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South Africa’s Yoco close to raising over $50m for international expansion

By David Whitehouse
Posted on Tuesday, 25 May 2021 08:38

Yoco aims to get South African small businesses accepting digital payments. Photo supplied.

Yoco, South Africa’s largest provider of payment solutions to small businesses, is near completing a funding round of more than $50m to fund expansion, Chief Business Officer Carl Wazen tells The Africa Report.

The equity funding will help the company towards its target of doubling both revenue and the number of merchants served this year, Wazen says from Dubai.

Yoco, which started in 2015, now has 120,000 small businesses using its card machines and online payment products. The businesses can use the data generated by their transactions to access loans from Yoco, with repayments based on their turnover. Co-founder Wazen says that sales of payment products are going well and aims to have 1m merchants in the next few years.

Investors in the last funding round in 2018 included Partech, Orange Digital Ventures, FMO, Quona Capital and Velocity Capital. One use of the new money will be to pay for expansion into a new country in Africa or the Middle East. Wazen hopes to establish a physical presence in a new country by the start of 2022 before starting operations in the course of the year.

  • “It has to be a big market,” he says. Expansion into new countries will be “deep before it is broad.”
  • Yoco had a first month of breakeven towards the end of 2020. That’s testament to small business recovery from Covid-19 and a sign that the new funding won’t have to be used purely to cover cash-burn, Wazen says.
  • Merchant customers are mainly local and don’t benefit from international expansion, so it will be crucial that the process does not detract from the time spent serving them, he says.
  • Wazen hopes in the future to have the option of an initial public offering on an international stock exchange.

Charting Recovery

About 80% of Yoco’s clients had never accepted digital payments before signing up to the platform. That means the company has access to a wealth of previously unavailable information on the state of small business in South Africa.

Even the merchants themselves had no easy way to tell how they were doing against their peers, Wazen says. Yoco attempted to fill this gap during lockdown by publishing the Small Business Recovery Monitor.

  • The monitor, based on digital rather than cash transactions, shows the ratio between current revenue of small businesses and a pre-lockdown reference level of 100.
  • The health, beauty and fitness sector has recovered to 103% of pre-lockdown revenue, while food, drink and hospitality now stands at 102%.
  • Retail lags behind on 87%, holding back the overall index reading to its current 88%.

Sectors that have held up well during the pandemic having tended to be service providers who have the flexibility to adapt, Wazen says. Examples include DIY, electronics, medical services and pets, he says.

City centre business that rely on the presence of office workers, such as bars and restaurants, have found it harder. Bars and restaurants in residential areas have held up better, Wazen says.

The measure also provides province breakdowns. Gauteng and Western Cape languish the furthest behind on 81% and 87% respectively, while Northwest is the best performing province on 127%.

Bottom line

The pandemic shift to digital payments has made it easier to track the health of South African small business.

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