✊🏿✊🏾✊🏽 Lungisa Matshoba, Founder and CTO of Yoco — Black History Month Keynote Speaker
Lungisa Matshoba, Founder and CTO of Yoco, sharing his experience, challenges, and successes of starting a payments tech company in South Africa.
For everyone, just to kick us off, this is our first ever Black History Month keynote speaker.
We're welcoming Lungisa, he's the CTO and founder of an amazing tech company in South Africa specializing in payments.
And Lungisa is going to kick us off with Black History Month.
Just to introduce myself, I look after the sub-Saharan African region from a commercial perspective and I also lead Afroflare in the UK.
So Lungisa, thank you for contributing and taking part. I think just to kick us off, do you want to just tell us a little bit about Yoko and what you guys are doing?
Yeah, awesome. So Yoko is a payments company based in South Africa. And I guess we've simply tried to solve the problem of providing payments to small business owners.
I think what we're really trying to solve for is that often as a small business, you don't have access to the same tools that the larger businesses have, especially when it comes to payments.
And at least in South Africa today, the biggest payment wallet is a card.
And most small business owners weren't able to take card payments when Yoko entered the market.
And what we really tried to do is make sure that we shift that dynamic.
So just to give you a little bit of a picture of South Africa, you have about more than 70% of the adults in South Africa have a card in their pocket that they're able to use for payments.
But less than 20% of businesses in South Africa are actually able to accept that card.
And the vast majority of those not able to accept that card are small business owners.
And Yoko really has come into the market and started to really change that dynamic very quickly.
So yeah, we've been around for a couple of years and I think fairly recently we reached a point where in the history of the business, we'd signed up a total of 100 ,000 small business owners who are now able to accept credit cards through Yoko.
Yeah, that's amazing. I'm quite familiar with your company.
I told you the story, my mom, she runs a small business and she's one of your customers.
So yeah, I really love what you're doing and the impact that you're creating.
I think it's always interesting to find out your origin story and how you guys got started.
So do you want to just tell us a little bit about the beginning?
Yeah, I mean, I think the story of Yoko is actually a story of relationships and I guess the impact of relationships over time and I guess the ability to build trust and safety, which ultimately has been a big part of the team dynamic we've built.
So I'll probably like myself, my co-founder Kaseko, who's also the CEO of the business, myself and him actually met in afterschool care, which is basically a setup where for young kids, parents working, you go off to an afterschool afterschool and that's where we met as kids.
And this was during the time when I was living in Cape Town and he was also living in Cape Town.
We then sort of didn't see each other for like years.
And he was afterschool care must have been about seven, eight.
So that was roughly the age. Yeah. Yeah. So very young, like yeah.
No, it would have been six, seven, eight, right about those kinds of ages. And then we didn't see each other again for years and ended up being part of the same friend group in university and they've been good friends.
So that was like in university and we sort of stayed connected obviously throughout there.
But incidentally, what happened is I sort of had a startup in Cape Town that did mobile voice of IP.
At the end of that journey, I was sort of in between things, just enjoying not necessarily being, you know, being in a startup at the time.
And Gatlego had just left a company that he was working at with another one of my co -founders, Carl Welsen, which was called Delta Partners.
And, you know, just after leaving that company, I connected him to the guys from Rocket Internet and he ended up going to work for Rocket Internet in Nigeria.
And that's where he met Bradley. So during that time, myself and Carl were connecting in Cape Town, then Gatlego and came back.
And through all of that, we got to know each other. And this ultimately led to the whole team forming and deciding to pursue this idea.
And I think the idea itself was something we witnessed for the first time in the US.
Gatlego was actually in the US and, you know, saw some, like saw the Square payment product in a very unexpected situation with a business that he fully expected not to accept card payments and wasn't quite sure how he was going to pay them, actually.
But sort of waiting for that moment where they tell you, yeah, you're going to find an ATM down the road, just about half a block from there, turn right.
And suddenly a lady whipped out a card machine, a phone, stuck a little card machine dongle and accepted his payments.
