The Africa SMME Tech Report

Issue No. 29. Africa-Middle East local and small business tech news for 5 April 2022. This issue features SmartWage, Mobicred, Tushop, and more...

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This issue of The Africa SMME Tech Report is brought to you by Vendasta

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SmartWage Raises $2M Seed Round, Shifts Business Focus

South Africa’s SmartWage has raised a $2 million oversubscribed seed funding round to help the company reposition its business. 

SmartWage was founded in 2020 with a mission to deliver earned wage access solutions to medium and large enterprises. EWA tools allow employers to grant employees access to get pay advances for wages they’ve already earned, but haven’t yet received. 

SmartWage offers financial education tools for employees along with the pay advance feature. 

EWA has been positioned as a way for employees to avoid high-interest payday loans. It’s been sold to employers as a way to remove a common cause of absenteeism, the lack of funds for transport, while improving overall productivity and morale.

Yet when we spoke recently with SmartWage co-founder Simon Ellis, he told us the model faces some strong headwinds. 

The incentive structure just isn’t there for employers to invest the time and energy to integrate EWA. This is true even if they passed the cost of processing EWA transactions along to the employees. 

To put it more bluntly, they didn’t see the ROI in making their employees a little bit happier or a little bit less stressed out. 

So while Ellis still believes in EWA, and SmartWage will continue to offer it, at least for now, the team realized the business needed to expand its product offering in order to gain real traction with enterprises.

“We needed something more powerful for the employer value proposition,” Ellis told us. 

Delivering Comms Tools via WhatsApp

SmartWage has therefore shifted its focus to delivering WhatsApp-based tools for employers to communicate with their “deskless” workforces. 

Simon says the fact that most employees (about 90% in fact) do not have access to email creates a challenge for organizations that need to convey information to or receive information from their staff. For example, sending out payslips, receiving requests for leave, and so on.

So the SmartWage team asked, “If they don’t have email, what do they have?” The answer is WhatsApp. SmartWage estimates that 97% of South African formal employees have WhatsApp on their phones. 

The company has rolled out an employee communications suite built on WhatsApp that helps employers efficiently communicate with their workforce. In this case, the value prop is tangible.

“If we can save employers time and money through digitisation, helping them communicate clearly, efficiently, and dynamically with their employees we can add real value to their operations,” Ellis said. 

Today, SmartWage no longer calls itself an earned wage access company. Now it’s “an HR and communications technology company.” 

While there has been no announcement on this, we’d be surprised if a name change wasn’t in the offing.

Ellis told us that this repositioning of SmartWage also repositions its competitive set. 

As a pure EWA platform, SmartWage competes in South Africa with the likes of FloatPays, Paymenow, Level Finance, and others. There are other players across Africa and the Middle East with names like NowPay, Flexxpay, and Cadana. 

Moving into the employee communications space pits SmartWage against companies like Wyzetalk, a South African company founded in 2011 that offers “digital employee experience solutions.” 

Investors appear to like the new SmartWage positioning. 

“The team at SmartWage are innovators,” said Idris Bello, founding partner of LoftyInc Capital, a SmartWage investor. “They’re building more than just an earned wage access product, and have recognised that in order to make a tangible impact on employers, they need to build a powerful way for employers to engage with their workforce.”

Other investors in the seed round include Penrose Capital and Creator Collective Capital. Also coming in were individual investors from Naspers, Dimension Data, Investec, and Standard Bank. 

SmartWage plans to use the money “to expand its product and technology team and double down on solving employers' biggest problems.”

 SmartWage previously raised ZAR6 million (roughly US$350,000) in 2020 to get off the ground. That round was led by FiTech Ventures.

The Global ‘Deskless’ Worker Market

SmartWage’s founders, which include Ellis and head of product Caroline Van der Merwe, see its best long-term opportunity in creating solutions unique to the deskless workforce market. 

And not just in South Africa but worldwide. As an EWA SmartWage has already targeted this sector, cutting deals with the likes of KFC, Seattle Coffee, and others. 

SmartWage estimates there are 2.7 billion deskless workers globally. And their employers are only investing 1% of their enterprise software spending to address employee communications.

That sounds like a pretty big available market. SmartWage has figured out that empowering companies to do nice things for their employees is a steep hill to climb.  The key question is whether the new value prop is still strong enough to move the needle. To do that, you have to either make money or save money for major corporations.

If Ellis is correct in his assessment that EWA isn’t enough on its own, we would expect to see others make similar pivots. Certainly, other players have wrapped additional financial tools for employees around EWA.

We also suspect that future fundraising for other EWAs might hinge on making pivots similar to SmartWage’s.

Last year, Ellis was a guest on the BIG5D Podcast. You can watch the episode here.

Note: Simon Ellis will speak at the upcoming BigFive Summit May 11-13 in Cape Town.

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RCS Acquires Mobicred to Target Youth Market

RCS, the consumer finance unit of BNP Paribas, has acquired South African virtual credit firm Mobicred for an undisclosed sum.

The move is aimed at attracting more business from younger South Africans looking for alternative forms of credit. And the move pushes RCS deeper into the eCommerce ecosystem. Both are imperative for RCS since younger consumers dominate online sales in South Africa and eCommerce has accelerated since the pandemic.

“Our acquisition of Mobicred enables us to better serve the needs of South African consumers who require a more diverse suite of credit solutions to help them access and manage their purchases,” said RCS CEO, Regan Adams. “The acquisition of Mobicred was the natural next step in RCS’s digital transformation strategy and complements our existing offering perfectly as we enable our customers to shift towards shopping across their chosen channels – be it in-store or online.”

