It was the late 90s, and the retail landscape in South Africa was changing. Convenience retail was on the rise, and large retail shops, 7/11s, and garage shops were popping up everywhere. Retail was becoming more convenient, and yet there was one glaring gap: Very few ways to access cash outside of banks.
“In the US, companies were installing ATMs in retail areas. I knew there was an additional opportunity in South Africa: Previously under-serviced areas and retail locations, which had traditionally been neglected, but offered a huge market.
“After a lot of searching, I found an email address and managed to get in touch with the guys in the US who I’d read about. They weren’t interested in international expansion, but they were happy to put me in contact with the manufacturers, a company called Triton based in Mississippi.
Off to the US
“I jumped on a plane to the US to make contact. I had some money saved up and for the next few months I cultivated the idea. I also realised I needed someone who understood technology. I contacted a family friend, Rowan Swartz, and asked him if he was interested in launching a start-up. He was.
“We formed an amazing partnership with Triton. They facilitated introductions to all the big ATM guys in the US. By the end of 1999 our first 23 machines arrived. Now we needed a bank to connect to. Our proposal was simple: ‘We’ll extend your footprint of ATMs into retail locations. Through our ATMs, you’ll have access to more transactions, particularly in under-serviced markets; you’ll service your customers, but you won’t carry the costs.’ The big four banks didn’t bite. We just couldn’t make the idea fly until Saambou got on board. They had a large cardholder base but few machines, so the idea worked for them.
“On 24 March 2000 the first machine went live at an office park in Pretoria, across the road from a Saambou bank. In quick succession, there were 23 Cash Express machines supported by Saambou live around Joburg and Pretoria. For the next 14 years we installed a machine per day.”
The Business Model
Kark and Swartz had hit on a serious market need. All retail stores wanted an ATM. They increased foot traffic, spend and basket size. But it was difficult for merchants to get ATMs from banks, which didn’t view them as a retail product.
“We approached the retailer directly. There were two options. One, the retailer paid R1 800 per month rental, and we took care of all services except the cash, which was loaded from their tills. Two, the retailer paid R2 800 monthly rental, and we did the cash stock as well (this made things more complicated because we now needed cash-in-transit partners). The back-end was complicated, but very simple for the retailer: For either R1 800 or R2 800, they got a fully-serviced ATM.
“There was a huge demand. We installed 650 ATMs in two years. We signed 60-month agreements upfront, and this helped us secure the finance to order and ship more ATMs.
“We get an annuity stream of bank fees: Every time a machine is used, the retailer gets a percentage of the fees, we get a percentage of the fees, and the bank’s footprint grows.”
Once the transaction processing capability was established, additional complementary products and services were added. The business quickly expanded into card acceptance services and prepaid card programmes. Today, Paycorp has expanded even further with acquisitions and partnerships to extend the payment solutions to emerging markets.