Yoco Raises $83M Series C Funding - South African Fintech News

The Vital Role of SMEs and Yoco's Growth in South Africa

Small and medium enterprises (SMEs) are crucial drivers of economic prosperity in numerous nations, especially within the developing world. They form the foundation of most economies, representing approximately 90% of all businesses globally and generating over 50% of total employment.

SME Contribution to South Africa's GDP

In South Africa, these businesses contribute roughly one-third of the nation’s Gross Domestic Product (GDP). The previous year presented significant challenges for many SMEs due to the coronavirus pandemic, and concerns regarding revenue, sales, and cash flow continue to be prevalent among business owners.

Yoco's Emergence as a Leading Fintech Platform

Since its inception in 2013, South African fintech company Yoco has established itself as the primary platform for facilitating offline payments for merchants throughout the country. The company is now announcing a $83 million Series C funding round to broaden its offline and online services and extend its reach into new markets.

Addressing the Challenge of Card Acceptance

Despite high rates of card and mobile phone usage – exceeding 70% – South African SMEs often encounter difficulties accepting card payments. Yoco’s portable card readers have effectively addressed this issue. Three years ago, following a $16 million Series B funding round, the company served just over 30,000 merchants. Currently, that figure has increased fivefold.

Expansion into Online Payment Solutions

As Yoco experienced rapid growth in the realm of offline payments, it simultaneously developed an online payment offering. This rollout occurred during the early stages of South Africa’s lockdown in March of last year, after a period in beta testing. This allowed South African merchants to maintain payment acceptance capabilities through the platform.

Adapting to the Changing Payment Landscape

“Our aim is to provide our merchants with all the payment methods they require. We initially focused on in-person payments, specifically terminals, as this was where the greatest demand resided,” stated Carl Wazen, chief business officer. “However, the pandemic, with its detrimental impact on businesses reliant on in-person trade, expedited the need for online payment acceptance.”

Small Business Sentiment During Lockdown

According to Yoco’s small business pulse monitor, SME owner sentiment in South Africa plummeted to an all-time low of -12 during the second quarter of 2020, amidst the peak of lockdowns. Sentiment has improved as restrictions eased, enabling businesses to resume in-person transactions. Consequently, online payments currently represent a small fraction of the total transactions processed on the platform.

A Shift Away from Cash Transactions

However, this does not indicate a continued reliance on cash. In fact, the opposite is true, according to Wazen. He observed that once the lockdown was lifted, there was a surge in in-person payments as people reduced their use of cash. “Recent consumer trends demonstrate a move away from cash, and businesses must quickly adapt to this shift. This presents a significant opportunity, and we are dedicated to supporting this transition,” he added.

Future Service Expansion

Earlier this year, chief executive Katlego Maphai indicated Yoco’s intention to broaden its services into other areas of digital payments. He identified mobile money, QR code payments, and electronic funds transfer (EFT) as potential additions to its service portfolio. Wazen confirmed this, but did not provide specific updates on the progress of these offerings, noting that the company remains primarily focused on card-based payments.

Yoco's Strategy for Market Leadership

Yoco’s strategy as a leading card payments provider in South Africa centers on increasing accessibility and eliminating obstacles to the adoption of digital financial services. The company achieves this by concentrating on product features that Wazen asserts are the most comprehensive for small and medium-sized businesses. He also highlights Yoco’s ease of access to services through various channels.

Focus on the Underserved Market

“We have built a recognizable brand. This is how we succeed, and it’s about remaining focused on the segment of the market that, in our view, competitors are not prioritizing sufficiently.”

Significant Market Opportunity

Over 6 million small businesses in South Africa still primarily transact in cash, presenting a substantial opportunity for Yoco. The company reports a 300% increase in the number of fully cashless small businesses from March to July 2020. Yoco currently serves 150,000 businesses and adds over 500 merchants daily. The company processes more than $1 billion in card payments annually and has processed over $2 billion in card payments since its founding.

Funding and Valuation

Yoco has raised a total of $107 million. The company’s Series C investment is the largest of its kind in South Africa and one of the largest for any African fintech company, surpassed only by Flutterwave and Chipper Cash. Wazen also claims it is the largest investment received by a small business-focused payments platform in the Middle East and Africa.

Yoco as a Leading Startup in Africa

Yoco is currently considered one of the most valuable startups on the continent, and as a fintech startup, it is not surprising. The fintech sector continues to attract the largest share of startup venture capital funding in Africa, with its leading companies attracting first-time investors to the continent.

New Investors and Strategic Partnerships

In Yoco’s case, this includes Dragoneer Investment Group, which has previously invested in fintech giants such as Chime, Klarna, Nubank, Mercado Libre, and Square. Other participating investors include Breyer Capital, HOF Capital, The Raba Partnership, 4DX Ventures, and TO Ventures, as well as existing investors Partech, Velocity Capital Fintech Ventures, Orange Ventures, and Quona Capital. Current and former executives from global tech companies like Coinbase, Revolut, Spotify, and Gojek also participated.

Dragoneer's Perspective on Yoco

“We are thrilled to partner with the Yoco team,” said Christian Jensen, co-head of private investments at Dragoneer, in a statement. “At Dragoneer, we seek exceptional teams building sustainable businesses with strong economic models, and we have found that at Yoco. Yoco is already highly valued by its customers, and the company’s product roadmap will deliver even greater value to merchants. While there is significant potential for continued growth domestically, the opportunity for Yoco extends beyond South Africa.”

Key Enablers of Yoco's Success

Wazen identified three core factors driving Yoco’s success: its product capabilities, its platform, and its market presence. The new investment will be used to accelerate progress in all three areas. Yoco is evolving from a pure payment acceptance provider into a comprehensive financial ecosystem. The platform strategy involves continued integration and leveraging regulatory easing, while Yoco is strengthening its market presence in South Africa.

Expansion Plans for the Future

While Wazen believes Yoco has only begun to tap into its potential in South Africa, he anticipates replicating its success in other parts of Africa and the Middle East. With over 100 million SMEs transacting in cash across both regions, Yoco aims to reach at least one million within the next four years.

Building a World-Class Team

To achieve this, Yoco is expanding its team by 200 people remotely and across its offices in Cape Town and Amsterdam over the next year. The company is also capitalizing on a trend of African soonicorns and unicorns hiring experienced professionals from global companies to drive growth. Yoco has recently hired a former VP of product at Monzo, a former product marketing director at Paypal, and a former head of communications at Uber. The company has also appointed Juan Fuentes, the former managing director of fintech unicorn Pagseguro, as its new chairman.