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SA Startup Bringing “Tap to Pay” to Africa’s Informal Sector Raises Millions

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Luis Monzon
Luis Monzon
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Lipa Payments, a South African-based fintech start-up, has secured a R10-million ($659-thousand) investment from Empowerment Capital’s Imvelo Ventures, which is backed by Capitec Bank SA. Lipa Payments was one of the finalists in Capitec Bank’s Life 2.0 Hackathon in 2020.

The fintech is bringing the “Tap to Pay” experience to Africa’s informal sectors with its software solution that enables merchants to accept contactless payments directly from a mobile phone.

Developed in 2019 by fintech entrepreneurs Thando Hlongwane and Roger Bukuru, the Lipa Payments solution partners with banks and fintech to enable affordable, accessible, and fast payments for merchants, even if they have low-end mobile phones. It’s also safer and more hygienic than dealing in cash.

“A key part of our digital strategy is to partner with FinTech companies to accelerate the delivery of our offer and to create unique opportunities through partnerships. Lipa Payments was selected as one such investment through our Imvelo venture capital fund,” said Francois Dempers, Manager of Innovation & Digital Strategy at Capitec Bank.

“They are a young, dynamic, and agile team of tech entrepreneurs who have an intuitive grasp of the unique operating environments in Africa and how to apply technology to enable people to live better,” Dempers added.

How Does Lipa Work?

Owning just a low-end smartphone, even if it does not have near-field communication (NFC) capabilities means that merchants can accept either phone-to-phone payments (using Bluetooth technology) or a bank-card payment directly on their smartphones (using NFC technology).

Lipa Payments Phone to Phone functionality.

“We see tech as a scalable tool to solve everyday challenges. Lipa Payments solves two. First, we give small-scale merchants low-cost technology to accept digital payments at the point of sale and secondly, we allow buyers of goods and services to pay digitally without having to worry about cash or network coverage,” said CEO and Co-Founder of Lipa Payments, Thando Hlongwane.

To date, there is limited infrastructure to support digital payments at local spaza shops, hair salons or fast-food stores and most micro-merchants can’t afford to purchase Point of Sale (POS) devices. For banks and fintech, the distribution and maintenance of POS devices can be costly.

“Informal sector merchants have traditionally relied on customers having cash on hand to transact, but Lipa Payments is changing that. There are obvious constraints to trading with cash and it is only getting more difficult in a digital, cashless global economy,” said Roger Bukuru, Co-CEO and co-founder of Lipa Payments.

From Cash to Digital

Research carried out as part of Mastercard’s 2020 State of Pay report, conducted across 14 different countries, found that people are moving away from using cash. The last two years have been fertile years for fintech start-ups in South Africa with the move to a digital economy accelerating at the start of the pandemic.

However, few fintech start-ups are focused on the potential at the bottom of the income pyramid, but for Hlongwane and Bukuru, returning to their roots and driving financial inclusion for the lower-income market was a no-brainer.

The Lipa Payment’s duo plans to roll-out their Software-as-a-Service (SaaS) solution across South Africa and Nigeria in 2022.

“We have always wanted to solve the problems that informal sector merchants face. It’s been a journey of finding the solution to the question: ‘How can we bring them into a digital payments space,” concluded Hlongwane.

StatsSA’s Q4 2020 Quarterly Labour Force Survey shows that around 2.5 million South Africans are part of the informal economy (non-agricultural) and the number of people in informal employment has increased since 2013.

Whether selling goods and services from a taxi rank, a spaza shop or a dirt road in a rural village, Lipa’s digital solution for merchants of the informal economy allows them to be financially included in the digital economy of the future.

Edited by Luis Monzon
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