South African retailer Pepkor Holdings is to merge its fintech subsidiary Flash with payments platform Shop2Shop, creating a merchant commerce and financial technology company that it plans to list separately, as competition intensifies among retailers, banks and fintech groups to capture the country’s vast informal economy.
The transaction will give Pepkor a controlling 57.1 per cent stake in the combined business, FintechCo, through a R1.57bn ($95.3m) cash subscription for new Shop2Shop shares and by contributing its entire shareholding in Flash, valued at R10.6bn ($642 million), in exchange for more shares. The deal implies a total equity valuation for FintechCo of about R21.3bn ($1.29bn), giving the combined business unicorn status ahead of its planned spinout and stock market listing, the owner of the Pep and Ackermans clothing chains said in a statement on Wednesday.
The combination underscores the growing strategic importance of South Africa’s informal market, where millions of consumers and small merchants still rely heavily on cash-based transactions. Companies are increasingly targeting township and rural businesses with payment, lending and digital services as they seek new growth avenues beyond the crowded formal retail sector.
“We see this as a logical next step in expanding the group’s participation across the informal market value chain,” said Garth Napier, Pepkor’s chief commercial officer. “The combination strengthens our exposure to that segment by linking Shop2Shop’s merchant and payment network with Flash’s digital product offerings.”
The merged entity will operate an integrated platform spanning cash handling, payments, financial services and digital products. Pepkor said the transaction would diversify earnings within its informal market division and potentially unlock value for shareholders through a planned stock market listing of FintechCo in the medium term.
Existing Shop2Shop shareholders, including the Lebashe Investment Group and management, will hold the remaining 42.9 per cent of the combined business.
Strategic rationale
The deal comes as South African retailers and financial institutions race to digitise the informal economy, which the World Bank estimates accounts for roughly 30 per cent of the country’s GDP. Traditional banks have struggled to serve this segment profitably due to high transaction costs and limited physical infrastructure in townships and rural areas.
Pepkor has been building its financial services capabilities for several years. Last year, the retailer received regulatory approval to launch a bank and acquired core banking software firm Cloudbadger. The company plans to transform its more than 6,000 Pep and Ackermans stores into banking access points, leveraging its extensive physical footprint across the country.
Shop2Shop operates a payments platform that enables merchants to accept digital payments, manage inventory and access working capital. The platform processes transactions for thousands of informal traders, including spaza shops and street vendors, who have historically been excluded from formal financial services.
Flash provides digital products including airtime, electricity, and gaming vouchers, as well as payment solutions for merchants. Its integration with Shop2Shop will create a broader ecosystem that Pepkor hopes will capture a larger share of informal market transactions.
Competitive landscape
The move mirrors similar initiatives by competitors seeking to capitalise on the informal sector’s growth potential. Smollan, a retail services group, recently purchased e-commerce platform Yebo Fresh to digitise South Africa’s vast informal township retail sector, combining a digital marketplace with a physical agent network.
Major South African banks, including Standard Bank and Nedbank, have also launched dedicated informal market divisions in recent years, while fintech startups such as Yoco and iKhokha have built substantial merchant networks offering card payment solutions to small businesses.
Analysts said Pepkor’s physical store network gave it a significant advantage in reaching informal traders. Pepkor’s existing relationships with millions of customers through its extensive store footprint provide a distribution channel that pure-play fintechs cannot easily replicate. However, the success of the strategy will depend on execution. Integrating two technology platforms while maintaining service levels for existing customers is likely to be challenging, and the company will also need to demonstrate that it can encourage adoption among merchants that have historically preferred cash.
Pepkor said the transaction would diversify earnings within its informal market division, which has been a bright spot for the retailer amid challenging trading conditions in the formal retail sector. The company’s latest annual results showed growth in its financial services and cellular products, offsetting weaker clothing sales.
The planned listing of FintechCo would allow Pepkor to unlock value from the combined business while retaining a majority stake. The retailer has not provided a timeline for the initial public offering, saying only that it would occur “in the medium term”.
The deal is subject to regulatory approvals, including from the South African Reserve Bank and the Competition Commission. Pepkor said it expected the transaction to close in the first quarter of 2027.
At Wednesday’s announcement, Pepkor shares traded flat in Johannesburg, while Shop2Shop declined to comment on its valuation or financial performance.