Leading SA fintech group backs digital ID proposal to boost SA's informal sector

The group's companies offer credit to spaza shops, give customers prepaid airtime and electricity vouchers when making a purchase, and have turned 4 800 merchants into makeshift banks by installing smart automated cash vaults in stores, among other uses. After acquiring payment technology firm Adumo earlier this year for R1.59 billion in a cash-and-share deal that brought in Patrice Motsepe's African Rainbow Capital as an investor, the company said that the combined entity will serve 1.7 million active consumers and 119 000 merchants, and process over R250 billion per annum. 

Speaking after the company released first-quarter results on Thursday, Mali said that in an unequal country like South Africa, finding solutions that can help expand access to digital financial products would be a key change driver.

That’s why he is backing the Reserve Bank’s plans to digitise the economy, which include the potential introduction of a digital identity.

"One of the points that was raised by the Reserve Bank is that the same way anybody can use cash, they want anybody to use digital payments. They want to have a digital ID so that everyone in the country is known and everyone is able to do that [make digital payments]," he said. 

Last week, South African Revenue Service (SARS) Commissioner Edward Kieswetter said the tax authority was working with the Reserve Bank and the Department of Home Affairs to create a digital identity system, which would centralise personal information for multiple different authorities on a single platform.

"The absence of a digital identity means that in South Africa I have an ID number, I have a tax number, I have one for registering a company and another for being a hospital patient. "I appear in the system in many different identities which allows for arbitrage — so I can be employed and get a social grant because the system doesn't pick me up," Kieswetter said.

The Reserve Bank, in the digital payments roadmap that it published earlier this year, said a digital ID would be a set of digitally captured attributes such as biometrics and/or credentials that uniquely identify someone. 

The Reserve Bank report notes that a digital identity system may help to identify and authenticate the parties in a transaction efficiently. It said that this would help to lower compliance costs for payment providers and help drive adoption of the services.

Mali said Lesaka had been consulted extensively by the Reserve Bank on its digital payment plan.

He added that the other key Reserve Bank initiative for the fintech sector was a proposed amendment to the NPS Act, which will allow non-banks to provide payment services by settling and clearing transactions without the need to partner with banks.

Mali expects this change, if it is implemented in this way, will assist fintech companies that often need to find ways to process large volumes of very small value transactions.

"Our sense is that these things - if well socialised with customers and businesses - in the end will help society to digitise," he said. 

Tailwind

Mali said the expected growth in the fintech sector in South Africa was a tailwind for Lesaka’s business. "The largest growth in fintech in the world is in Africa. So us building this platform of now being the largest fintech in southern Africa means that we are well-placed."

 He said Lesaka viewed the huge transaction volumes of South Africa’s banks as an opportunity.

 "In South Africa and Africa, you have large banks that have huge volumes of transactions. We think that those volumes are an opportunity to be disrupted and penetrated by non-banks," he said. 

Chairperson Ali Mazanderani signalled the intention to grow the company in his statement in the results. "We continue to invest in building the Lesaka platform and to scale as southern Africa's leading independent fintech," he said.

The group posted a R300 000 operating loss for the three months to end-September, down from a profit of R4.2 million previously, attributed to a R30-million knock in transaction fees from Adumo.

Mazanderani said the group adjusted core profit guidance was between R900 million and R1 billion, which would be a 37% increase year-on-year at the middle of the range.