The fintech startup Yoco has become famous for empowering small and informal South African businesses to move away from cash and start accepting credit cards. This step can be transformational for businesses. It allows SMMEs to attract new customers, expand, and grow in ways that are all but impossible for cash-only traders.
Yoco’s big breakthrough was in offering a very inexpensive card reader that any informal seller can use to accept credit card payments. Yoco’s least expensive product, the Go, retails for ZAR399 (about US$27). Then the seller pays a fee of between 2.6% and 2.95% per transaction. With no contracts.
My first experience with Yoco came in 2019 when I hiked up Table Mountain. I purchased a bottle of water from an informal seller camped out by the trailhead with a cooler of cold drinks. I paid him with a credit card using a Yoco terminal. I recall wondering how much extra money he made per day because of that terminal.
That same year, Yoco CEO and Co-founder Katlego Maphai spoke at the inaugural BigFive Summit in Cape Town.
Fast forward a few years and Yoco’s footprint has grown dramatically, while still only scratching the surface of South Africa’s SMME market. Yoco currently has 150,000 small business customers using its tools. The company has announced that its goal is to grow that number to one million within four years.
Estimates vary on the size of the South African SMME market, given the prevalence of informal businesses. In 2016, The Bureau of Economic Research estimated there were 2.2 million SMMEs in South Africa. Meanwhile, a 2010 estimate from Finscope put the figure at 5.9 million. Another study suggests there are as many as 1.5 million “non-VAT” businesses in South Africa.
By any of these definitions, Yoco is just getting started in penetrating South Africa’s small and micro business market.
Biggest Raise in ZA Payments History
To help achieve its growth ambitions, the company has just raised a US$83 million Series C round. That’s ZAR1.23 billion. This is the largest raise to date for a South African payments company. Yoco plans to use the funds to invest in its products and amp up its customer acquisition.
Yoco also has made it clear that its ambitions extend well beyond South Africa. The company has not specified which markets outside South Africa it is targeting. Most companies seem to pick Nigeria as their next expansion target. Will Yoco follow the crowd?
Or will it choose a different path, for example by expanding contiguously in Southern Africa? In a blog post about the new funding, Katlego refers to million of merchants tied to cash “across Africa and the Middle East.” Italics ours. This may offer a small clue to how Yoco sees its available market. Or maybe not.
In addition to being a boon to Yoco, this investment round also represents a vote of confidence in South Africa’s fintech opportunity. The most prominent investor in this new round is Dragoneer Investment Fund.
This San Francisco-based growth investor has been involved with some of the biggest names in tech, including Alibaba, Appfolio, Atlassian, Datadog, Slack, Spotify, and Uber. Not to mention fintechs like Chime, Nubank, Mercado Libre, Square, and Klarna.
For Dragoneer to hone in on a digital payments player in South Africa is another signal that smart international capital sees Africa as the next frontier in tech investing.
My hunch is that Dragoneer will push Yoco to accelerate its growth trajectory considerably. I also imagine it will be eager for Yoco to make its first foray into a new market.
Other investors joining the round include Breyer Capital, HOF Capital, The Raba Partnership, 4DX Ventures, TO Ventures.
Also participating are unnamed current and former executives from companies like Coinbase, Revolut, Spotify, and Gojek. Existing Yoco investors Partech, Velocity Capital Fintech Ventures, Orange Ventures, Quona Capital, and FMO.
Yoco can be fairly described as an impact-driven business. Much of its brand storytelling centers around empowering SMMEs to transform their businesses through digital payments.
The size of the round and the investors involved are also positive signals that impact-driven businesses can also become unicorns. I don’t know Yoco’s current valuation. But I can’t imagine anyone making a Series C bet on this company without believing it will join the Unicorn Club at some point.
False Alarm in May?
I knew a funding round was coming, sooner or later. After all, word leaked that Yoco was about to raise a significant funding round back in May. The Africa Report published this article saying the fintech company was on the verge of raising US$50 million.
When I reached out to Maphai at the time to confirm the news, he tamped it down, saying, “We don't have anything meaningful to share at the moment.” It was a pretty classic non-denial denial. Of course, the story had the timing and dollar amount wrong. But clearly, something was brewing.
It seemed to be about time for Yoco to raise some fresh capital. This is the company’s first funding round since a US$16 million Series B round in 2018. The company was founded in 2013 by Maphai, Bradley Wattrus, Carl Wazen, and Lungisa Matshoba. Yoco took its first product to market in 2015. The company has raised US$106 million since its founding, according to Crunchbase.
Much has changed in Africa fintech since Yoco’s last round. Not the least of which was Covid. While covid was a massive headwind for SMME-focused fintechs like Yoco, with their customer base massively impacted, it was also an unprecedented opportunity to innovate and solidify the loyalty of their SMMEs customers.
Maphai summed it up in his blog post.
“Working so closely with small businesses during a global pandemic, and in particular through a challenging socio-economic environment in South Africa, we have a firsthand account of how agile these small businesses need to be in a rapidly changing world. Removing barriers and levelling the playing field by creating access to financial tools is a big part of answering these challenges. Yoco is at the forefront of solving what is critical for small businesses and enabling them to thrive.”
Yoco’s founders
Pressure on Competitors?
Yoco’s most direct competitor in South Africa is Ikhokha, a Durban-based company that launched in 2012. Yoco and Ikhokha have a similar core product — mobile card terminals. And both have extended into adjacent services like small business loans.
As far as I can determine, Ikhokha hasn’t announced any outside funding. I imagine Yoco’s raise will put pressure on Ikhokha to accelerate its efforts to scale and possibly turn to outside investors for capital.
It appears thus far at least that Yoco has earned widespread praise from its customers and employees. I spent some time this week scanning review sites and Glassdoor for any consistent complaints about Yoco. I found very few.
Of course, maintaining such a devoted following (internally and externally) will become more difficult with growth and international expansion.