And from there, it just became this thing of like, oh my gosh, if this can happen there, why can't it happen in South Africa?
And I think that sort of triggered us starting to really research the space.
It wasn't quite as easy as that.
And what we really started to understand were the dynamics behind it.
So it started off as seeing something, but actually the dynamics behind the product were very different.
And we sort of had to really unpack what's driving this and why aren't people accepting card?
And I guess get to the underlying rationale and reasons behind why every business in South Africa wasn't accepting cards and took our time to really figure out the business model from there.
And what was that? Was that kind of more of a security aspect or like kind of what was the resistance at first?
Yeah, so it's actually quite interesting. So, you know, traditional financial institutions model is kind of very different to our own.
And what we sort of realized is that the way we set up our infrastructures, we needed to, we gave ourselves the benefit of real-time visibility of payments.
So our whole system runs on a real-time basis.
And what this allows us to do is to make real-time risk decisions.
And I think this was ultimately because what we realized is that in the traditional model, you look at the risk of a specific business owner.
So the merchant risk, which means you're always evaluating that business owner.
So if they've been around for like a day, you can't evaluate the risk of that business owner.
And therefore you don't want to give them a credit card machine.
On the other end of it, if you start to see risk as something that comes from credit card transactions and you systematically find ways to remove that risk and evaluate it in real time, then you can build a system that any business owner can be onboarded onto because ultimately you're going to evaluate each transaction as it goes through instead of that specific business in isolation.
So this meant that we could actually get to a point where we could onboard businesses that traditionally wouldn't have been able to be onboarded ultimately because we could identify risky transactions rather than looking for specifically businesses that were risky.
And this gave us the ability to open up payments to a wider spectrum of customers in South Africa, ones who were traditionally outside the customers who were in the serve space.
Yeah. I never really thought of it on that detail and the problem you're solving.
So I think it's amazing how you were able to find a business market need and solving it with the underlying technology of the risk management piece, which is, yeah, that's just really exciting and insightful for me personally.
But I can imagine that entire journey and figuring all that out must have come with a ton of challenges.
What were some of the challenges that you faced from starting till now?
Yeah. So I think there really were a ton of challenges. I think we're in the fortunate position of having a very diverse team that allowed us to cover a lot of these challenges.
So as an example, when it comes to risk, my co -founder Bradley is also an actual scientist from a background perspective.
So very natural at understanding risk and especially at this sort of like high velocity transactional basis.
But I think our first challenge is that if you want to get into payments, it's a complicated game to get into.
We don't have a payments background.
So all of us had to learn payments to facilitate our different roles in the business.
So for myself, it was really about learning payments technology, which in many ways was a very different I guess, you know, technology game to anything that I'd done prior to that.
I think, you know, first step was getting any kind of an agreement with a bank to process payments.
It's a regulated space. You need certain agreements in place to be able to do that.
So I think that was definitely one of our first and early challenges.
I think from there it was growth.
We had to figure out, I mean, we sort of spent our first year, I guess, raising capital and getting an agreement with the bank, which is extremely challenging in the market like South Africa.
But I think once we'd achieved that, we then spent the next year really integrating with our banking partner and building.
And I think in many ways that sort of year when we were just building out the solution is some of the best years in a startup because you're not worried about growth.
You're not worried about anything. You're just building, right? You've got a very clear idea of where you need to go.
And the next time you face some major challenges, you've got the right solution for the market.
You know the market needs the solution, but how do you reach the market?
And I think that was the next big challenge that we faced.
And really our first foray into digital marketing, growth and everything else.
And it was a completely new journey for us as a business.
And I guess in many ways we're speaking to a customer that, I guess, in general, no businesses in South Africa were trying to reach at scale.
So how do you reach an SME at scale?
And solving that and figuring that out was a really massive problem for us our first year into launch.
But we managed to crack it in the end.
But it really, it was, you know, the difference for that year is we started that year at about 500 customers.
