Pepkor’s Flash empowers 175,000 informal traders

With South Africa’s largest retailer, Pepkor, gearing up for a full throttle onslaught on the banking sector, competition in the country’s R900bn informal sector is about to go up a notch.

Pepkor’s early investment in fintech group Flash 17 years ago has paid off, with the firm now available to about 175,000 informal traders around the country.

Flash collaborates with top brands and businesses to offer quality products and services to the informal sector and with cash still king in this segment the company has been gaining traction in South Africa.

Pepkor has identified growth in the informal economy as a priority in its growth blueprint. Flash leverages connectivity and smartphone access to extend reach beyond traditional retail through a technology-driven business-to-business and business-to-customer business focused on empowering informal market traders with smart technology solutions.

The business provides virtual products such as airtime, mobile data and prepaid electricity, among others. At the heart of Flash’s business are its point-of-sale machines with 75,000 acquiring devices in the market, which reported a tapped value of R21bn in the year to end-September.

Pepkor’s foray into fully fledged banking, announced on Tuesday, opens the door for it to provide more financial services to the underbanked informal sector.

A study into the informal sector, conducted by Standard Bank, found that eight out of 10 businesses in the sector are unregistered, making access to finance to grow their enterprises impossible.

The survey zoomed in on businesses raking in R100,000-R50m annually across the economic hubs of Gauteng, the Western Cape, KwaZulu-Natal, and the mineral-rich North West.

The study, released last month, found that 80% of businesses surveyed were unregistered, a striking number that might force the government to move with speed to implement its plans to overhaul the country’s business licensing regime.

The report notes that businesses in the informal sector operate from residential residences or streets to minimise costs and are dominated by males in the age group 35-54, noting that township businesses have a complex relationship with banks.

To this end, the businesses often use personal accounts for business due to “perceived high fees, inaccessibility of credit” and past negative experiences.

South Africa’s informal sector market has also attracted the attention of the country’s largest retail bank by customer numbers, Capitec, which has made a foray into business banking, looking to disrupt lending to small businesses, particularly in the informal economy.

Capitec has also taken the fight to fintech payment platforms such as Flash, Yoco and iKhokha by slashing costs of its point of sale machines.

Nedbank in August put R1.6bn on the table to purchase iKhokha, one of the fastest-growing fintech companies in Africa, as it fine-tunes its strategy to grow and win market share in the highly competitive business banking segment.

The transaction gives Nedbank a sizeable business, which it said processes more than R20bn annually in digital payments.