Katlego Maphai

Katlego Maphai – Yoco

Today's guest is Katlego Maphai who is the co-founder and Chief Executive of Yoco.

Those are those little devices that you see in flea markets in and other places that don’t want to have the big point of sale devices that you might see in a supermarket. Yoco was founded by four friends. They wanted to address what they called the pain points that small businesses face when trying to get a card machine. They've got more than 38,000, close to 40,000 merchants today and, the company has raised millions to support small business in the country.

“We were not comfortable with the status quo in the country, it’s just a culture of exclusion, you know, those people can have, those can’t. There was something not sitting well with us, we had good careers and we just wanted to make a dent. And, in the end, we really see Yoco as a platform to enable people to thrive. We felt like this was the platform that we could use to really tap into this purpose and it's been fantastic seeing that actually manifest.”

I'm Bruce Whitfield and you're listening to RMB Solutionist Thinking.

Bruce Whitfield: As we talk, Katlego – we’re in the middle of load shedding. It’s yet another problem for small business, but you came to this idea out of the cell phone industry. The four of you. There is you, you've got your mates that came with you from the cell phone industry, Bradley Wattrus, Carl Wazen and Lungisa Matshoba, and you came to get out of the cell phone industry to solve essentially a financial services problem. Explain.

We're an unusual team, quite diverse, both in terms of our backgrounds. Carl and I, were consultants in the mobile telecom space for many years. Bradley's an actuary coming more of the risk space and Lungisa, out of the technology space but doing a lot of work on apps, even before smartphones. So, we never would have expected that this unusual background would crack a problem in payments. And, ultimately what we saw was, with mobile phone you could walk in to a Vodafone, Vodacom, MTN or whatever, fill in a form, get a SIM card and a device and, start transacting on the same day. Yet, with the card machine, you had a completely different experience. You had to call in, you had to set up an appointment, somebody had to come see you and you know, it could take weeks before you could actually start accepting transactions, if you were given permission to, right. So, quite audits and difficult and, I guess just coming from it at it from a fresh lens, we just - it didn't make any sense to us. And, I guess through that lens we challenge a bit of the status quo, we sped things up and we were able to get that onboarding process down to minutes. You know, you sign up online, We do all the verification digitally in the background in a low-cost way and we ship you the reader within 48 hours. So, completely flipping the model of axes on its head.

Bruce Whitfield: What was the genesis of the idea? I mean, here you are for people from four completely different but complementary disciplines in a startup coming together. What was the idea? Were you at a market one day and you couldn't buy the milk. What was it?

So, it's really this to strand to the story. There’s the forming of the team and there's the idea itself. And, in terms of the idea we'd seen the business model in the U.S. So, Square which pioneered our space they launched in 2010 and I got to see one of their products in early 2011. I was back in San Francisco again 2012, saw the product really proliferating but it wasn't until an old childhood friend took me into this hole in the wall barbecue eatery and this African American lady, you know brought out the food was no till nothing on the countertop and also my friend how you wanted to pay and I was completely confused. I assumed it was a cash-only place and you know, she took out this old android device stuck in this white little dongle that could read cards took his card swiped it, he sounded this finger and just like light bulbs.

Small business, good product, nothing much else. Now, this lady was able to accept the digital payment, a higher basket size. My perception of hers as a merchant had completely changed because you'd she’d digitized. So, I've seen the technology but it was only at that moment that I fully understood its impact on small business. So, that's one strand to the story, the other strand to the story was really, you know for friends who met over different stages of life. Lungi and I knew each other when we were kids, we reconnected at University. Carl and I used to work at the same consulting firm together. Bradley and I met at Rocket Internet, which was a German Venture Capital Incubation Fund for online startups. We met, lots of respect, we wanted to work together, and you know, we looked at lots of different business models, but we kept on circling back to this, especially when we saw the gap in South Africa.

Bruce Whitfield: Was the commonality between you, payments? Was there one element of commonality or was the commonality is, we can actually do something special. We don't know what it is except but let's do something.

The team came together before the idea and that was a commonality. The commonality was the purpose to be honest. So, we will not comfortable with the status quo in the country just culture of exclusion, you know, those people can have, those can’t, and you know, we just were not comfortable. It was something not sitting well with us, we had good careers and we just wanted to make a dent. And, in the end, like we really see Yoco as a platform to enable people to thrive, huh? And we looked at lots of different things and we felt like this was the platform that we could use to really tap into this purpose and it's been fantastic seeing that actually manifest.

