African fintech holding company Crossfin has announced its acquisition of a majority stake in market-leading payments enablement company Crossgate. This follows the recent announcement of Crossfin’s partnership with Investec to identify early-stage fintech businesses and the establishment of a new payments operating company with global private equity firm Apis Partners, all in the service of Crossfin’s vision for the advancement of a cashless society in South Africa and Africa.
Crossgate CEO David de Coning says the company’s collaborative approach is key and it has established the business to drive financial inclusion. “Crossgate is not a fintech business in the traditional sense of the word. Our objective is not to disrupt the established payment rails, inter-operability and inherent trust that exist between the payment associations, banks, merchants and consumer; instead, we focus on finding innovative ways to accelerate cashless initiatives by providing solutions to displace cash-dominated ecosystems. We think mass-transit, cash-only merchants that need acceptance, traders and wholesalers, Stokvels and large concentrated groups of consumers…If we can address those eco-systems and their needs with technology to become “included”, we would have reached the goals we set ourselves. We are a partner-centric payments business and collaboration on technology, regulation and trust is a common goal we share which benefits all the role-players, but most importantly, the consumer.”
Cash still (a cruel) king
According to the PYMNTS Global Cash Index, the total cash currently in use in South Africa represents more than 58% of the country’s GDP. A total of $183.7-billion in cash was used during 2015 alone, with 60% of cash usage in low-value transactions that are typical of the underserved mass market. “The electronification of South Africa’s payments ecosystem is a R1.3-trillion opportunity that will not only drive broader financial inclusion but also provide policy makers and financial services providers with a far better understanding of how and where people are spending money across the income spectrum,” says de Coning.
A Mastercard study released at the World Economic Forum on Africa last year found that cash cost South African consumers R23-billion – or 0,5% of the country’s GDP – in 2015. De Coning says this cost is mostly placed on low-income earners who can ill afford it. “Low-income users forfeit as much as 4% of their earnings by using cash. In a country with vastly inequal wealth distribution and rapidly rising cost of living, the use of cash – and the related cost thereof – is undermining financial inclusion, commerce and economic upliftment.”
Partnership to drive advance of cashless economy
Anton Gaylard, COO and co-founder of Crossfin, says the companies share a like-mindedness in relation to their common goal of the electronification of South Africa’s payments ecosystem. “Crossgate is a market leader in Tier 1 retail today and provides innovative solutions to banks – with an exciting pipeline of future growth opportunities in the banking, insurance and overall financial inclusion space. The company has a 10 year track record of forming strategic partnerships with international payment associations, payment card manufacturers, mobile payment experts, processors and other technology providers that enable commerce. We are especially excited to work alongside David and his team of proven innovation-led entrepreneurs whose deep understanding of the payments and retail industry will enable it to drive financial inclusion in the underserved merchant and consumer market through a portfolio of cashless payment solutions.”
De Coning adds that there are significant value-add benefits that Crossfin and the other companies within its portfolio can offer. “This deal gives us access to Crossfin’s well-established relationships and strong position in the African payments market. We’re also looking at 2-3 acquisitions over the next twelve months to accelerate our vision for a world beyond cash.”
Randvest enters as strategic BEE partner
The deal also brings on board strategic BEE partner Randvest Capital Investments, a leading South African based private investment firm specialising in leveraged acquisitions and strategic investments. According to non-executive chairman and director Isaac Mophatlane, there was great alignment between Crossgate’s vision for a cashless future and Randvest’s goals of financial inclusion.
“More than 300 million people in Africa lack access to formal financial services and are in need of upliftment through financial inclusion,” says Mophatlane. “This is a structural challenge that is difficult to solve in a scalable way without applying technology. A cashless, largely digital economy underpinned by robust, secure payments infrastructure is ultimately a key driver of moving our unbanked population out of poverty en masse.”
He adds that the team’s track record of execution and leadership strength made Crossgate a compelling investment opportunity. “We found great chemistry with David and his team, and will be providing operational and tactical insights in the short to mid-term to drive value while leveraging our key relationships to provide access to market.”
Crossfin’s portfolio companies currently process more than $4 billion in point of sale transactions and $500 million in mobile transactions annually across more than 9 000 retail stores with over 90 000 point of sale lanes in 7 African countries.