The success of iKhokha, a mobile POS system for small-to-medium local businesses, in the payments solutions space was not enough for fintech startup Emerge Mobile.
The startup which was founded by Durban-based techpreneurs Ramsay Daly and Matt Putman together with their mentor Dr Clive Putman, an experienced technologist and entrepreneur, developed a mobile app and card machine that quickly found its market in the competitive point of sales sector.
“Our research showed that our 3 000 plus SME merchants had one common challenge and that was easily accessing capital for both their growth needs and monthly cash flow challenges,” says iKhokha managing director, Matt Putman.
It was during the development of this product that the startup discovered a new opportunity. According to the founder, they discovered that 80% of SME finance applications are not matched by banks in SA despite the businesses’ health and growth potential, he says.
They leaped to expand their offering to include a cash advance for businesses such as spaza shops, independent retailers and market vendors, who wouldn’t normally qualify for formal bank loans.
The first step iKhokha took was to test the market by offering 250 of its merchants a cash advance as a pilot. They disbursed more than R500 000 worth of cash advances within the first week with an average deal size of R19 000 per advance.
How it works
iKhokha cash advance capital cost is capped upfront, at a percentage of the capital amount taken and does not increase irrespective of how long it takes to pay back. The better the business does, the quicker the amount is paid off, and if business is slow, cash flow is not crippled.
iKhokha automatically deducts a fixed percentage on each processed card transaction, so the merchant’s repayments are linked to their monthly business performance.
The startup now has over 3 000 merchants and small business owners across SA using their iKhokha payments solution. Emerge Mobile is also a gold member of AlphaCode, a Rand Merchant Investments (RMI) club for fintech startup entrepreneurs, and winner in the Best Enterprise App category at the 2016 MTN Business App of the Year Awards beating apps from businesses such as Pick ‘n Pay and Toyota.
Puttman shares with SME South Africa how they spotted a gap in the payments market and keeping the business agile enough to be able to take advantage of new opportunities.
Diana from Lady Di’s Nails shows the iKhokha
Making the move into a new market
It wasn’t hard to see the gap, we held workshops with our SME base and looked at the data which showed a really high decline rate of traditional loans for SME’s in SA, some sources estimate as high as 80%.
We then met with potential partners in the SA market to understand what was available. We really liked the cash advance product because it is an unsecured product with a fixed transparent advance fee and with all repayments linked to a percentage of future card turnover which is a much healthier way for our merchants to repay capital.
Testing the concept and getting the market-fit right
We had to make the solution super easy to access (no additional paperwork), with custom offers for each of our merchants based on their trading history and a seamless collections process. It needed to integrate directly into the existing iKhokha merchant app.
Eliminating the risks of introducing a new offering
We worked very closely with our partner for the project, Retail Capital, to ensure that the criteria for qualification only produces offers for the segment of our base that are active monthly. We also needed to ensure that we do not offer businesses a cash advance amount that they will struggle to repay. Our team went through months of testing to ensure that it all worked as planned.
Taking advantage of opportunities in a competitive market
Payments is definitely a competitive space, but there is still much room for growth in SA with the vast majority of the estimated 1 million SME’s unable to accept a card payment. Having said that being able to make the most of some of the opportunities this presents is key for us, and a must do in order for iKhokha to achieve our goal of broadening the iKhokha offering.
We ultimately want to offer our SME customers all the key financial products they need to run and grow their businesses. iKhokha Cash Advance is just the first step.
Keeping the business agile
We are fortunate in that we have a highly scalebale platform and a mobile app that can be updated remotely quite easily. The fact that we have already KYC’d our customer base, can settle and debit our customers across all banks in SA and have a 7 day a week customer support team all helps. Being a disruptive brand means that we are always looking to challenge the norm and deliver real value and convenience to SME’s in SA through mobile innovation. This philosophy ensures that we don’t get stuck on some of the obstacles that slow down traditional players.
Keeping the focus on the original market
I think one of the key learnings for us has been that the original iKhokha SME market actually has a broader set of needs than just accepting card payments and that we are really well positioned to provide them with those products in an innovative way. Of course we need to ensure that we continue to do the core payments piece to the best of our ability and that will continue to be our primary focus but where there are opportunities to offer other financial products through partnerships or in isolation then we will take those gaps.
One of the key challenges still is access to card payment services in SA and our recent partnership with Game has opened up the market in this regard. SME’s can enter most Game stores nationally with their FICA docs and leave in less than 2hrs being able to accept card payments on their iKhokha mobile card machine. Two to three months later they can then access unsecured capital through the iKhokha app to assist with their growth. We think that’s pretty cool.