The economy of scale always benefits the big guy, right? Not so, according to Challenger financial brand Yoco. A South Africa-based, digital commerce platform built specifically for small businesses, Yoco challenges the incumbent perspective on what’s possible when it comes to payments and running a business when you aren’t a large company. We spoke with Carl Wazen, co-founder and chief business officer at Yoco, to understand how Yoco’s strong brand ethos underpins everything they do and has led them to success.

So for those who don’t know, can you please tell us about Yoco? And what inspired its creation?

Yoco is an African-focused, all-in-one digital commerce platform for primarily in-person, small businesses. Essentially, we help small businesses accept payments everywhere: in-person, in-store, online, or on social media. Wherever they need to accept payments, we help them. We also help them streamline their operations by providing hardware and software – point-of-sale hardware, point-of-sale software and back-office tools. As well as the hardware and software, we provide the insights and reports that they need to better understand their business. And finally, we offer capital for them to grow.

So, when the four founders came together, we all came from different backgrounds, but we were very much united around a common purpose. We have a deep passion for creating an economy in which small businesses are more successful, because we believe that's ultimately what healthy communities and thriving societies are built on. The spark was finding out that there was such a big gap in this very crucial part of a small business’s world, which is this payment acceptance gap. Cash was still very dominant in the small business economy, even though a lot of consumers already had cards. So, there was a bit of an imbalance. It was a very high card penetration, but very low acceptance, and we felt like that was a critical gap that we needed to solve.

We came mostly from the telecom space, and we had seen how telecoms had managed to cross from being this quite exclusive product into the prepaid world and managed to reach pretty much every income segment in the country, in the world. And we thought there was something similar to be done in the payment space.

So, very much borrowing from the telecoms model, and how that democratised things, around 2012-2013 we decided to stop all of our other side projects and focus on this problem. At the time, it was something like 80% of consumers in South Africa had cards, but fewer than 10% of businesses accepted them. So, there was an access problem that we thought technology and innovation could help solve. Because while the big players, the big banks were doing quite well with the tier one retailers, hotels and businesses, they just really weren't trying to solve this problem for small businesses; they weren’t really pressed to do it. It requires very high margins, and they were quite comfortable as they were. There wasn't really a major catalyst for it to happen.

Sounds like there were a lot of constraints to entering this market. How and why did you all decide to go for it?

Ultimately, the way we saw it was that it needed an outsider who could really look at this using a different lens. In our case, we used a combination of a telecoms industry lens, which made it possible for people to just buy a phone or a SIM card, get activated in real time from a shop or even online, versus the more permission based model which banks had at the time where you need to go to the branch, wait, get approved or wait for the salesperson to come to your store. So, part of it was bringing innovation from another industry, and the other part was just going back to ‘first principles’. So, one of our co-founders, Bradley, is an actuary, and he brought a first principles approach to risk management and onboarding, which we then adopted to really understand what was possible and not possible within the current framework. And we were standing on the shoulders of giants, to a certain extent, because Square had already pushed the limits on regulation in the US, which had then made its way to South Africa. So, there was also a regulatory opening. Then the final piece of the puzzle was finding a banking partner who was willing to take a chance on us and wasn't overly entrenched in the way things were. We found a small bank that agreed with our business plan and was willing to take a chance. Obviously, they gave us very narrow scope right at the beginning, and then we kept proving to them that we could take on more and more and more until eventually, we controlled a large part of our value chain.

Previously, the concept of owning a card machine was not familiar to people. You had to rent your card machine and to rent a card machine, you had to get vetted from a credit perspective and that model just didn't make sense. You had to pay monthly fees, which were quite prohibitive for a lot of small businesses. That was also a reason why the banks couldn't scale, because they were married to that business model. But we came at it with a blank slate and said, ‘New distribution channel, new onboarding model, new business model whereby you actually own the card machine.’ We don't make money on it, and we have a low enough cost base that we can carry 1,000s of small businesses without them paying monthly fees. That means we can accept a very early stage business that's got no predictability, but ultimately, they all come together into something that is profitable for us.

What assumptions or biases of your audience does Yoco break with?

