JOHANNESBURG (Reuters) – FirstRand has found it more difficult than expected to offer banking services to cash-only businesses in South African townships, but the businesses involved are also much larger than they thought.
Africa’s largest lender by market capitalization announced the takeover of fintech company Selpal in March, with the aim of capturing more of the township’s economy.
Millions of people live in townships, which were designated areas for non-whites under apartheid and are often satellites of major cities in South Africa.
Affluent residents, golf courses and shopping malls are also now a feature of the country’s most populous township, Soweto, near Johannesburg, along with a large, poorer population living day to day in often cramped conditions.
Townships are also home to millions of businesses, from small informal shops to large wholesalers, historically overlooked by South Africa’s big banks, which constitute a sizable untapped market.
After nearly three years, FirstRand has found that the scale of unbanked businesses is much larger than it expected, said Jesse Weinberg, head of the Small and Medium Business (SMB) customer segment of the business unit. retail sale of FirstRand FNB.
It has provided businesses with Selpal devices and software, which allow customers to pay by card and businesses to purchase from vendors, to use the data collected to subsequently provide them with financial services such as credit card loans. the first time.
Although it did not meet its original target of capturing 2,500 wholesalers by 2022, Weinberg said FirstRand exceeded that figure for the total number of companies signed. The bank has also changed its definition of wholesaler and now estimates that there are only 20 to 30 in an average municipality.
It also found far larger-than-expected cash wholesalers, some with turnover of up to Rand 40 million ($ 2.84 million) per month, Weinberg said, a figure the top companies range of its category of SMEs do that every year.
Even very small township shops typically fetch more than R 2 million a year, he said, although their margins are very slim.
“That would suddenly put that customer in a pretty big range, that’s a decent business size,” he said.
The first pilot loan projects had also produced surprises.
A pilot testing a product that worked the same as trade credit, which allows businesses to pay suppliers for inventory or services later, saw some business owners turn it down.
Those who attended became so nervous about their negative account balances that in some cases they began to avoid interaction with Selpal agents altogether.
“It caused a bit of confusion,” Weinberg said, adding that the bank would reintroduce credit pilots at a later stage.
($ 1 = Rand 14.0631)
Reporting by Emma Rumney; Editing by Alexander Smith