Fintech Innovation in Informal Markets

South Africa’s informal markets and township economies are fertile ground for innovation and entrepreneurship and represent a significant sector of our economy.

Many dynamics are at play and this market is far from homogeneous, and one must be agile and adaptable when operating in this environment. From national wholesalers to spazas to mobile street vendors, taverns to hair salons to mechanics, there is a wide range of merchants operating in this space, all serving the needs of an equally diverse consumer base – it is an exciting market to be in.

Analysing this market is challenging with a lack of empirical data, with researchers and thought leaders using different definitions for the multitude of participants. However, one thing is certain, it is attracting the attention of corporate South Africa. For example, Tiger Brands recently announced a more focused distribution and advertising strategy to deepen its penetration into this market, previously relying on smaller wholesalers for township distribution.

Holistic Offerings for Merchants and Consumers

Serving this market is an increasingly challenging proposition as merchant margins are thin and consumer budgets are tight, so products and services need to be very competitively priced. However, this is not an unsophisticated market by any means, and holistic customer value propositions that go beyond price are compelling and enhance customer stickiness.

With the deep penetration of smart devices into the informal economy, it is ripe for fintech innovation and disruption. While “cash is king” at this end of the market, the digitalization trends apparent in the formal economy are also playing out in the informal sector, and merchants are embracing technology to improve margins, enhance efficiencies, and access growth opportunities.

For the consumers, financial inclusion does not just mean a bank account to receive salaries and grants. It means access to affordable and regulated financial services, such as loans and insurance offerings, and delivered in a convenient, understandable and dignified manner.

Deep Understanding

Lesaka Technologies, a leading listed fintech with a R4.5 billion market cap, has long been serving the needs of informal economy participants through its proprietary financial service technologies. 

Lesaka’s Kazang business offers holistic merchant solutions covering the cash and digital needs of informal merchants. From secure cash vaults, VAS products, point-of-sale, growth capital, and supplier payments, Kazang’s merchants are using its suite of products to improve and grow their businesses. Through benefits such as immediate clearance of card payments, 24-hour growth capital approvals, supplier payments through e-wallets and cash vaults reducing risks, Kazang is offering real value-add beyond VAS and card acquiring.

On the consumer side, Lesaka’s EasyPay Everywhere brand services the grant beneficiary market with its transactional bank account, micro-loans, and funeral policies. As a regulated entity, it brings affordable and responsible financial services to grant beneficiaries. The Group’s consistently high loan repayment and premium collection rates demonstrate the high value that grant beneficiaries place on these financial services that are helping to improve their lives.

Lesaka’s full-year results released this month indicate a deep understanding of the merchant and consumer ecosystem in the informal and township economies. With 1.3 million active EasyPay Everywhere accounts, over 850,000 loans extended, 350,000 active insurance policies in its consumer business, and over 75,000 merchants using its Kazang platform, Lesaka’s tailored products and services and deep footprint bring real financial inclusion to previously underserved communities in South Africa.

Whether providing micro-loans to grant beneficiaries to help them in their daily lives or giving merchants quick access to working capital and solutions that help them de-risk and enhance their businesses, Lesaka’s merchant and consumer ecosystem is positively impacting previously underserved communities, with tangible evidence that its holistic offerings are improving the lives of consumers and merchants across Southern Africa. DM