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DealMakers - Annual 2021 (February 2022)


Fintech’s role in the evolving payments landscape and driving financial inclusion

by Sigourney Chinnappen and Yeshan Reddy

RMB recently advised Net1 in its landmark acquisition of the Connect Group. The combined group taps into the trend of innovative digital payment solutions that offer viable alternatives in the ‘cash-society’, driving sector growth and financial inclusion.


While a large majority of the South African population currently relies solely on cash, the move towards digital payment solutions is building momentum. This is driven by greater mobile phone usage and internet penetration, the roll-out of reliable digital infrastructure, and digital solutions becoming more secure and intuitive for the end-user. The onset of COVID-19 and its associated social distancing requirements saw digital and, more so, contactless payment options becoming more widely implemented and accepted. Though a completely cashless society may not be imminent, this trend has allowed fintech players to access markets previously untouched by more traditional payment solutions.


Disruptive fintech players, with their targeted service offerings, dynamic pricing models and (in some cases) higher transaction risk thresholds, have branched into wider Socio-Economic Measure (SEM) categories and pools of micro, small and medium enterprises (MSMEs). This has generally resulted in higher degrees of financial inclusion. Fintech players are also increasingly moving to wider types of service offerings in order to further stimulate stickiness with these customers. Merchants, in particular, are often more likely to use digital payment methods that provide combined solutions to help manage and grow their businesses through wider payment methods. The Connect Group operating model is evidence of this.

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Sigourney Chinnappen
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Yeshan Reddy

The Connect Group is a profitable, high-growth and leading provider of financial technology solutions to nearly 44,000 MSMEs in Southern Africa. As at 28 February 2021, the Connect Group’s customer base included more than 8,600 formal MSMEs and over 35,000 informal MSMEs. The Connect Group delivers four main product lines under well-established and respected brands:

-A prepaid value-added services platform branded Kazang;
-A digitised cash management platform branded Cash Connect;
-A merchant lending platform branded Capital Connect; and
-Merchant acquiring solutions branded Kazang Pay and Card Connect.

This results in a unique full-service provider – across cash and digital – of financial and value-added services to formal and informal MSMEs in Southern Africa. It has reached significant scale and continues to grow, particularly with the current trend of MSMEs shifting from manual to digitised cash management, and from physical cash to digital payment methods.

Net1 – as a leading fintech company that uses its proprietary banking and payment technology to deliver on its mission of financial inclusion to underserved consumers and merchants in Southern Africa – was ideally suited to steer the Connect Group through the next stage of its growth trajectory. Net1 currently brings a strong offering in issuing insurance and consumer financial services infrastructure. The Connect Group fills four key gaps in Net1’s product offering: the provision of value-added services directly to MSMEs, digitised cash management, merchant acquiring and merchant lending. Net1 believes that the Connect Group is very well positioned to grow into its large addressable market, which is estimated at approximately 700,000 formal MSMEs and 1.4 million informal MSMEs in South Africa.

The transaction took close to eight months from initiation to signing of the legal agreements, with numerous complexities arising throughout the transaction process. The structuring of the deal was particularly complicated, and the deal team had to apply innovative solutions to traverse the parameters of doing a cross border US/SA transaction (US GAAP, tax and regulatory rules) with funding in different jurisdictions, equity issuances, management deals and a complicated payment mechanism.

The transaction was one of the largest fintech deals to be completed in South Africa in 2021, and works towards Net1’s vision of becoming one of the leading fintech platforms in South Africa, offering payment processing and financial services to underserved merchants and consumers. 

Chinnappen and Reddy are Corporate Finance Transactors responsible for TMT Advisory | RMB.

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