JOHANNESBURG, June 18 (Reuters) – FirstRand (FSRJ.J) found that it is more difficult than expected to provide banking-only operations to cash-only companies in South African townships, but the companies involved are also much larger than they thought.
Africa’s largest lender by market capitalization announced in March that it had acquired financial technology company Selpal, with the aim of capturing more of the township economy.
Millions of people live in townships, which were areas for non-whites during apartheid and are often satellites of the big cities of South Africa.
Wealthy residents, golf courses, and shopping malls are now also a feature of the country’s most populous township, Soweto near Johannesburg, as well as a large, poorer population who live hand-to-mouth in often cramped conditions.
Townships are also home to millions of businesses, from small informal stores to large wholesalers, which in the past have been ignored by major banks in South Africa and represent a sizable untapped market.
After nearly three years, FirstRand has found that the scope of business without a bank is much larger than expected, said Jesse Weinberg, head of the customer segment for small and medium-sized enterprises (SMEs) at FirstRand’s private customer division FNB.
She has provided Selpal companies with devices and software that enable customers to pay by card and shop at suppliers in order to use the data collected to later offer them financial services such as loans for the first time.
Though it hadn’t met its original target of 2,500 wholesalers by 2022, Weinberg said FirstRand beat that number for the total number of companies signed. The bank has also changed its definition of wholesalers, estimating that there are only 20-30 of them left in the average community.
It also found far bigger bar-only wholesalers than expected, with some reaching sales as high as 40 million rand ($ 2.84 million) per month, said Weinberg, a figure that puts companies at the higher end of its SMB Do this category only annually.
Even very small shops in townships typically turn over R 2 million a year, he said, even though their margins are very thin.
“That would suddenly put this customer in a pretty significant position, it’s a decent size company,” he said.
The early lending pilots had also brought surprises with them.
A pilot attempt testing a product that worked similarly to a trade credit and allowed companies to pay suppliers for inventory or services later saw some business owners rejected.
Those who participated got so nervous about their negative balance that in some cases they began to avoid interacting with Selpal agents altogether.
“It created a bit of confusion,” Weinberg said, adding that the bank would reintroduce loan pilots at a later date.
($ 1 = 14.0631 rand)
Reporting by Emma Rumney; Editing by Alexander Smith
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