Already a well-established player in
South Africa’s retail cards sector, First Data has now set its
sights on the country’s ATM market with the acquisition of
CashAxcess. First Data executives provided EPI with
insight to the processing giant’s ATM strategy in South Africa and
ambitions in the retail sector.
First Data believes opportunity beckons in South Africa’s ATM
market, and the company has just acted on this belief with the
acquisition of CashAxcess, a small ATM outsourcing specialist
established in 2005.
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“CashAxcess was a good deal, providing us with
a jump-start into an exciting growth market,” Paul Stanley,
vice-president of payment strategy for First Data in Europe, the
Middle East and Africa, told EPI.
CashAxcess also brings with it “experienced
people who share our proposition about convenience”, said Estevao
Tokata First Data’s director for Africa.
What CashAxcess does not bring is a
significant market share, with a total of only 200 ATMs outsourced
to two second-tier local banks, Mercantile and Capitec, and one of
the four major banks, ABSA.
CashAxcess also faces competition in the
non-bank ATM market from a number of non-bank operators including
South Africa’s largest non-bank operator, ATM Solutions, which has,
it claims, a 48 percent share of the off-premises ATM market.
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By GlobalDataSouth Africa’s ATM fleet
Although data on the precise number
of ATMs in South Africa is somewhat vague, payments technology
vendor ACI Worldwide estimates the number of bank-owned ATMs at
about 17,000.
Based on figures published by ATM Solutions,
the number of non-bank machines is estimated by EPI to be of the
order of 7,000, taking the total number up to some 24,500.
Given South Africa’s population which
Statistics South Africa estimated at 49.3 million in July 2009, a
total of 24,500 ATMs represents a density of 497 per million
people.
At this ATM density Tokata believes there is
room for expansion in what he terms “an underserved market”.
Indicative of potential density even in a
developing economy, Brazil now has some 860 ATMs per million
inhabitants.
However, South Africa still ranks ahead of a
country such as Poland where the density is about 330 ATMs per
million inhabitants.
Clearly First Data aims to expand its
footprint in the South African ATM aggressively.
“Anything under 2,000 ATMs represents poor
economies of scale making it hard to run a profitable channel,”
said Tokata.
First Data’s growth strategy will include the
supply of ‘private label’ ATMs, said Tokata, as well as a thrust
will be into the bank ATM outsourcing market, an area where First
Data has gained considerable experience in many other markets.
“ATM outsourcing is a growth area within the
South African payments market as banks look to drive more cost
efficiencies through their operations,” Tokata added.
Notably, in one of the most interesting recent
deals in developing markets, in July this year First Data was
awarded an ATM deployment contract by Indian bank Yes Bank to
supply and operate 3,000 ATMs between 2010 and 2015.
Although Tokata was not specific, the door
also appears to be open to further acquisitions in the non-bank ATM
market.
“We are always looking for opportunities,” he
noted.
Solid market experience
First Data clearly sees the biggest
growth opportunity in servicing debit card-holding consumers which,
noted Stanley, represent a market growing at upwards of 15 percent
annually.
This growth is being driven by a significant
increase in the country’s middle class as well as a surge in the
number of people entering the formal banking market. According to
non-profit organisation Finmark trust, 3 million new bank accounts
were opened in 2007 and 1.1 million in 2008, taking the banked
adult population to 63 percent at the end of 2008.
Despite the surge in the banked population
cash remains king in South Africa and continues to play what Tokata
termed a “vital” role.
This is notwithstanding hefty ATM fees levied
by banks which for debit cards used at own ATMs run at a basic
ZAR2.5 ($0.35) per withdrawal plus 1.03 percent of the transaction
value.
This compares with a flat fee of ZAR2.15 per
debit card payment at a POS.
First Data’s involvement in the South African
market is, however, not limited to it newly acquired ATM
involvement. Indeed the payments processor has had a presence in
the market since 1992.
A more formal involvement came in 2001
following First Data’s acquisition of US payment systems solutions
specialist PaySys which had established a firm footing in South
Africa’s retail market.
First Data established a local South African
office in 2001, said Tokata, and has gone on to build its presence
in the private label retail card issuing and acquiring sector.
Today First Data numbers Edgars, Woolworths, Truworths and Foschini
among its clients, major clothing retailers with a combined annual
turnover of about ZAR60 billion.
While First Data is not processing payments in
South Africa at present moving clients onto its FirstVision
processing platform is part of its strategy, said Tokata.
First Data’s ambitions on the African
continent also seem to stretch beyond South Africa.
“Africa presents a vast opportunity for us, it
is very much part of our strategy,” stressed Tokata.”