Bruce Whitfield: It addresses so many problems in the country like South Africa, where cash is very very high risk and people want to carry less and less of it and people are doing that and they either will have a Snapscan on a phone or they will carry cards and the vast majority of people with money have access to cards and payments. So, you are able to address that need. You don't need to carry cash. You can go to this market and you can tell it take just your card, but something also changes in our brains, when we're not spending cash. We tend to spend more.

Exactly. So, it's interesting. We figured out that like this actually a general distribution problem into small business. They’re small the fragmented, they're not really syndicated by anything, they’re difficult to reach and as a result, this just a lack of products being developed specifically for small business and distributed into small business through digital, social media, all these platforms, we’re able to reach these businesses at scale and also through digital able to support them at scale. And now, you know, we solved this first problem which is payments and that's a massive problem, right. If you're not able to accept a digital payment as you say, you're not getting access to higher spending customers, higher quality customers and your ability to grow is completely impeded.

Bruce Whitfield: And, your customers also. I mean, if you at the end of the market day and there's a hundred bucks left in your wallet and there's a hundred and fifty bucks worth of goods on the table the vendors got a choice either give you the hundred fifty bucks worth of stuff for a hundred and maybe break even on the product just to get rid of the stock. But now suddenly you've got the capacity to spend the extra 50.

Exactly, and it unlocks. It creates revenue creates growth and the starts to unlock other things all of a sudden, you know, because we had to build software to interact with our card readers, we built this interface that's become invaluable to our Merchants, you know, it's point of sale software beyond that able to you know, see what's going on with their businesses through our business portal and the analytics. So, we never fully appreciated what payments could unlock so it solves an immediate problem and gives you access to growth. But, through the type of product that we had to build we had to get into software and were able to now support businesses more on the back end. And when I also offering working capital of this payment data, right because we can see how the businesses are performing how the transacting so we're getting a real time view into and to credit scoring.

So, it's super exciting. This is really just the beginning for us. I think we're, our goal is to build an open commerce ecosystem around the small businesses where, you know, it's all products, it's our platform that supporting them but we're also going to be opening up the platform to other third parties who want to get into small business but didn't quite have the distribution before. So, I think for us at a philosophical level we want to challenge the current status quo on how business is being done, where you know, things are closed off you have walled gardens and you know, you can have and you can’t. We want to break that up completely.

Bruce Whitfield: And, a lot of small businesses, right now, are feeling vulnerable, particularly a small business your margins are small, you don't have much flexibility. You don't have much of a cushion to have Business Systems built that you can tap into correct means you're not in a franchise model, but you've got the same benefits of being part of a franchise model where they're your business can be systematized

Exactly so we're just trying to give these folks time, right, to focus on growth and not dealing with administration and these repetitive tasks and like, also the basic things in business, we really feel technology can take care of. But you're right, I think we're going through a tough time now is an economy, small businesses are going to feel the pinch and we need to give them as much help as we can

Bruce Whitfield: You are in the space, you are gathering an extraordinary amount of data and you release regular reports in which you say, this is what you don't understand about small business. A lot of people, for example, believe that people are happy to be in survival as businesses that they're happy to make just enough to squeak by with, perhaps enough money to buy stock tomorrow, whatever it might be. What you're learning is something fundamentally different that actually our in build human nature is all of us want to succeed. We all want to grow, we all want to be better off tomorrow than we are today, and you are able to bust myths using the data that you gather.

Yes. This is incredibly exciting for us. We call it challenging the stereotypes around small business and you know, one of the stereotypes that were challenging is that these businesses want to stay under the table. No, they want to they want to grow right? We're also seeing you know, one of our last reports one that we released at the end of last year. We found that the majority of the businesses that we surveyed expected to generate additional profits within the next period they also expected to hire more people. So, we saw a growth story despite, you know, a flat economic climate. And, what we also excited about is we're seeing that the smallest investment into the small businesses has a multiplying effect. And what's even more amazing is that this days within the community? It's not centralized. So, small business is fundamental to this country for employment and also just ensuring that wealth starts to develop within communities, which is what's required.

