Overview: Alternative Digital Payment Platform
Africa’s expanding use of technology is giving venture capitalists fascinating new opportunities. The demand for a wide range of cutting-edge services is being driven by the continent’s fast-expanding population of young, tech-savvy customers. The continent is rife with potential for technology businesses that can fulfill the needs of this developing market, from mobile payments and e-commerce to fintech and edtech.
In recent years, there has been a growing demand for alternative payment channels as a result of the convergence of changing consumer behavior, government reforms, and technological advancements. The potential growth in the alternative payments space may not be fully realised if the limited access to funding for fintech startups is not addressed.
Capital raising activity: Alternative Digital Payment Platform
In 2021, in excess of R16.2bn was raised, with the ICT sectors seeing the most activity, according to the SAVCA 2022 Venture Capital Industry Survey. Fintech accounted for over 15% of the capital raised. What reverberated across these transactions, was strategic investments with a focus on synergistic strengths or complimentary geographic footprints or business lines. Given the activity we have seen thus far for 2022, foreign and local investors remain captivated by the South African Alternative Digital Payments market due to the weak rand coupled with undervalued companies relative to comparable peers globally and optimistic prospects of their future earnings.
There are several technological advancements that have contributed to the growth of alternative digital payment platforms. Some of the main drivers include:
Buy Now Pay Later (BNPL)
The Buy Now Pay Later (BNPL) model has gained popularity as an alternative payment method that allows customers to make large purchases and spread out their payments without any interest. Payment providers generate revenue from a fee charged to the merchant. This model has gained significant traction in South Africa, with several local players, such as Tymebank’s MoreTyme, Payflex, PayJustNow, and ZeroPay, launching products in this space. Within two months of its launch, MoreTyme was adopted by over 600 businesses for their online transactions. According to an article by RMB, the BNPL payment penetration is expected to continue growing in South Africa as more and more merchants offer this product.
Rapid Payments Programme (RPP)
In collaboration with Bankserv Africa and Payments Association of South Africa (PASA), the South African Reserve Bank (SARB) has developed the RPP system, which was launched in the second half of 2022. This innovative system will enable customers to transfer money instantly and securely without requiring a bank account number or branch code. Instead, the system will allow people to make digital payments between banks using simple identifiers such as mobile numbers or email addresses from messaging apps. The primary objective of the RPP system is to provide greater access to digital payments for individuals who are unbanked – or underbanked, and who still rely on cash as their primary payment method.
Request-to-Pay (RTP)
Bankserve Africa is developing a structured method for requesting digital payments, allowing users to request money from others and enabling the payee to approve the transaction with a simple tap of a button on their mobile device, facilitating instant money transfer. This new system has the potential to empower Small, Micro and Medium Enterprises (SMMEs) by providing them with access to financial services and technological efficiencies that were previously unavailable to them. As a result, this development could play a significant role in facilitating the digitisation of SMMEs and contributing to their overall growth and success.
Transactions in the Payment Sector over the last two years
1) Yoco Technologies Proprietary Limited
In 2021, Yoco received a Series C funding amounting to $83.063m from a group of investors.
2) PayJustNow Proprietary Limited
Paystratus Group Ltd, operating under the name Weaver Fintech, has successfully acquired an 85% stake in PayJustNow Proprietary Ltd. To fund this acquisition, Weaver Fintech utilized some of the $40 million raised in its Series A round.
3) Stax
Stax received $2.7m in funding from Anthemis Group SA, 500 Global, GAN Ventures, Noemis Ventures Management, LLC, World Within Ventures and Garuda Ventures.
4) Easy Debit Payment Solutions Proprietary Limited
Bitventure Consulting Pty Ltd acquired EasyDebit in 2022, for an undisclosed amount.
5) Sticitt Proprietary Limited
In 2022, Sticitt (Pty) Ltd announced that it has received an undisclosed seed funding from NuState Capital Partners, Knife Capital, and Hlayisani Capital.
6) Lipa Payment Proprietary Limited
In 2022 Lipa Payments Pty Ltd received R10m ($0.66m) in seed funding from Empowerment Capital Investment Partners.
7) Payflex Proprietary Limited
Zip Co Limited acquired the remaining 73.75% stake in Payflex Proprietary Limited for AUD 15.9 million.
8) Jumo World Limited
Jumo raised $120m in the matured round of funding in 2021 from several investors, and these include Fidelity Management & Research Company LLC, Kingsway Capital Partners Limited and Visa Inc.
