The dire impact of Covid-19 on SA’s small businesses

Transaction data paints a bleak picture of the impact that Covid-19 is having on SA’s small businesses.

In the health, beauty and fitness category — the worst-affected sector — credit-card transactions have recorded a 90% decline since the lockdown began, according to data from a local payment provider.

Katlego Maphai, co-founder and CEO of Yoco, a fintech start-up specialising in payments for small businesses, shared the findings of its latest research with the FM.

"Through our platform and the results of a recent merchant survey, we have seen up to a 90% decrease in in-person transactions since the lockdown began."

Yoco, which has been operating since 2015, sells a small device that business owners can use to accept bank card payments. The company has about 80,000 merchants registered on its platform. This includes watchmaker and retailer Daniel Wellington and gourmet restaurant chain Sushi Box. It includes physiotherapists, micro-retailers who operate from markets, laundromats and beauty technicians. It processed transactions worth R6bn in 2019.

Once a quarter, the company conducts a survey on the health of a sample of 10% of its user base. This is compared against its data for transaction values and payment volumes.

Over time, Yoco has been able to put together a steady stream of insights "like an index", Maphai says, which it calls the Small Business Pulse.

The results of its most recent assessment indicate a damaged small business sector.

When people began to self- isolate and companies first implemented work-from-home measures in the second half of March, transaction activity already dipped. Food, drink and hospitality players took an immediate 30% hit.

Retailers, however, were resilient through this period. In part, this could have been driven by the panic buying that preceded the lockdown.

The data seems to support those reports, showing a 68% rise in transactions for retail operations in the week that people were preparing for the lockdown. Despite the social distancing rules at the time, it seems food, drink and hospitality operators saw a 54% uptick that week, with health care, beauty and fitness looking to have been the lowest priority, with a 28% increase in transactions.

As expected, the lockdown has not been kind to small business. By the week of April 8, Yoco’s users experienced an average 80% decline in transactions and payments across the board.

Interestingly, this trend is slightly different in township economies, which show a less severe decline.

Tina Mason, COO of A2Pay, a fintech company with about 1,800 point of sale and stock management terminals at spaza shops in Gauteng, KwaZulu-Natal and the Western Cape, says spaza shops have held up better than expected during the lockdown.

Business for spaza shop owners who use A2Pay dropped to about R50,000 a month on average, which is 30% lower than January, Mason says. About 80% of their sales is made up of groceries — which have declined — while the balance is made up of virtual goods such as airtime, prepaid electricity and DStv payments, which have grown during the period.

Mason says virtual goods are widely available at supermarkets and fuel stations but with the lockdown restricting movement, people in townships have turned to spaza shops. Even though these goods don’t offer as high margins as grocery items, they have helped spaza shops to trade.

She says that if consumers stop buying items such as mobile data and airtime, that would be a real indicator that the economy has taken a huge turn for the worse, as these goods are now considered to be necessities.

The biggest pressure point for spaza shop revenues has been the ban on the sale of cigarettes and alcohol — which make up a sizeable chunk of sales — together with restrictions on nonessential goods such as hair products.

That said, most of these businesses have managed to keep trading. Jon Harris, head of commercial at A2Pay, says only about 10% of its merchants have shut down their businesses altogether over the period, and those have been mainly because of the restrictions on the sale of hot food.

In the broader economy, Clayton Hayward, CEO and co-founder of micro-transaction platform uKheshe, says the worst-hit industry has been hospitality. And he says cross-border transactions have dropped.

But Hayward says Covid-19 may also drive some changes in payment methods. uKheshe’s data shows that consumers prefer contactless payments, citing safety and cleanliness. These forms of payment include some cards, but also smart cards and mobile devices.

Polling by Mastercard, studying changing consumer behaviour in 19 countries, paints a picture of accelerated contactless adoption. Mastercard says three-quarters of SA consumers polled prefer the use of contactless methods. Retailers including Shoprite and Pick n Pay have made it possible to make a payment with a QR code, he says.

What about the health of these small payments platforms themselves? Yoco’s Maphai says they have raised over $30m from investors including French telecoms operator Orange, Futuregrowth Asset Management, Velocity Capital and Partech. This, he says, is the firm’s saving grace.

Yoco serves businesses with a turnover between R10,000 and R200,000. For up to 80%, using Yoco is the first time they have accepted card payments, says Maphai. Covid-19 highlights how vulnerable small to medium businesses are, he adds.

For the next 12 to 18 months "things won’t go back to normal. There’s a new reality and it’s here to stay," Maphai says.