South African retailer Pepkor Holdings said on it will combine its fintech subsidiary Flash with payments platform Shop2Shop, creating a merchant commerce and financial technology company that it plans to list separately in future. The deal highlights intensifying competition among South African retailers, banks and fintech firms to capture the country's vast informal economy, where millions of consumers and small merchants still rely heavily on cash-based transactions.

The transaction will give Pepkor a controlling 57.1% stake in the combined business, FintechCo, through a 1.57 billion rand ($95.26 million) cash subscription for new Shop2Shop shares and by contributing its entire shareholding in Flash, valued at 10.6 billion rand, in exchange for more shares. The owner of Pep and Ackermans clothing chains said in a statement that the deal implies a total equity valuation for FintechCo of about 21.3 billion rand. "This transaction is transformative for Pepkor, and was the logical next step in expanding the group's participation across the informal market value chain," Chief Commercial Officer Garth Napier said. 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 market. Pepkor said the combination would strengthen its exposure to that segment by linking Shop2Shop's merchant and payment network with Flash's digital product offerings, creating an integrated platform spanning cash handling, payments, financial services and digital products. The retailer said the transaction would also 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.