And by the end we had 5,000 customers. And a lot of that was because we'd slowly figured out how to sort of crack reaching SMEs at scale.
Wow. Yeah. Because you basically chose the most kind of bureaucratic complex industry, banking and finance, and also a difficult market to penetrate, SME market.
So wow, just like that does sound like it must come with a lot of its challenges.
But then like, what would you say was that moment where you realized, hold on, somehow all these pieces are coming together and this is potentially becoming a success or a rocket ship, as they say?
Yeah. So I remember it quite distinctly.
So our first year of actually selling card machines was, we weren't yet at the point where we were doing digital marketing.
So it was really like one-on -one sales.
And during the year we grew to 500 customers, but fairly early on during that year, there was one specific night where we weren't doing a lot in terms of volume.
So we didn't have a lot of activity from customers, but out of the blue, this one customer just traded more than any other customer had traded up to that time, probably by a factor of 10.
And it was like, okay, what just happened there?
And the next day they did it again. And obviously we got hold of the customer and tried to understand what was happening because they were just using it every day.
And this was obviously really exciting, but we understand what made the difference.
And we got hold of the customer and they ran a restaurant on one of the nicer parts of Cape Town.
And what they said to us is their bank card machine was giving them issues.
They plugged in our card machine and they just loved it. And it was great.
It fitted within their flow. It was portable. It worked really well for what they were trying to do.
And they just kept using it. And at this point, they were at a point where they didn't want to return back to what they had.
And obviously most of our model was to acquire customers. We hadn't previously worked with the bank, but to get that sense immediately of a customer who is successfully able to start using the solution was really exciting.
And in fact, I still remember the first time we had any kind of an issue.
So there was a time when we actually went down and our service was down and we called all our customers and told them this, that our service was down.
And obviously you can imagine customers are irate, including this customer here, but they stuck with us.
And I remember asking like, why did you stick with us?
And the reason was simple. She was like, look, I was angry.
I was upset. At least I had someone on the phone to tell that one. But the other big thing for them was that you told me.
So when the other machine used to go down, no one would tell them.
So they'd be trying to transact over and over with this machine and no one's telling them that the machine's actually gone down.
He said, look, at least you told me that it meant that every customer walked in before they sat down and said, hey, my card machine is not working.
I can only accept cash today.
So obviously as a business, we strive to make sure that the card machine is always working.
But that idea that transparency is a differentiator was really like an ice check mark for us at that stage as well.
Wow. And I think, you know, just like the transparency pieces is critical, especially in tech.
And I think what you've also kind of enabled your customer to do is also be a little more agile.
So they can make an instant business decision and switching to cash versus credit card.
So like just diving more deep into some of those challenges, because I think, you know, it's understanding the success element and like, you know, besides just the challenge of setting up a business in payments, like behind the tech, what was some of the challenges from the beginning?
Like, did you, you know, were you like, were you the only one coding in the beginning, kind of building it or like, you know, finding the right people?
Yeah. So I think it's interesting.
Like, so I think the first person to come on board onto the business was Andrew Snowden, who was also a software engineer.
And myself and him were in the early days coding up a storm and trying to put everything together.
So I think it was nice that he came on board nice and early.
So, you know, during that phase when we were trying to get a bank to agree, the idea of this kind of business was crazy enough that he was like, well, if you get a bank on board, I'll join.
You know, it was that level of crazy.
It's like, sure, as if that's going to ever happen.
I still remember telling him, well, we've got a bank on board, which means, well, we need to build this now.
And he was like, look, I'm like, okay, it's real.
So that meant that from the start, when we started building, there were two of us.
And then from there we sort of grew the team. Yeah. I think hiring tech talent is always a tricky thing.
You're looking for a good balance of the right kinds of people, people to share the vision and mission of the business.
I think what's nice about our business is that, you know, the mission has a very clear impact.
So it's very easy for us to see who's aligned with that impact or not.
So we always see ourselves as the kind of businesses trying to create positive value in the world.
And we think ultimately that, you know, especially in an ecosystem like South Africa, South Africa has a really high Gini coefficient.
