs, bank branches, and formal retail will remain the predominant deposit taking and distribution outlets for funds. These are not the conditions for something revolutionary to happen in payments like in Kenya, where Safaricom as a Mobile Network was able to accept deposits through its agent network, building an innovative distribution network catering to the needs of its market.

During our business model research in the early days, we came across some important truths. We quickly noticed that markets with relatively high card penetration, experienced limited or niche adoption of alternative payment methods.

There's a view that payments is not a revolutionary space, it’s an evolutionary space, because the payment isn't the service the buyer is purchasing. In the end, all the buyer wants to do is pick up the product or receive the service, the payment is merely the last step, not the driver. We believe that cards will remain the primary wallet for quite some time into the future in South Africa, with innovative solutions built in and around this wallet.

Alternative wallets have failed to take off in South Africa, despite significant investment and attempts. We believe what makes this market unique is that you have developed market card penetration in a developing country, with a high card payment acceptance gap. There’s a genuine problem to solve and an economic opportunity to seize.

And have you had to tailor Yoco for those differences?

On the previous point, we quickly realised that we were primarily solving for access and not technology. Building for this has been the cornerstone of our innovation.

We’re proud that it takes less than five minutes to sign up for a Yoco account and order a card reader online. It’s entirely paperless and a painless process. In less than two days from signing up, a merchant can start taking payments.

We have built our own bespoke risk monitoring engine platform, which allows us to sign up merchants in various risk categories, using transaction controls and managing settlement. This enables us to open and grow the market for acceptance.

What has the uptake been like for your product?

We have been live for just over a year, managing to acquire 1000 plus merchants and growing fast. We’re pleased this growth has been organic and referral based. We are also proud of our low churn and high activity levels on the platform. We are currently processing $ 1.5 million in volume and 89 thousand transactions on the platform monthly, all growing fast.

What does a post-card future look like and how will Yoco adapt to that?

The Yoco platform is payment acceptance agnostic; our goal is to facilitate all payment acceptance relevant to our merchants and the respective market. We are ready to disrupt our existing revenue model in the future when the time comes and adapt to the needs of merchants and their consumers.

Respecting your local market conditions and demands in payments is important. In South Africa’s context, card is real and vastly underserved from an acceptance standpoint, that’s our focus. As we venture north to fulfil our purpose in Africa, cards will become less relevant, alternative wallets more so.

What advice do you have for potential entrepreneurs who are thinking of getting started?

“Find something you are passionate about and don’t save any energy for the swim back to shore to save yourself” - You have to go all in, 100% is usually not even enough. Also, ideas are unlimited and always attainable; a great team and execution are not. Focus on the people and execution, the rest will sort itself out.

What is the most exciting thing you have learned from building this company?

A well functioning collective greater than the sum of its parts. This is both at a founder group level and team.

Having an opportunity to build things from the ground up, using first principles. This brings the best out of one’s mind and creates a context for innovation.

For more information visit the Yoco website.