Retail giant Pepkor is preparing to list its fast-growing fintech business as the group doubles down on its informal economy play via a proposed merger of its Flash business with merchant payments platform Shop2Shop. The deal will create a group processing more than R200bn in transactions per year.The group said on Wednesday it will pay nearly R1.5bn to acquire a stake in Shop2Shop to create one of South Africa’s largest merchant commerce and fintech platforms, significantly expanding the retailer’s reach across both the informal and formal economy as it prepares to launch its own bank.Pepkor says it will acquire its controlling stake by investing R1.57bn in cash in Shop2Shop and transferring ownership of Flash, which has been valued at R10.6bn. Together, the two businesses imply a combined equity valuation of about R21.3bn.The retailer said the deal also creates a pathway towards a separate listing of the combined fintech business in the medium term, a sign of its intention to unlock value from a business that has become one of the fastest-growing parts of the group.“The proposed transaction is a significant step in Pepkor’s strategy to accelerate expansion within its informal market platform segment and will unlock value for shareholders through a planned future listing,” the company said. “South Africa’s informal market represents a fast-growing segment of the economy, underpinned by resilient consumer demand and increasing merchant participation.This marks another milestone in Pepkor’s transformation from a traditional discount retailer into a broader consumer and financial services business“The proposed transaction combines two complementary businesses to create a significant merchant commerce and fintech platform in South Africa that is well-positioned to support merchants transitioning to digitally enabled businesses while maintaining accessibility for cash-based transactions.”The combined platform will bring together Flash’s value-added services business with Shop2Shop’s merchant payments, acquiring, cash management and trade services, creating a business that serves merchants across the entire payments value chain.This marks another milestone in Pepkor’s transformation from a traditional discount retailer into a broader consumer and financial services business. Over the past few years, the group has steadily expanded its fintech operations through businesses spanning: digital payments;unsecured lending; insurance;smartphone financing; andloyalty programmes.Flash has become the largest contributor to Pepkor’s fintech business, accounting for about two-thirds of segment revenue. The platform enables informal traders and small businesses to sell airtime, prepaid electricity, data, bill payments, money transfers and other digital products through a nationwide merchant network.In the six months ended March, Flash processed R34.7bn in transaction value, up 20.3% from a year earlier, while its network of active traders grew to 176,000.Pepkor has also expanded Capfin, its unsecured lending business, whose gross loan book reached R5.3bn during the first half of the financial year. FoneYam, its smartphone rental product sold through PEP and Ackermans, increased active accounts by 32% to 2.4-million, while Abacus Insurance doubled its revenue as insurance products were rolled out across more of the group’s retail brands.The Shop2Shop acquisition deepens Pepkor’s exposure to South Africa’s informal economy, where merchants are increasingly adopting digital payment solutions while continuing to rely on cash transactionsThe group recently received regulatory approval to establish a bank, with its first banking products expected to launch later this year. The bank will build on Pepkor’s network of more than 6,600 stores, its digital capabilities and existing financial services businesses, including Flash and Capfin.Pepkor has previously said it serves about 26-million customers, with more than 12-million using its digital platforms, while around 32-million customers visit its stores annually.The Shop2Shop acquisition deepens Pepkor’s exposure to South Africa’s informal economy, where merchants are increasingly adopting digital payment solutions while continuing to rely on cash transactions.The group disclosed that its CEO, Pieter Erasmus, through an associated company has an indirect minority interest in Shop2Shop which predates his appointment at Pepkor. “Post the implementation of the proposed transaction, the ultimate beneficial owners of FintechCo will comprise Pepkor holding 57.1% and the S2S shareholders holding the remaining minority interest of 42.9% through various entities established for the benefit of the S2S shareholders and founders,” it said.“These include companies related to Peter Berry [CEO of Shop2Shop] and Erasmus, who will — after implementation of the proposed transaction — hold an indirect minority interest in FintechCo of 24.0% and 13.2% respectively. The balance will be held by members of Shop2Shop group employees.” Business Day