In 2016 $5.5 billion of venture capital investment went into payments start-ups. 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 entrepreneurs are finding better and more efficient ways to transact. Here are some of the innovative start-ups operating in the payments space that fulfill specific customer needs.
Tapping the informal economy
As a result of migrant labour, there’s a desperate need to be able to send money home in a cost-effective way. 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 has expanded from initially sending money to Zimbabwe two years ago, to providing services in Nigeria, Ghana, Tanzania, Malawi, India and Kenya.
Zoona, which operates in Zambia and Malawi, offers domestic money transfer services to customers without needing a bank account. A key element of the 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 pleasing customer experience at a lower cost. To date it has serviced more than 1.5 million consumers and have facilitated over $1 billion in money transfers.
Facilitating payments for SMEs
Small businesses have battled to get card machines from 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 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%).
Increasing convenience for consumers
South Africa has a strong financial system but banks are behind on delivering the type of experience customers are looking for. In an on-demand economy, consumers want get things done quickly and easily – using their phones. Zapper and SnapScan allow customers to make payments via their phones as quickly as swiping a card. Restaurants and food markets have been early adopters of this technology, which vastly improves the customer experience; no more sitting around waiting for the card machine to pay the bill at the end of a meal or need to carry cash.
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 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. It recognises that if you are introducing a new payment protocol, it needs to be easy for both the retailer and the consumer. Wicode has 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, this start-up has made great progress rolling out its solution into Pick n Pay, Shoprite and Vida e 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. Luno realised it 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 have realised that it’s also a quick and easy way to pay for things. Finally, this is a rail that 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 head of AlphaCode.