South Africa’s biggest retailers bets on South Africa’s informal economy with $1.3 billion fintech platform

South African retailers are increasingly looking beyond clothing and groceries for growth, betting that financial services, not retail shelves, will drive their next phase of expansion.

• Pepkor is combining Flash and Shop2Shop to create a fintech platform valued at R21.3 billion ($1.29 billion).
• The deal highlights how South African retailers are increasingly turning to financial services for growth.
• The merged business will process more than R200 billion in annual transactions while targeting the country’s vast informal economy.
• Pepkor also plans to list the new fintech company separately, unlocking value beyond its traditional retail operations.

That shift was underscored on Wednesday after Pepkor Holdings, owner of brands including Pep, Ackermans and Tekkie Town, unveiled plans to combine its fintech subsidiary Flash with merchant payments platform Shop2Shop in a deal valuing the merged business at R21.3 billion ($1.29 billion).

The combined company, to be known as FintechCo, could eventually be listed as a standalone business on the Johannesburg Stock Exchange.

Rather than simply expanding its retail business, Pepkor is making a bigger bet on South Africa’s informal economy, a market of millions of consumers, township merchants, spaza shops and small businesses that still handle large volumes of cash but are increasingly adopting digital financial services.

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The transaction will leave Pepkor with a controlling 57.1% stake in FintechCo after injecting R1.57 billion ($95 million) in cash and contributing its entire Flash business, valued at R10.6 billion, in exchange for shares in the combined company.

Why retailers are moving into fintech

The move reflects a broader trend across South Africa’s retail industry.

Consumers remain under pressure from high living costs, elevated interest rates and stubborn unemployment, making it harder for retailers to grow purely through merchandise sales.

Instead, companies are increasingly building businesses around payments, digital wallets, money transfers, insurance, lending, prepaid electricity, airtime and merchant services, products that generate recurring income and encourage customers to remain within their ecosystems.

Shoprite has spent years expanding its Money Market business into one of the country’s largest financial services platforms, while Capitec has blurred the line between banking and retail by targeting many of the same lower-income consumers.

Pick n Pay, Boxer and several supermarket groups have also expanded payment and financial services as competition intensifies.

Pepkor’s latest deal signals that the battle is now moving beyond stores and into financial technology.

A bet on South Africa’s informal economy

The centrepiece of the transaction is South Africa’s vast informal economy.

While much of the country’s formal retail market is mature and fiercely competitive, millions of small traders still depend on cash transactions and require affordable payment solutions, cash management, inventory services and access to digital financial products.

Pepkor said the merged company will combine Flash’s digital distribution platform with Shop2Shop’s merchant payment and trade services to create one of South Africa’s largest merchant commerce and fintech businesses.

According to the company, the combined platform will process more than R200 billion ($12.1 billion) in annual transaction value across both the formal and informal economy.

Shop2Shop already serves about 177,000 informal traders, while Flash has built one of South Africa’s largest digital value-added services platforms, allowing merchants to sell airtime, prepaid electricity, bill payments, gaming vouchers and other digital products.

Together, the businesses aim to offer merchants a single platform covering payments, cash handling, business services and financial products.

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Unlocking value beyond retail

Pepkor says the merger is also designed to unlock shareholder value by eventually separating the fintech business through a public listing.

If listed independently, FintechCo would rank among Africa’s largest listed fintech businesses, giving investors direct exposure to a rapidly growing digital payments and merchant services company rather than a traditional clothing retailer.

The transaction also reflects a wider shift taking place across Africa, where retailers, telecom operators and banks are increasingly competing in the same digital finance space.

Companies are no longer just fighting for shoppers inside stores, they are competing to control how consumers pay, borrow, save and manage money.