The four men behind the card machine taking over South Africa

When Yoco’s founders, Katlego Maphai, Lungisa Matshoba, Carl Wazen and Bradley Wattrus, started their business, less than 10% of South African companies had card machines. Today, over 200,000 business owners use Yoco. 

While Yoco is incredibly popular in South Africa today, the founders had to overcome licensing, funding and scaling challenges when launching their business. 

Katlego Maphai, Yoco’s CEO, met his co-founders at different points in his life.

Maphai and Lungisa Matshoba, the company’s Chief Technology Officer (CTO), attended the same aftercare as children and ran into each other again years later at university. 

Maphai met Carl Wazen, Yoco’s Chief Business Officer (CBO), when the two worked on a project together at Maphai’s first job at a consulting company. 

Similarly, Bradley Wattrus, the company’s Chief Financial Officer (CFO), met Maphai when the two were working on a project together in Lagos, Nigeria. 

The pair came back to South Africa with the plan of starting a business together with Lungisa and Wazen.

Even though they didn’t start with a solid idea of the business’s scope, the group quickly discovered that they had great chemistry together and soon became good friends.

They considered many different avenues and ideas, and eventually, they started circling in on a mobile point-of-sale business model.

“What we noticed when we started to look at the numbers was just the size of the problem,” Wazen said. 

“What we noticed was that small businesses and micro businesses – which are 99% of businesses in South Africa and actually in most countries – were completely kept out of the payments market.”

Over 80% of people in South Africa had cards, but fewer than 10% of businesses had ways to accept cards, even though these companies had bank accounts. 

As an increasing number of South Africans started getting cards, this meant that those companies were missing out on more and more business.

When they tried to figure out why this gap existed, they realised that it was simply impossible for a small to micro business to get a card machine.

The problem wasn’t that businesses weren’t interested in taking card payments. In fact, many were basically banging down their bank’s door trying to get it, Matshoba said, but it was just too difficult. 

“It was almost like getting a mortgage for your house. It was horrible,” Wazen said.

At the time, they calculated that this problem translated to a $50 billion (today, about R943 billion) a year transaction value gap, which they revised up to $100 billion (today, about R1.88 trillion) by 2021. 

Looking at the South African economy, they realised that so many people were being artificially left out, Maphai said. 

“From a purpose perspective, this was the energy that was pulling us together and almost being the filter through which we wanted to pursue the big idea,” he said.

This was the issue they wanted to solve.

“There were a lot of reasons that were making it impossible for these kinds of customers to get in, and we could solve for those reasons because the way we were going about the solution – the technology, the vetting processes, everything – was just different,” Matshoba said. 

By 2013, Maphai, Wazen and Wattrus had moved to Johannesburg and had to convince a bank to share their acquiring license with them so they could process payments through the bank. 

Very early on they realised that they had to set themselves up in a very particular way so that they had a direct relationship with their merchants.

Yoco’s founding in South Africa came at an opportune moment in the evolution of mobile point-of-sale systems. 

Around 2013, Mastercard and Visa had just introduced frameworks for “merchant aggregators” or “payment facilitators”.

These frameworks allowed companies like Yoco to consolidate smaller merchants under a single, overarching merchant account, managing all interactions with the bank on their behalf.

The Yoco team recognised the potential and wanted to become the first South African company to secure this licence. 

However, there were around 13 to 15 other teams in the country trying to do the same thing. 

“We were all under 30 with no banking experience trying to convince the bank to take a bet on us,” Wattrus said.

This was a very difficult time for the business. They needed the license to start fundraising, but they also had to raise funds to secure the license.

They also needed to secure institutional backing, but this proved to be a challenge.

They spoke to around 50 to 100 institutions in and out of South Africa, and most of them gave the same feedback – that the big banks would just crush Yoco. 

Eventually, they were able to get two entities to agree to give them a term sheet.

In addition to their funding troubles, though, they also didn’t have the advantage of getting feedback on their product like a normal start-up would have since they couldn’t act without a license.

All they could really do was wait because if they couldn’t get that license, there would be no business. 

Finally, after about a year and a 100-page offer that the bank couldn’t refuse, they secured their license. 

Even though they feared that their lack of experience would count against them, the bank ultimately said that what differentiated them was that they hadn’t come out of a traditional industry.

The bank believed that the Yoco team would approach the issue in a fresh way and had the best shot at making it as simple as possible for merchants to sign up and get a card machine.

However, they faced even more headwinds when, right after securing their provisional license, both of their institutional backers decided to back out. 

Despite this, Yoco had built a strong network of angel investors – wealthy private investors focused on financing small business ventures in exchange for equity. 

Faced with the possibility of losing the license, the founders decided to pivot and focus on raising funds solely from angels. 

Initially, there was concern that these investors might also pull out, especially without institutional backing. However, not a single angel investor withdrew.

In fact, Yoco raised more capital than expected through what became known as a “party round”, which was a rare funding approach at the time. 

People understood that the group was never going to stop, Wazen explained. “They felt like something was burning on the inside.”

Finally, the company could move back to Cape Town and start building the product, which Matshoba was responsible for.

“I still remember probably one of the best moments where we were sitting coding in the back of the room, and we got to that point where we’re actually ready to do our first transaction,” Matshoba recounted.  

“Everything’s set up, everything’s working, but we thought ‘this will never work’. So, we just sat there quietly in the back and did the transaction, and ta-da, Yoco’s first transaction happened.”

By 2015, Yoco was finally ready to start operating as a real business. 

They had spent two years getting to the point of being able to process transactions, and now they had to work out their business model, branding and finding customers. 

By the end of that year, they had managed to secure 500 merchants, but they realised that they would need to grow much faster to sustain the business. 

They tried many different approaches to scaling the business, and by the end of 2016, they had 5,000 customers – ten times more than they had the year before. 

Even though they tried targeting larger merchants during the initial scaling phase, they soon realised that they had strayed from the business’s real purpose.

From the start, the focus had always been on smaller businesses, and that was still where they wanted to focus their attention.

They pivoted back to small businesses, and it wasn’t long before this move paid off, with 200,000 small businesses using Yoco today.