It's one of the most, you know, I guess, unbalanced market from a poverty perspective.
So with some really rich people and some really poor people within the country, and the idea with is driving sort of any product for the SMEs that SMEs actually lower that because what you're doing is instead of having mega corporations, you're having much smaller businesses that cater to localized markets, which is ultimately the individuals who benefit from that business are living in those ecosystems or close enough to them spending their money locally.
And it's also committing around. So you don't have this like headquarters impact where everything is sucked up to the, to the corporation, but ultimately everything is spent more locally.
So this was a real positive, you know, positive idea and allowed us to attract people who had those same ideals into the company at a very early stage.
Yeah. And I'm curious to kind of almost like get more of an understanding, you know, about yourself, like growing up and, you know, getting to this point, like, you have like a massive knowledge just on the market and, you know, hiring and the way you've built your company, you know, I'm curious to know, you know, what was day one, like, you know, filling visa?
Yeah, I suspect that, you know, my journey in technology, probably very similar to many people started with something seemingly very random.
So when we're living in Cape Town, my mother happened to take a course, I can't even remember the course at the University of Cape Town and one of its affiliates.
And as part of it, she ended up getting a computer that she was supposed to use for something, whatever that something was, I don't think she used it for that.
So I think it was submissions or something or other, I actually can't remember what it was for.
But I became fascinated with this contraption that was in the house.
And whenever no one was looking or she was out of the house, I would find a way to turn this thing on and, you know, get into it and get into MS -DOS and just start to figure out what I could do with it and what it was about and really sort of built a fascination for it.
I remember getting scolded one day because I took out a piece of it and took it to my cousin's house and we could plug it into the computer at his house so that we could just try stuff out.
And obviously I left the computer in a fairly open state and my mom was alarmed because once she had no idea what was inside and that it could be open, but I'd actually taken a piece out as well, which is just an additional state of alarm.
And I guess as a kid, you don't even factor in like whose computer is that, you know, so it was just like just this fascination.
But my parents sort of recognized that fascination.
And later on, when we moved to a town called East London, which is a coastal town in South Africa, really small town as part, you know, just after the move, I guess it was a way to kind of give us some normalcy in a very new situation.
My parents decided that they were going to get a computer for the house and that's exactly what they did.
And, you know, that computer being in the house obviously grew my fascination even more.
And I was lucky enough that the school I was at had a program where you could do computer programming, a school called Stirling in East London.
And so I started, I took up computer science then. By then, that computer we had at home had broken, probably due to something I had done, but I can't really remember.
And, but I got so excited about software development that I used to like go home and write out my programs and then come back at school and just retype the program and see if it would work.
So it was really like a passion of mine and I got really excited about it.
And when it came time to go to university, I was torn between doing medicine.
So my parents are doctors. So I always thought, okay, that's a good path.
And I guess my parents had enough insight and foresight to when I asked them the question, you know, instead of answering outright, you should be a doctor.
My dad was like, we should follow your heart. And, you know, mom was sort of the same.
And I kind of figured that was a way of, without telling me don't do medicine, they could probably see that I wasn't necessarily wired for medicine.
And that was a way of gently guiding me down the right path towards something that was more me and less about what I thought, you know, would impress them.
And, you know, in so doing actually ended up leading me down a path into something I actually enjoyed.
Yeah. And like, so, you know, first of all, that's really, really funny stories.
So like when you were at university, you mentioned that you were involved in like initial startup.
What was that journey like?
And what was that startup exactly? Yeah. So in my final year of university, you know, at UCT, the computer science program final year, they kind of give you like access to a computer lab.
And you have a little bit of coursework and a big project at the end of the year.
And a lot of time in between to just explore computer science and play with the computers and do what you want.
And so this meant that we built relationships through the course of the year.
And through these relationships, we ended up forming a company the year after university.
And it just, it was people who sort of, I think at that stage, I mean, this was in 2005.
So at that stage, at least in this African ecosystem, it was either you're going to go work and be a systems analyst at a corporation, or you try something different.
