A disruptive fintech startup is helping small and medium formal and informal businesses in South Africa to better manage their money and grow their businesses.

Matt Putman, iKhokha managing director, says the iKhokha mobile app and card machine is an affordable payment device that is already being used by over 2500 startup and small business owners in SA. “It also provides the merchant with powerful information on their sales over time and empowers them to track and properly manage the finances of their growing enterprise.”

iKhokha’s pricing is far below that of mainstream SME-focussed financial services products, with transactions charged at only 2.75% (excluding VAT) instead of the standard 3,5% that banks typically charge. It recently widened its offering to include merchant cash advances.

Grassroots businesses like spaza shops, tavern owners, tradesmen, salon owners, independent retailers and market vendors stimulate real growth and employment in SA, yet the business owners struggle to access the appropriate services for their growth needs.

“We know from working closely with these business owners that their number one issue is access to capital,” says Putman.

“The majority of our merchants do not qualify for a formal bank loan as they are seen as too risky by traditional institutions, in fact our partner data shows up to 80% of SME finance applications are not matched by banks in SA and yet these businesses are healthy and in need of finance to grow. It has serious repercussions for our economy if they don’t get the support they need. That really worried us, hence the development of cash advance.”

Putman says even for the select few SME businesses that could qualify for a bank loan, a standard loan has a number of limitations in that it’s complicated, requires exhaustive documentation, the entrepreneur often needs to provide personal security as well as needing to commit to pay off a set amount each month over a fixed time period irrespective of normal fluctuations in his cashflow.

iKhokha also promotes safety in the small or startup business environment. “While cash payments can also be accepted, iKhokha eliminates the need for actual cash. This has benefits for consumers too who are tired of carrying the risk associated with having cash, as their debit and credit cards can now be accepted at the more non-traditional outlets.

Says Putman, “The feedback we are getting from our 2500-plus business owners across the country is that their iKhokha device is saving them money because cash is expensive to handle and, it is hard to trace. Cash quickly goes into day-to-day purchases not directly related to the business - it effectively gets lost and is never properly tracked.”

“There are no mysteries or surprises further down the line as is often the case with other loan providers. The fees of cash advance are completely transparent,” says Putman. “The cash advance capital cost is capped upfront, at a percentage of the capital amount taken and does not increase irrespective of how long it takes to pay back. The better the business does, the quicker the amount is paid off. On the flip side, if business is slow, cash flow is not crippled. iKhokha automatically deducts a fixed percentage on each processed card transaction, so the merchant’s repayments are linked to his monthly business performance.”

Putman says the iKhokha cash advance product will further promote merchants in a range of industries to embrace the acceptance of card over cash payments. “Applying for a cash advance takes just three online mobile clicks using our app. We already know our merchants and their trading history and therefore no cumbersome paperwork or security is required,” says Putman.

To test interest in the cash advance service, iKhokha offered only 250 of its merchants a cash advance and was surprised by the demand. They disbursed more than R500 000 worth of cash advances within the first week with an average deal size of R19 000 per advance.

This low-cost and multi-purpose payment system was developed by three Durban-based entrepreneurs - the father and son team Matt and Clive Putman, and close friend Ramsay Daly.

“We are assisting small business owners in their journey to full digital and financial inclusion,” says Putman.

iKhokha is a gold member of AlphaCode, a Rand Merchant Investments (RMI) club for fintech startup entrepreneurs. RMI’s senior investment executive and head of AlphaCode, Dominique Collett, says: “We believe that the SME segment has been largely underserved by South African financial institutions. Yet research shows that only an estimated 17% (+/- 1 million) of SMEs are formal and registered and can access formal financial services. This number is even more significant when one sees that the average annual turnover of registered SMEs is around R1.3 million with an average annual net profit of R500 000.

“There is very low Point of Sale (POS) penetration in the SME segment (< 10%), yet there is growing demand from consumers to transact in a cashless manner. This creates an opportunity to close the gap by offering POS solutions to about one million SMEs that do not have card facilities, yet most likely have a need for them. SMEs demand simple, low cost, convenient product offerings and we believe iKhokha delivers this with their simplified pricing structure and plug-and-play offering.”

The iKhokha card machine is available for purchase online or telephonically, at selected Game stores nationally or via sales agents in KZN, Johannesburg and Cape Town.

Retail Capital is iKhokha’s financing partner for iKhokha cash advance. iKhokha has been funded since its inception by Capital Eye Investments, a Johannesburg-based private equity investor with a focus on the fintech sector.