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FirstRand has found offering banking to cash-only businesses in South African townships trickier than expected, but the firms involved are also far bigger than it realised.

Africa’s biggest lender by market capitalisation announced the takeover of financial technology firm Selpal in March, with the aim of capturing a greater slice of the township economy.

Millions of people live in townships, which were areas designated for non-whites under apartheid and are often satellites of South Africa’s major cities.

Wealthy residents, golf courses and shopping malls are also now a feature of the country’s most populous township, Soweto, near Johannesburg, as well as a large poorer population living hand-to-mouth in often cramped conditions.

Townships are also home to millions of firms from tiny informal shops to big wholesalers, historically ignored by major banks in South Africa, which make up a sizeable untapped market.

After almost three years, FirstRand has found that the scale of the unbanked businesses is much larger than it thought, Jesse Weinberg, head of the small to medium-sized enterprise (SME) customer segment at FirstRand’s retail division FNB, said.

It has been giving firms Selpal devices and software, which allow customers to pay via card and enable the firms to buy from suppliers, with a view to using the data collected to later offer them financial services such as loans for the first time.


Although it had not met its original goal of capturing 2,500 wholesalers by 2022, Weinberg said FirstRand had surpassed this figure for the total of firms signed on. The bank has also changed its definition of wholesaler and now estimates there are only 20-30 of these in an average township.

It also found far bigger cash-only wholesalers than anticipated, with some achieving turnover as high as 40 million rand ($2.84 million) a month, Weinberg said, a figure that firms at the higher end of its SME category only do annually.

Even very small township shops typically turn over 2 million rand a year, he said, although their margins are very thin.

“That would suddenly put that customer into quite a significant bracket, it’s a decent size of business,” he said.

Early lending pilots had also entailed surprises.

One pilot testing a product that worked in a similar to way to trade credit, which allows businesses to pay suppliers for stock or services later, saw some business owners turn it down.


Those that did take part became so nervous about their negative account balance that in some cases they began avoiding interaction with Selpal agents altogether.

“It caused a bit of confusion,” Weinberg said, adding the bank would re-introduce credit pilots at a later stage. ($1 = 14.0631 rand) (Reporting by Emma Rumney; Editing by Alexander Smith)