When we started, there was a very strong bias in the industry that this was not a profitable segment, or that you needed an army of people to serve this segment at scale or that they could really only be served by corporates and not by young companies. It was too risky, right? Because you can’t visit everyone's premises, or you can't put faces to the names of all of them, fraud will be higher in these businesses than it would be in larger businesses. Those were the prejudices or perceptions that I don't think were helpful. Another one is that these small businesses just need funding. But that's also an overly simplified idea: capital is what's going to solve everything. That's not necessarily true, although, of course, capital is important, but at the right time and in the right amount, and in a responsible way.

There was also an assumption that small businesses will not adopt digital payments because they want to stay below the tax radar which we challenged successfully. The industry said that tax avoidance is the reason why people just want to remain invisible and informal, but we kept saying it's not that, it's access. Obviously, part of access is the cost to own the solution, but it's also very much the ease of use and availability. We tackled that in a much more broad and long-term way. The expectation at the time was that consumers were asking merchants to accept digital payments. They, the consumers, wanted it, so, all you really need to do is make it available. It doesn't matter if it's a little bit more expensive, just make it available and make it reliable. And ultimately, these small businesses are quite savvy at doing their own maths to decide whether it makes sense to get out from underneath the tax radar, or if it's worth it for them to pay that extra percentage to accept digital payments versus losing the actual sale. So, in many ways, taxes is a consideration, but if you're going to 2x, 3x the turnover of the business, then that becomes a non-issue. The way we see it is: this is not a push-sell sale, it's a pull sale. The smartest thing that you can do is identify the group of people that's going to be the most willing to try you, and then really focus on those and be disciplined about that at first, and then use them to cross the chasm and create a bit of a demand in the market. People will start needing your solution, and then you have a much better conversation with them, because they're ready.

So, you think of selling as more of a pull, rather than push. How does this manifest in how you speak to your customers?

Our company is very big on storytelling, and what we want to do is, instead of telling the story of what our product does, we want to actually tell the story of our customers going about their lives, the challenges that they face, and how these challenges were eventually overcome – obviously, through our partnership, but mostly through their own ingenuity. We elevate this segment of the market that was never really marketed to in the past. It was a segment of the market that nobody really knew how to speak to, because they were not profitable. We were one of the first to speak to them in South Africa in a way that really dignified them and made them feel seen. And it's because we didn't speak to them in our language. We spoke to them in their language, because we let them speak. We embraced that storytelling ethos and that Challenger ethos, but through their words, and through their own journeys. And it became a movement because it was underpinned with real life, real data and real stories.

As you’ve grown bigger and more established in the category, how have you maintained your brand strategy?

We did our first branding exercise a year and a half before our first customer. The amount of attention and care that was put into the building of our brand, I would just say, is not normal, when compared to other startups and especially corporates. We started from our personal values and then identified what matters to us from a brand perspective. We then briefed the design agency and built our logo. But it all came from us, and those principles made their way into the product and into the script that an agent would use, or the way that we would train our team. We did a full end-to-end touch point approach to building a brand, and you can't shortcut that stuff, and you can't fake it. I think it felt authentic, because it was built brick by brick and we prioritise it still.

Now, we're synonymous with the category. The fact that we have blue card machines is pretty unique. People see the blue everywhere. It's almost a stamp of trust. Now, small businesses say, ‘I'm going to need to get a Yoco machine.’ It's not, ‘I need to get a card machine. Oh, who should I use?’ To ‘get a Yoco machine’ has almost become that generic term.

We talk about Challengers as having ambitions that outweigh their resources. What are Yoco’s ambitions for the future?

Our roots are in payments, and we will continue to fulfil that very crucial part of the small businesses’ day-to-day. But ultimately, what we find is really the biggest problem today is no longer just accepting money. It is about dealing with all the complexity that you have on a day-to-day basis with running a business. We want to help you to, number one, reduce the number of systems and tools that you have to use on a day-to-day basis by collapsing everything into one, which is us. That's a big task, of course, because obviously, lots of change, but also trust and awareness. The second piece is, we also want to be able to help you close the loop on understanding and getting better insights into your business and really saving you guesswork. That comes from consolidating all the data flows and helping you close the gap between understanding what's coming in and what's coming out. So, from a product perspective our ambition is to do more on the payout side, and then from there, to deliver a holistic picture of your business in a way that is easily digestible. Because we see that that’s where businesses are struggling the most, and we see it as saving time, saving money and saving them guesswork.

“People see the blue everywhere. It's almost a stamp of trust.”: Carl Wazen, Yoco