Newsletter 11

1. Scale of the cash economy in the South African townships surprises

Size of the cash economy: According to FirstRand, the scale of the cash economy in the South African townships is much bigger than anticipated. The financial institution announced the takeover of financial technology firm Selpal in March this year and plans to capture a greater percentage of the informal market or township economy.

Townships: Millions of people live in townships, which were areas designated for non-whites under apartheid and are often satellites of South Africa’s major cities. Affluent areas and shopping malls are also now a feature of large townships like Soweto, near Johannesburg, as well as a large poorer population living in low-income housing.

Selpal: FirstRand has been onboarding customers and providing Selpal devices and software to informal township businesses or spaza shops. This enables customers to pay via card and purchase products from suppliers, with a view to collect data and create a digital footprint and provide them with financial services. The company has met its original goal of capturing 2 500 wholesalers by 2022 and has surpassed this figure for the total of onboarded firms.

Township wholesalers: They have also changed their definition of wholesaler and now estimates there are only 20-30 of these wholesalers in an average township. It has also encountered bigger cash-only wholesalers than anticipated, with some as high as R40 million ($2.84 million) a month. According to the company, Even very small township shops typically have a turnover of R2 million a year.

2. Tokopedia is connecting Indonesia’s mom-and-pop shops to the future

Overview: Mitra Tokopedia is an app that enables individuals and shop owners such as grocery stores and warung (stalls), to sell digital products such as electricity tokens, phone credit, BPJS payments (healthcare and social security). The app also provides wholesale services of goods, and gives merchants access to hundreds of SKUs, and provide affordable delivery by one of the company’s distribution partners. The company sees itself as a bridge between the offline mom-and-pop world and the online world.

Indonesia Warung: Mom-and-pop shops in Indonesia or warungs account for almost 60% of the country’s gross domestic product and 97% of its domestic employment. They also provide essential services such as mobile top-up, and access to consumer products. Warung owners are usually the main breadwinners of their families, and their success has an impact on the larger community. Traditionally, most warungs rely on offline wholesalers for supply, but shop owners face many supply chain difficulties, ranging from stockouts to late deliveries. Tokopedia’s mission is not to replace traditional traders, but to work with them and connect them to the digital economy.

Move online and Covid: Many small to medium-sized enterprises are moving online, which could assist Indonesia in its road to recovery from Covid-19. According to research conducted by the University of Indonesia with Tokopedia, online selling not only revived pandemic-affected businesses but has also helped many sellers who in the past exclusively traded offline. As many as seven out of ten sellers on Tokopedia’s merchant platform managed to increase their sales volume by more than 100%. The pandemic increased the adoption rate and has pushed many mom-and-pop stores to start trading online.

Digital literacy challenges: Connecting offline and online markets initially presented some difficulties. Digital literacy remains one of the biggest challenges. Mitra Tokopedia’s approach is to educate small businesses slowly yet continuously. Mitra Tokopedia doesn’t only rely on technology but also provides boots-on-the-ground or human interaction in the form of a Sobat (or friends in English). The Sobat helps with the onboarding and trains owners on how to use the app and builds long term relationships with shop owners. The app can be installed on the most basic phone to help them make transactions.

Support: They also support merchants with a new bookkeeping integration on the app, which helps them optimise inventory purchases and provide customers insights to make better purchase decisions.

Benefits: Based on a survey Tokopedia conducted with users, more than 25% of respondents said they have more time now to spend with their family, thanks to reduced travel and meeting time with agents or wholesalers to purchase products. They also reported higher savings rates and lower inventory costs.

3. Other news

India Kirana: Neighborhood stores or kirana stores in India have undergone a transformation over the last year. This includes rationalising stock keeping units, adopting payment technology and inventory management software, and providing home deliveries.

Funding Philippines: GrowSari, a Phillipino business-to-business (B2B) ecommerce enabler, has recently concluded its Series B funding of US$30m. The funding will be used to expand its services across the Philippines. GrowSari is a tech-enabled B2B platform that enables Philippino mom-and-pop or sari-sari store owners to purchase inventory online and grow their business while generating crucial data and market insights for manufacturers and distributors.

Bosta Egypt: Egyptian logistics and last-mile delivery company Bosta has raised a US$6.7 million Series A funding round to scale its operations and expand into the GCC. The company is currently serving more than 2,200 businesses and has delivered more than four million parcels.

Informal market size in SA: The informal market in South Africa is valued at R164bn (11.5bn) per year, according to Trade Intelligence. This sector accounts for 30%-40% of total food spent in the country each year and 77% of the population support the sector. There are an estimated 155,000 spazas, superettes, hawkers and informal traders in the country.

Tanda expansion: Kenyan agency banking as a service provider Tanda is expanding its operations regionally after closing a seed funding round last month. Tanda’s platform and network support 58 banks and saccos, four telecoms, 18 billers, and 12,000 merchants and agents, and has served over 300,000 unique customers. Tanda has now set its sights on growing its Kenyan footprint to 100,000 agents and merchants and plans to expand to Uganda and Rwanda within the next 24 months.

Tech award: Sokowatch, an East African e-commerce company, has been selected as one of the World Economic Forum’s “Technology Pioneers”. The company has over 22,000 active shops across nine major cities in Kenya, Tanzania, Rwanda and Uganda, which serves informal retailers that the mass market relies heavily on for essential goods.

Funding: MaxAB, an Egyptian startup that serves a network of traditional food and grocery retailers across Egypt, has raised $40 million in Series A financing. The company plans to expand its physical footprint across the Middle East and North Africa.

Expanding network: Pargo is a logistics technology platform with a network of over 3,000 branded pickup points that are located strategically across the country. This network offers businesses a distribution infrastructure covering over 87% of South Africa’s postal codes. The pickup points function as click and collect delivery hubs that online shoppers can visit to collect their orders.

Funding: Pakistani B2B ecommerce marketplace Tajir raised $17 million Series A funding. The startup serves mom-and-pop retailers in Lahore and has over 1,000 SKUs on its app. With the latest funding, it plans to expand to Pakistan’s largest city Karachi.

Research: A paper in Production and Operations Management by Tilburg University’s Rafael Escamilla and Jan C. Fransoo and UCLA Anderson’s Christopher Tang analyse some of the ways mom-and-pop stores or nanostores and their suppliers are using new technologies and innovative business models to meet the increased competition. With smartphones and mobile payments, the study finds, nanostores can reduce their dependence on cash, gain access to financial services and provide suppliers with more detailed information about sales. With cheap solar panels, off-the-grid stores can add refrigeration and become a power hub for neighbours. New business models can ease distribution bottlenecks in rural areas and provide added revenues in cities.