In the age of Industry 4.0, co-founder and CEO of YOCO, Katlego Maphai, identified a gap in the retail market and conceptualised a solution to help propel South African businesses forward.
How did yoco transition to a product?
Before the concept, the team came together. I studied at the University of Cape Town with Lungisa Matshoba, Yoco’s now Chief Technology Officer. I also met Carl Wazen, the company’s Chief Business Officer, when we worked at the same telecoms advisory and investment firm, Delta Partners, and formed a relationship with Bradley Wattrus, Yoco’s Chief Financial Officer when we worked at Rocket Internet, where we were part of the core team that set up Jumia in Nigeria.
We saw the product in the US with pioneers, Square, back in 2012. It was spreading like wildfire across San Francisco and the impact on small businesses was evident. The mobile point-of-sale space was heating up worldwide too with other mobile POS ventures launching and scaling like iZettle from Sweden (recently acquired by PayPal) and SumUp from Berlin. In late 2012, while living in Cape Town and on sabbatical to find a business model the four of us could commit to, we conducted some basic market research on the card space in South Africa and came to realise that there was a large payment acceptance gap. We discovered that there was a high penetration of cards amongst consumers (>75% of adults), however, a surprisingly low penetration of card terminals amongst businesses (<5% of 5 million companies) at the time. This massive gap piqued our interest and opportunity in the space was only heightening. We also began to realise that by solving for payments first, we were placing ourselves in a strong position to offer more services down the line that complimented the offering such as software-driven business tools and working capital to grow.
At the beginning of 2013, we officially founded Yoco. Step one was to relocate to Johannesburg to find a bank partner that was willing to share their card acceptance license with us and sponsor us onto the national payment system. This process took a full year, with the team being completely self-funded. After receiving the license to become a third party payment processor, we received our first bit of funding and relocated back to Cape Town to start work on the product and hire the early team. Then, in late 2014, we gained certification and started processing our first transactions, kicking off a closed beta with 20 merchants. We continued this beta programme for close to a year, officially launching Yoco in late 2015. The growth followed from here.
How do you believe Industry 4.0 is shifting the way businesses traditionally operate?
The major shift in business over the last decade has been from reliance on strategy to a reliance on tactics. As infrastructure has become available as a service, and there’s no longer need to ‘own’ the infrastructure on which you develop and deliver services (e.g. the cloud) or reach customers (Facebook, Google), the cost of starting a company has come down dramatically. As a result, strategic decisions are no longer massive because they do not require the same amount of capital expenditure or investment. We now live in a context of speed, agility and responsiveness. Businesses are tactical and enabled by the rapid access to data stores, with warehousing that no longer needs to be on site but can rather be rented through software/infrastructure as a service. With the Fourth Industrial Revolution, the processing, mining and synthesis of this data has led to the automation of key processes – some of which could previously only be handled by humans – and has changed the way businesses operate, provided they can tap into this new reality. The skills scarcity here will make it a challenge but at the same time create opportunities for new players to compete and freshen things up.
How has Yoco transformed the retail trading space in South Africa, especially for SMEs?
We transformed businesses, who were only accepting cash and running on pen and paper, into a unified digital payment and business tool space with a single product. Payments, business tools and now access to working capital are all provided through a single platform and intuitive offering. In the context of retail, the hardware we provide places the card terminal on a stand facing the consumer for faster check-out through self-service. Combined with the new tap and pay feature, this has meant retailers enjoy a countertop environment that is easier for their consumers to engage at the point of purchase. All these things make an impression. I want to believe that we have helped these small businesses leapfrog the traditional standalone terminals and move through to something little, integrated and better for consumer interaction.
What have been your greatest challenges as an entrepreneur and how did you overcome them?
For most startups, raising capital and execution are the main challenges. In our case, there were many components needed to pull together the venture, most of which carried heavy external dependencies: Attaining a license to operate, raising capital, building the product, integrating to the payments network and getting certified by the card networks. These were all required before going to market. However, 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. One example was applying for the license to operate as a third party payment facilitator which took approximately a year. As part of the due-diligence with our partner bank, we needed to have investors on board. To solicit investors, however, 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. These experiences taught us patience and how to chip away at a massive problem by deconstructing it.
The next challenges are growth and associated scalability. We want to continue doubling up every year in terms of merchants, transaction volume and revenue. The thirst for growth is never quite quenched. Sometimes we expect things to get easier as the company grows, and in some ways, it does as our business becomes more predictable. At the same time, it also becomes tougher to keep flexible and continue innovating.
What do you believe to be the next big disruption in Africa’s fintech sector?
There’s limited scope for disruption in Africa because significant components of the market are entirely underserved. Disruption speaks to taking an existing market and creating substitution. In the context of Africa, the focus is on access and market-building — this is not disruption and we are far away from this reality. We anticipate the basics in the financial services, such as banking, payments and credit being delivered to new markets by fintech players. Alongside this is last mile logistics which will have some flavour of fintech because the traditional institutions are not set up to offer support. It’s all about the basics that will enable the future of commerce across the continent.
Article originally published in Fast Company SA’s June/July issue.