Like you try and say, cool, I want to build stuff and you start a startup.
So a couple of us got together and decided we're going to start a startup.
And we chose something that we didn't know we could do. We decided that we're going to build voice over IP onto devices.
At the time, the smartphone at the time was a Symbian smartphone and a Windows mobile smartphone.
So that's what we did.
And we sort of set up a business with the idea of giving free calls. And I think, you know, found that it was it was a crazy business idea, because they have a business anchored on freeness, which is not necessarily the wisest thing for a business to be anchored on.
But nonetheless, it, you know, we managed to raise capital, build a solution, get it to market, and scale it up really quickly.
And I think it was a really exciting journey, during a very tough time to raise funding in the South African ecosystem.
Yeah, I can imagine that's that's typically, you know, the the difference between, you know, the Silicon Valley versus Silicon Cape startups, where, you know, the funding story is very different.
In a way, in Silicon Valley, you've got an idea and a vision, and an investor's willing to back your ways in South Africa, it's more.
And I think you mentioned this to me before, it's more of that kind of staged approach and having certain milestones and, you know, getting to a certain point.
Yeah, so I think it's one of the one of the things we learned early on was, you know, initially, you set up a startup, and you have a very, I mean, the value is such a big picture in everyone's heads, you have a very keen understanding of how things work there, and how capital raises work and everything else.
And I guess the first challenge that you're faced with when you're launching a startup in a market like South Africa, especially one that's targeting customers in South Africa is there is no precedent.
You know, there's no idea of like, cool, this is a model that works.
And, you know, I've missed out on deals like this in the past, etc.
So as an investor, the big risk you're seeing is even execution risk, you're not seeing a lot of companies that have been able to deliver solutions in the South African market as a startup.
So you're going, how do I even know this company is going to get to where they say they're going to get.
And, you know, we realized that this meant that we had to raise smaller tickets early on, and make sure that each ticket is linked to a key business milestone.
So as example, like our first fundraise was closely tied with the idea that cool, if we raise capital, will we get funding for the business and you know, investors, that's a really easy thing to understand that look, actually, if your company sorry, not if we raise capital, we signed an agreement with the bank.
And for an investor, it's very easy to go cool. Yes, of course, if you signed an agreement with the bank, it would make sense for me to fund you.
And therefore that creates a milestone.
And then we from there, we started creating subsequent milestones, like, you know, based on, you know, reasonable to reach things within the business that maybe didn't validate necessarily, like, you know, how big the business will get.
But what ultimately did is that they got rid of the execution risk.
Because that really, I mean, no one can necessarily see the future of this business will be big or small or anything like that.
But what you can, what you can mitigate is the risk people see in you as a founding team or is in you as a business.
And that's what we systematically thought, like wanted to really get rid of that risk of like, can this group of people execute on their plan and their vision?
And, like, I think, you know, while speaking about markets and different, you know, risk factors, and obviously with kind of COVID in happening right now in and around everywhere.
I'm curious to understand, like, how's Yoko kind of viewed that pandemic?
And what are you doing for kind of the economy in South Africa?
Yeah, so I think the pandemic for us was, was interesting, because, you know, we, we definitely had firsthand exposure to the impact it was having on our customers.
So, you know, for most customers, their ability to accept card payments is, you know, a very key indicator of their business volumes going through their company.
And very quickly, we saw massive declines in card processing volumes for the businesses we had.
The first phase of the South African lockdown was a really harsh lockdown with very strong restrictions, which effectively meant that, you know, majority of businesses were not able to do anything, they weren't able to, to have any business activity.
And we saw this in, in the numbers that we saw.
So a couple of things came out of that for us. One was a decision was taken in the business to actually start releasing this information transparently in real time.
So we took cords of data, and really just published what was happening with those customers over time, by region, by industry, and create visibility into the health of small businesses.
Because, you know, big business will go, they'll canvas, they'll knock on doors, you know, they've got all the power to meet with all the right people to make the issues known.
