By Dominique Collett, head of AlphaCode
In 2016 $5.5bn of venture capital investment went into payments startups. This represented 22% of global fintech investment activity. In South Africa, payments still dominate the fintech landscape. At AlphaCode, a club for fintech entrepreneurs, we are seeing a tremendous amount of innovation in payments as SA consumers seek new ways to transact. Due to SA’s sophisticated banking infrastructure, we possess strong skills in this sector and many AlphaCode entrepreneurs are finding better and more efficient ways to transact. Here are some of the really innovative startups operating in the payments space that fulfil specific customer needs.
Including the informal economy
Due to migrant labour there’s a desperate need to be able to send money home in a cost effective way. The standard ways of sending money across borders are massively inefficient and expensive. Mama Money spotted this gap, and leverages technology to reduce the current costs of sending money cross-border by almost 50%, compared to existing money transfer solutions. This addresses a customer need and a social imperative to deliver services at a price that users can afford. It’s been so successful that it’s expanded from initially sending money to Zimbabwe two years ago, to services into Nigeria, Ghana, Tanzania, Malawi, India and Kenya.
Zoona operates in Zambia and Malawi offering domestic money transfer services to customers without the need for a bank account. A key element of their model is the roll out of agent kiosks which are like mini bank branches. This has been critical in a country with limited existing bank infrastructure. It has also empowered thousands of Zambians and Malawians to start their own businesses as Zoona agents. Zoona in this way increases financial inclusion by allowing citizens to transact, delivering a great customer experience at a lower cost. To date they have serviced over 1.5m consumers and have facilitated over $1bn in money transfers.
Facilitating payments for SMEs
There is a great need to facilitate payments for SMEs. For instance, small businesses have struggled to get card machines from the banks. This has resulted in many SMEs operating in cash which introduces significant risk to them personally. Even if a business qualifies, the costs associated with these card machines are often prohibitively expensive for an SME.
Yoco and iKhokha have addressed this need by offering cost-friendly mobile card machines that simply plug into or connect with a mobile phone. Yoco and iKhokha have also simplified the pricing associated with card machines by not locking SMEs into expensive monthly contracts and allowing them to buy the device as a once-off purchase. They also offer much more competitive pricing on card swipes (2.5 – 3% compared to traditional bank rates of between 5 – 6%). The ability of SMEs to now move more of their transactions from cash to card swipes is important for South Africa as it means that we can get greater visibility and data regarding small business. This enables further inclusion of SMEs in the financial sector by facilitating for example credit scoring and credit extension on the back of this data.
Increasing convenience for consumers
South Africa has incredibly strong banks but they are a bit behind on customer experience. In an on-demand economy people want to do things quickly and easily using their phones. Zapper and SnapScan have solved a problem for businesses and consumers by allowing customers to make payments via their phones as quickly as swiping a card. Restaurants and food markets have been early adopters of this technology as it improves the customer experience – no more sitting around waiting for the waiter to bring the card machine to pay the bill at the end of a meal and no need to carry cash around your favourite market on a Saturday morning. In today’s fast moving world, this is the sort of convenience customers are demanding.
Walletdoc allows you to pay bills from your cellphone, thereby reducing the hassle factor. You can upload your City of Joburg bill for instance, and pay instantly without having to log into your bank or go into a Pick ‘n Pay. In addition, the app ensures that you get loyalty points from your bank for these payments. Again, this is the type of convenience consumers demand in today’s fast paced world.
Developing new rails
Businesses like Zapper, SnapScan and WalletDoc work on credit card and debit card “rails”. These “rails” work very well, but it’s an expensive system for a business and they pay a significant portion of each transaction to banks and the card associations (VISA and Mastercard) for the convenience.
Wicode wants to take customers off card rails and onto new rails using mobile payments at retail stores – this is a game changer. They recognise that if you are introducing a new payment protocol, it needs to be easy for both the retailer and the consumer. They have developed a seven digit code as well as QR code technology which you give to a cashier for payment. It’s simple and easy. The difficulty lies in getting people off old rails and onto new ones. However, they have made great progress rolling out their solution into Pick ‘n Pay, Shoprite and Vida Café.
Bitcoin companies are also working on new rails – the blockchain’s decentralised ledger. Luno, which allows you to buy, store or pay with Bitcoin, takes the view that banks are expensive and slow. They realised they could leverage this new technology which allows users to make payments that are cleared in less than ten minutes. People appreciate Bitcoin as a store of value, but they have realised that it’s also a quick and easy way to pay for things – you can send Bitcoin to your friend in China quickly and cheaply, for example. Finally, this is a rail which has the potential to fundamentally disrupt the traditional bank payment and card rails and gives an enhanced customer experience at a much lower cost.
Serving business needs
Electrum takes friction out of the payment system for corporates. Because there are different payment protocols – Bitcoin, mobile, cards, airtime – Electrum allows all these different options to be able to transact with a corporate in the changing payments landscape. It also allows corporates like retailers and banks to sell new products like data, airtime and movie vouchers to their customers. These value added services are a great revenue stream for retailers and banks.
Peach Payments is a payment gateway and an integration layer which allows online and offline merchants to accept payments across all channels – website, mobile sites and mobile apps. It gives them access to all payment methods including credit/debit cards, bank transfers, mobile wallets, electronic wallets and mobile operator billing. This is important for retailers as they embrace an omni-channel world and servicing customers across physical and digital channels.
The payments landscape is changing rapidly. Fintech startups are gaining momentum and are beginning to shape how, where and when payments are made with new options and solutions being presented to customers at an ever-greater speed. This will have tremendous impact on the banking system as we know it. The race is on and the battle for the customer in this space is about to get more intense.
- Dominique Collett is a senior investment executive at Rand Merchant Investments and the head of AlphaCode, a Rand Merchant Investments club for fintech startup entrepreneurs.