Bruce Whitfield: I've been lucky enough to visit your offices in Shortmarket Street in Cape Town, you've taken over four floors of a building, you employ 130 people, it can be a 130 by the time people hear this. The point is, you yourselves, as a small business have taken the leap of faith. How hard was it to do the South African startup?

It was tough. You know, a lot of folks don't know that it took us a year to get a license to operate. We had to find a sponsor bank and convince them, and we were quite fortunate in terms of how we were able to structure that has given us a lot of control and ability to innovate and then it took another year to build up all the systems in the product. Right? So, it's almost two years before we did our first live transaction. Now, that's taught us immense patience and it's also taught us to think very long term and, I think it's a big part of our story, but you know, there's a lot of self-management over that process and I haven't even spoken about fundraising right. So, there's been lots of layers, but to be honest, you know, what's kept us going and like just lit a fire under us. It's just we have a deep sense of purpose right this notion that like when we succeed, small business succeeds, it's really that simple and what small business succeed, community succeed we detect succeed exactly the company.

When you ignite it by such a purpose, you don't see barriers right. You just see things you want to break through because the stakes are so high and you know, it's five years and for me and my partner's with talking about the next five years with a lot of excitement and even more so we feel unconstrained at the moment and we want to continue pushing and we're really excited about this venture.

Bruce Whitfield: Tell me about funding because at the beginning of any startup, it's friends, fools, family, you’re bootstrapping you're doing everything that you need to do. Did any of you could hold onto your day jobs as long as possible in order to get this thing started or did you just all dive in headfirst?

Dive in headfirst.

Bruce Whitfield: Not very smart.

You need to be a little bit crazy to do this yourself, right? You need to be a bit crazy to you know, pursue a license that you know, like in month 10 of the process you could have been rejected and all your time could have been wasted but it all just links back to the purpose like we were so driven. We really wanted to make this happen and it's just being excited seeing this effort push through. And, from a funding perspective, it's quite an interesting Journey for us. You know, there's a big angel family office contingent to Yoco that really helped us through our first days. It took us a while to get to institutional capital. And the reason here is that we knew that if we didn't get access to the right institutional capital, there's no way you would ever get to our ambitious goals, right and we would ultimately constrain ourselves. I keep telling other founders this that who you take on as partners and your business from a financing perspective, it's fundamental. You're inviting somebody into your home that you can’t ask to leave. And if you invite the wrong person. Well, you might eventually have to leave. That's really that's what's at stake here. So, we were super patient. We wanted to find the right partners and we got quite fortunate timing allowed for a context where high quality fintech investors who are starting to look at the continent, were starting to come into play and if I look at our to lead investors from series A and Series B both these funds had just raised, you know, a hundred million dollar plus funds to invest in Ventures across the continent. So, there's no doubt that we've benefited from timing and luck. I always say there was no term fintech when we started the company, right? So yeah, we hope to continue being lucky and to continue growing.

Bruce Whitfield: You say it’s so important when you choose your partners, your funding partners combating against into a home. You can never get rid of unless you leave in the same way as getting into business with three friends’ people you like people you respect people you going to get to know differently. That's also, can be exciting, speaking to GT Ferreira, Paul Harris and Laurie Dippenaar in Season One, I said was there, didn't you ever feel like breaking up and he said no, we're too much like a marriage, we’d never think about breaking up. Murder sometimes yes, but never breaking up exactly.

No, I think you've hit the nail on the head the fact Carl, Lungi, Bradley and I you know, sit next to each other we're still together and we still dream about the future is a massive asset to our business. We've had lots of tough moments, lots of ups and downs but having that extra sense of relationship and a higher sense of, there being more at stake than just the company, has just kept the bonds incredibly strong. And yeah, I still think it's the secret sauce behind our company, is the fact that we're still together.

Bruce Whitfield: … and nobody can afford to leave yet as the brutal realities.

But you know, it's also the fact that we came together before the idea, right? So, in a way our relationship was found as directors as co-founders almost supersedes the idea and what that's allowing is when we think about the future and where we can take the company, we're not constrained by the idea and I think that's really what keeps the energy going.

Bruce Whitfield: This makes solutionist thinker, Katlego Maphai, one of four co-founders of Yoco, a great South African innovation, which is just the start of a journey into helping small businesses become big businesses, just like Yoco intends to do when it grows up.