Mobicred founder and CEO Jason Sive said the acquisition helps further Mobicred’s original mission to make credit more widely available.

“The business was founded on the idea that credit should be easily accessible in the online retail environment in the same way as it is available in the physical store environment,” Sive said. “Soon after launching the business, customer behaviour immediately validated the assumption that there was a demand for alternative payment types. And the rapid growth in customer base has helped the business achieve 70% year-on-year growth.”

Sive said Mobicred has landed in a sweet spot in South Africa, addressing the demand for alternative credit sources. He said more innovation is ahead with the combination of the two companies.

“Our integration into the RCS offering will allow us to get behind the drive towards making credit more accessible, user-friendly, and transparent. We will work together to introduce innovations that will transform the future of the credit environment in South Africa.”

Mobicred has secured roughly 4,000 online merchant relationships over the years, with names like Takealot, iStore, Incredible Connection, BidorBuy, Superbalist, Game, Hifi Corporation, and Sportsman’s Warehouse. Mobicred’s merchant network also includes the flower and gift delivery service NetFlorist and health and pharmacy brands, including Dischem, Clicks, and Wellness Warehouse.

Mobicred, founded in 2013, embraces the term “buy now, pay later” on its website (see image above). BNPL has gained enormous popularity as an alternative way to purchasing goods and increasingly services, particularly among younger consumers.

However, Mobicred is a BNPL outlier. It offers virtual credit, which differs in a number of ways from what most of us think of as BNPL.

The main difference is that Mobicred charges interest, around 17%, which Sive says is competitive in South Africa. Another difference is that in the pay in four model the first payment is usually at the time of purchase. Mobicred’s facility allows for the first payment to occur a month after purchase.

In fact, in my conversations with Sive over the past few years, he’s been a pretty firm critic of the wider BNPL space. He has pointed to its low margins as unsustainable. And he predicted that platforms would compete in a “race to the bottom” over merchant fees in order to secure those critical relationships.

Given how poorly some of the global, publicly-traded BNPLs like Affirm and ZipCo have performed recently, he may have been prescient. But in fairness, growth stocks across the board have taken a beating recently.

Sive joined a panel on BNPL at last year’s BigFive SME Fintech Summit. You can watch it here.

Note: Jason Sive will speak at the upcoming BigFive Summit May 11-13 in Cape Town.

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Social Commerce Startup Tushop Raises $3M Pre-Seed Round

Investors appear bullish on the nation of social commerce. At least as indicated by the $3 million pre-seed round raised recently by Kenyan startup Tushop.

Tushop was launched last year to enable communities in Nairobi to collectively purchase groceries and have them delivered for free. According to the company, community group buying saves consumers up to 60% on groceries vs shopping at supermarkets, or informal dukas or “momma mbogas.” This is a big problem to solve, as Tushop says Kenyans spend 46% of their income on food. This is much higher than in other countries. Chinese consumers, for example, spend 22% of their income on food and Americans just 6%.

The company wants to prove its model in Kenya and then take it to all of Africa. If it works as well as Tushop says, it seems potentially disruptive.

The potential to scale this across the continent no doubt helped attract investors. The risk seems high, given, as the company itself acknowledges, the model is still nascent. But as Peter Orth, Managing Partker at lead investor 4DX Ventures says, “We think that the market opportunity for Tushop is incredibly large.”

The founders brought their own life experiences to create the business model.

“Tushop is unique in this market because we know the customer – we are our own customers! We have grown up experiencing the problem of unaffordable food on the one hand and the need to have additional ‘side hustles’ on the other because of persistently low incomes,” said Tushop Founder & CEO Cathy Chepkemboi.

“We also have first-hand experience of the difficulties manufacturers face when moving goods through a fragmented supply chain, which creates distance between them and the customers they serve. We are therefore hyper-focused on delivering a superior experience for suppliers, ‘side-hustling’ Community Leaders, as well as our end-customers in an integrated manner.”

The business appears to be built around the community leader, which appears to be an independent agent of sorts who organizes local group-buying communities, using Tushop’s platform.

The company says it will use the funds to improve its tech, add to its team, and then expand further throughout Nairobi. Once Nairobi is conquered, the company will then roll out to other cities in Kenya before looking at expansion into new African markets.

As noted, the pre-seed investment was led by 4DX Ventures. Also participating were JAM Fund, Breyer Capital, Chandaria Capital, TO Ventures, Golden Palm Investments, FirstCheck Africa, and DFS Lab. Wasoko (formerly Sokowatch) also joined to make its first strategic institutional investment into Tushop.

Individual investors also joined, including GB (CEO, Flutterwave), Raja Kaul (Logos Ventures), Eli Pollak (CEO, Apollo Agriculture), and Ida Mannoh (Director of Growth, Chipper Cash).

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Found on LinkedIn….

From our friends at Africa the Big Deal, here are the results of African startup funding in Q1 2022. The highlight is that startups in Nigeria have raised $1.8 billion in Q1-22. This is 2.5x more than what was raised in Q1 of 2021. That is a big deal.

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BigFive Summit Welcomes Standard Bank’s Khomotso Molable as a Headline Speaker

We are very excited to add Standard Bank Chief Engineering Officer Khomotso Molabe as a headline speaker at the upcoming BigFive Summit in Cape Town.

Stay tuned for more A-list speaker announcements for the Summit, which is Africa's only event focused on small business digital transformation.

Register soon to take advantage of early bird ticket prices. And use the code BIGFIVE25 for a 25% discount at checkout.

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