JOHANNESBURG, June 18 (Reuters) – FirstRand (FSRJ.J) has found banking offers in South African townships to cash-only businesses harder than expected, but the firms involved are much larger than that.
Africa’s largest lender by market capitalization announced its acquisition of fintech firm Sellpal in March, with the aim of capturing a large part of the township 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.
Wealthy residents, golf courses and shopping malls are also a feature of Soweto, now the country’s most populous settlement, near Johannesburg, as well as a large poor population often living face-to-face in cramped conditions.
The township is also home to millions of firms ranging from small informal shops to large wholesalers that have historically been overlooked by South Africa’s major banks, creating a large untapped market.
After nearly three years, FirstRand has found that the scale of unbanked businesses is much larger than it thought, said Jesse Weinberg, head of the small to medium-sized enterprise (SME) customer segment at FirstRand’s retail division FNB.
It is giving firms CellPal devices and software that allows customers to pay via cards and enables firms to buy from suppliers, later collecting them to provide financial services such as loans for the first time. To use the data provided.
While it did not meet its original goal of capturing 2,500 wholesalers by 2022, Weinberg said FirstRand has exceeded that figure for the firms that have signed up. The bank has also changed its definition of wholesaler and it is now estimated that there are only 20-30 of these in the average township.
This, Weinberg said, is a much larger cash-only wholesaler than anticipated, with some with turnover of up to 40 million rand ($2.84 million), a figure that only occurs annually in the high end of the SME category.
That said, even shops in very small townships typically make over 2 million rand a year, though their margins are very low.
“It would suddenly put that customer in a fairly important bracket, it’s a good size of business,” he said.
The initial lending pilots were also surprised.
One pilot tested a product that worked in a similar way to trade credit, which allows businesses to later pay suppliers for stock or services, something business owners turned down.
Those who participated were so intimidated by their negative account balances that in some cases they avoided negotiations with sales agents altogether.
“It caused a bit of confusion,” Weinberg said, adding the bank will reintroduce credit pilots at a later stage.
($1 = 14.0631 rand)
Reporting by Emma Romney; Editing by Alexander Smith
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