Instability at prominent South African payment provider

Ozow co-founder and CEO Thomas Pays has been suspended from the company for over two months and is facing a disciplinary hearing as shareholders try to oust him.

MyBroadband has learned that investors are unhappy with Pays’ management style and claim he has been wasteful and reckless with their funds.

One example of the alleged extravagance investors took issue with was Ozow giving away a R500,000 trip to Las Vegas to watch the Formula 1 Grand Prix in 2023.

The giveaway was used to promote the launch of Ozow’s peer-to-peer payments system, Ozow.me.

It is understood that dissatisfaction over Pays’ imprudent spending at Ozow has been brewing for some time.

MyBroadband has also learned that Ozow quietly conducted a round of layoffs in 2023 to reduce costs and contain spending, which Pays implemented under the board’s instruction.

While Pays is a polarising figure, it is curious that he is facing a full disciplinary action rather than the board seeking to negotiate a mutual separation agreement.

A seasoned marketer and salesman, the French expatriate also founded controversial penny auction site Smokoo in South Africa in 2010.

Smokoo caused a stir by advertising extremely cheap-looking auctions for luxury items like sports cars, while charging people for every bid they placed.

This drew the ire of regulators, who were looking at whether penny auction sites like Smokoo should be treated like gambling.

There was also discussion amongst legal professionals about whether Smokoo would violate the Consumer Protection Act (CPA).

The CPA came into effect on 1 April 2011 — eight months after Smokoo launched. According to Pays’ LinkedIn, he left Smokoo in March 2011.

However, news that Smokoo had been sold only emerged in 2012 when the site displayed a notice saying that it had been acquired by Bidfair and would be shut down.

After Smokoo, Pays returned to marketing and founded digital advertising agency Just Perfect, where he was CEO from March 2013 to May 2016.

He co-founded Ozow (then called i-Pay) in November 2014 with Mitchan Adams and Lyle Eckstein, offering the ability for e-commerce sites to accept instant EFT payments.

Courting controversy

Like Smokoo, Ozow was controversial. It required that customers provide their full Internet banking login details to make an instant EFT payment.

Ozow used screen-scraping to log into the customer’s Internet banking and make the EFT payment on their behalf, providing merchants with assurance that the transfer had been made.

While this is a security risk, it helped online marketplaces process instant EFT orders without waiting for the transfer to clear first.

This was useful because forging proof of payment emails from a bank is trivial, making it risky for online stores to process an order before the money was in their account.

Regular electronic fund transfers between banks can take 24 to 48 hours to reflect in South Africa, with banks charging an additional fee for immediate settlement.

As a result, the advent of instant EFT was not popular with the banks.

They, along with the Financial Sector Conduct Authority, the South African Reserve Bank, and the Payments Association of South Africa, issued a warning in 2020 not to use instant EFTs.

Ozow hit back, with Pays saying that they had processed billions in payments and not had a single incident of fraud since launching in 2014.

A year later, Ozow announced that it had raised $48 million (R746 million at the time) in a Series B funding round led by Chinese Internet and technology giant Tencent.

The Ozow board’s crackdown on spending came two years later, with them appointing a CFO to tighten the reins.

Another two years later, Pays faces allegations of misconduct and financial mismanagement. None of the parties involved were willing to reveal what specific allegations were brought against him.

However, a source close to the matter told MyBroadband that the timing of the allegations was suspicious, as they reference incidents from two or more years ago.

“If these claims had merit, the board’s delayed response would represent a significant failure in their fiduciary responsibilities as directors,” the source told MyBroadband.

“The need for a scapegoat appears to have culminated in unfounded allegations against Pays — a situation that resembles a hostile takeover disguised as a legitimate investigation.”

Tightening the belt

According to the source, the consequences of the move are that the corporate culture and staff morale have deteriorated dramatically.

“For nearly two years, Pays operated under increasing constraints imposed by the board and a former CFO who was specifically brought in to limit expenditure,” our source said.

“What began as minor adjustments like discontinuing the laundry service gradually escalated.”

They said when staff bonuses were not approved, employees correctly anticipated the impending retrenchments that materialised in early 2023.

“Despite Pays and his team implementing these and numerous other cost-saving measures, nothing seemed to satisfy the dragon’s appetite for financial results,” the source added.

They emphasised that the staff cuts and other measures resulted from board demands for cutbacks and were not Pays’ decision.

“In fact, Pays and his wife made a personal sacrifice when she stepped down as Chief People Officer specifically to reduce the number of staff affected by the board’s cost-cutting directives.”

Acquisition offer rejected

The source also revealed that there have been reports that a substantial acquisition offer from a large international payments company was summarily rejected without proper consideration.

“If maximising shareholder returns was truly the priority, such a sizeable offer would have warranted thorough investigation,” they said.

The source’s revelation is noteworthy, considering that major Ozow shareholder Kalon Venture Partners has been looking to offload its stake in the company since last year.

MyBroadband contacted Pays for comment, but he did not respond by publication.

Kalon Venture Partners acting CEO Leron Varsha declined to comment, directing all queries to Ozow’s executive management and board via its Head of Marketing, Shaylen Padayachee.

Padayachee also declined to comment, stating that Ozow is a privately held company and does not comment on internal matters as a matter of policy.

“The business continues to experience exceptional growth and exciting momentum, driven by new product launches, innovative solutions and strategic partnerships,” said Padayachee.

“Our executive team is committed to delivering significant value and market-leading payment solutions to merchants, partners, and consumers across South Africa.”