But small business is one of the biggest employers, right?
And nobody had visibility into just how bad the situation is for small business and just the nuances and regulation and the impact they can have.
So how do we both protect the people of the country and the small businesses of the country, who the vast majority of people work for?
This was really important to create the visibility about. So we set up something called the Small Business Recovery Monitor, which was really based on our own real time data.
The other thing we did was move fast to release products that allowed our customers to transact online.
So we released a number of digital payment products, which meant that you could transact with customers who weren't in front of you, whether you could send them a link to pay by WhatsApp, by Instagram, any other platform you're using for social email and communication.
So you could sell your products remotely.
We also launched a voucher product that meant that customers could buy products in advance and, you know, give them a gift to other people, keep them for themselves.
So just trying to really be responsive to the plight of small business owners.
And just also just engaging with our customers constantly.
So we had a lot of research going through the period to understand what's going on, what are you feeling, and really get in touch.
That was a massive shift.
The other big shift for us is we took our whole organization into the remote space.
So a ton of, you know, like going fully remote as a company was a very, something very new and not something that was in our plans, but really tested our ability to be agile and move with the times and the market.
And it's been interesting, like in some ways, we're more connected now than we were before.
Yeah, I know.
And just on that note, like, because I'm conscious of time, but I want to sneak in like about three more questions in the next two minutes.
But, you know, just on that remote working piece, you know, to share a story, obviously, from Cloudflare, we help businesses with our access solution.
And there was a period where it was, you know, given away free.
I want to also just want to understand like how Cloudflare played a role in your business, because I'm, you know, I am aware that you are a customer, but maybe the audience doesn't.
But yeah, I'd love to hear about that story.
Yeah, so it's kind of interesting. We discovered Cloudflare at a time when we were trying to crack the growth problem.
And one of the growth issues we're having is we used to host our website out of country.
And we realized that the performance of our website was definitely causing us a conversion issue.
The bounce rate was slightly higher, people on poorer, like poorer Internet connections on their mobile phones.
And most people convert and buy our product for mobile.
And, you know, heavy images, heavy sites. So we really needed to optimize things very quickly.
So during that time, we researched and we came across the Cloudflare solution.
And I think it was really like a matter of like a day.
Basically, we went from having our site hosted overseas to changing really nothing, getting Cloudflare in the middle and having it start to perform like it was hosted in country.
So that was really like kind of instant gratification. And we started to see very quickly that our bounce rate improved, the site load times improved, our metrics went up almost immediately.
And I guess from there, that initial kind of ingress point, we got more interested in what else Cloudflare had to offer us as a business.
Yeah. And like, what is the future for Yoko? Like where do you guys see yourself going forward?
Yeah, so it's kind of interesting, I guess, in many ways, like, you know, that just even that idea of like with Cloudflare, that simple ability to proxy the website gave me as a customer so much confidence.
We see ourselves as a business on a very similar journey.
So if you think about it, like every customer, every business ultimately wants to be the one to deliver that great innovation in the future.
And to be honest, we see ourselves as on a journey as a business towards earning the right to deliver that great innovation, because part of a great innovation is, one, being able to build it and, you know, contextualize the customers.
But two, being in a position as a company where you've delivered enough high quality solution, that everybody wants to listen to that innovation.
It's not good enough just to come up with the next great thing. But you have to have a history and a track record that allows people to actually listen and understand what the innovation is.
And you can see this in many successful companies.
And it's also why innovation sometimes feels concentrated around relatively few companies.
But actually, all that's happened is those companies have developed the voice through product successes to be able to be heard about the innovation.
So that's really what it is about for us. We think there's a lot of innovation that we can do in payments in the future.
And we think that product quality will allow us to deliver those innovations into a market that's ready to hear them to the benefit of small business.
Amazing. Thank you. Well, just to leave it on that bombshell, I just want to say thank you, Lingisa, for participating.
And yeah, we look forward to the next episode on Black is Human. So cheers.
Thank you for having me. Cheers.