Lesaka Technologies - Q2 2026

Transcript

Operator (participant)

Welcome to Lesaka Technologies' Results Webcast for the Second Quarter of Fiscal 2026. As a reminder, this webcast is being recorded. Management will address any questions you have at the end of the presentation. To ask a question, live participants are requested to join the Chorus Call line by registering via the link provided. Alternatively, please enter your questions into the Questions tab of this webcast. Our press release and investor presentation are available on our investor relations website at ir.lesakatek.com. During this call, we will be making forward-looking statements, and I ask you to look at the cautionary language contained in our press release, presentation, and Form 10-Q available on our website. As a domestic filer in the United States, we report results in U.S. dollars and under U.S. GAAP.

However, it is important to note that our operational currency is South African rand, and as such, we analyze our performance in South African rand, which is a non-GAAP measure. This assists investors in understanding the underlying trends in our business. I will now turn the webcast over to Ali.

Ali Mazanderani (Executive Chairman)

Good morning and good afternoon. Thank you for joining us for Lesaka's Q2 and half-year results presentation. The first half of the year represents meaningful progress in executing our strategy in building the leading independent fintech in Southern Africa. Dan will address our financial performance shortly. In addition to the numbers, two strategic milestones during Q2 are worth calling out. First, we received competition tribunal approval for the combination with Bank Zero. This is a significant step forward. We continue to engage with South Africa's Prudential Authority regarding their approval process. Second, we announced and commenced the consolidation of all our operating brands under a single One Lesaka. Lesaka is a fintech business, but human connection is at the center of what we do. We operate where our customers work, live, and trade. We design solutions alongside them, not at a distance.

That philosophy is captured in our promise: where you are, we are. The launch of One Lesaka marks a new chapter for the group. It moves us beyond a collection of individual brands to a single, strong challenger brand, combining digital capabilities with physical presence by reaching consumers and merchants where others do not. Our new visual identity reflects this. It embodies the essence of a company built on connection, movement, and progress. The logo is inspired by a footprint symbolizing presence, partnership, and purpose. It represents a business that is human, grounded, African, and leaving its mark. This is a material evolution in how we position, operate, and scale the business, and I'd like to share a new brand video that represents this.

Speaker 6

Life. It's happening. Here in the spaza shops and the spice traders. Here at the taxi ranks and the tolls. It's happening in the small exchanges, the side hustles, the homegrown businesses. It's also happening in the suburbs and at the malls, in the cafés where meetings are made and ideas are brewing. It's happening in the offices and workshops where businesses grow. It's happening at kitchen tables where bills are balanced and at shop fronts where customers are welcomed. Wherever there is life, there is trade. From groceries for tonight's meal to savings for tomorrow's dreams, from data top-ups to down payments, Lesaka is here for all of it and all of us. Here for the small acts and the big steps. Here for traders, city workers, entrepreneurs, and families alike. Here for growth hackers and grant recipients, game changers, and gogos.

Here in the real world, in real time. Because life isn't happening somewhere else. Life is happening here, now, where you are. Lesaka. Where you are.

Ali Mazanderani (Executive Chairman)

Our purpose is clear: to provide financial services and software to underserved consumers and merchants across Southern Africa. This is more than a rebrand and is embodied in a represented set of values we launched to our employees last month: integrity, collective wisdom, entrepreneurial drive, ownership, bias to action, resilience, empathy, customer first, efficiency, and meritocracy. One Lesaka is a commitment: one platform, one brand, and one shared mission, expanding financial access through technology delivered with a human touch. Aligned with our One Lesaka strategy, in June we will consolidate multiple Kazang offices into a single location in Johannesburg. This will deliver cost efficiencies over time, but more importantly, cultural efficiencies, enabling closer collaboration, faster decision-making, and stronger integration across teams. We are also making progress consolidating our offices in Cape Town and Durban. Lesaka employs approximately 3,750 people across Southern Africa.

Technology underpins our platform, but in the markets we serve, distribution is a key differentiator. Close to half our workforce are focused on growing Lesaka's footprint through sales and marketing. A further 23% focus on servicing and operations, engaging directly with customers and merchants every day. Last-mile reach matters, and our teams operate daily at our clients' workplaces, in townships and rural communities, delivering financial services on the ground to the underserved. At the same time, continued innovation is essential. Around 20% of our employees are in technical roles, building platforms, developing products, and supporting our frontline teams. We also benefit from a young, energetic workforce, with roughly 60% under the age of 40, with a demographic and gender mix reflective of our society. We continue to simplify the group and ensure capital is deployed where it delivers the greatest return.

During the period, we exited our Cell C stake, receiving ZAR 50 million. We also successfully concluded what we believe to be the final outstanding matter relating to the legacy CPS contract, resulting in the release of ZAR 65 million of accrual. Both items contributed positively to our Q2 results on a once-off basis, but more importantly, they represent the progress towards a simplified One Lesaka going forward. It's pleasing to note that group-adjusted EBITDA grew 47% year-on-year, which represents a largely organic growth rate as the Adumo transactions contribution is represented in both periods. Additionally, our adjusted earnings per share, which excludes the one-off profit contributions mentioned earlier, has increased by more than six times. As previously communicated, we have also simplified how we represent the business to focus on the structural drivers of revenue. Lesaka operates through three complementary divisions: merchant, consumer, enterprise.

The growth in our number of engaged customers is a function of our product value proposition and effectiveness of our distribution, while ARPU is a function of the level of product penetration per customer and pricing dynamics. 95% of consumers' revenue and 88% of merchants' revenue, respectively, can be explained by these core drivers for this quarter. As a reminder, the consumer ARPU is a function of three products: transactional banking, lending, and insurance, while the merchant ARPU is a function of five products: acquiring, ADP, lending, software, and cash. Enterprise follows a different core driver model, predominantly based on TPV and take rates. These core drivers are a function of corporate billers on the platform and individual commercial arrangements with different channel partners. The enterprise division has three main product offerings: ADP, utilities, and payments.

We hope that this gives you, as investors, a clearer view on how to view the business and how the group generates sustainable value. We will continue to disclose these drivers going forward in an effort to simplify our story and show how we are tracking against our objectives. I will now hand over to Dan to take us through the financials for the period.

Dan Smith (CFO)

Thank you, Ali. Good morning and good afternoon to everyone joining us today. I'm pleased to report that we have delivered on our guidance for the 14th consecutive quarter, underscoring the consistency of our operational execution and the resilience of our diversified business model. Net revenue for Q2 was within our guidance range, reaching ZAR 1.6 billion, a 16% year-on-year increase. Group-adjusted EBITDA came in at ZAR 304 million, landing at just above the midpoint of our guidance and reflecting a robust 47% year-on-year increase. Our earnings profile is now approaching like-for-like comparability, with the contribution from our Recharger acquisition being the only item not reflected in last year's base. Adjusted earnings, which we regard as the most appropriate indicator of our underlying performance, grew more than sixfold to ZAR 111 million for the quarter.

Similarly, on a per-share basis, our adjusted earnings have grown from ZAR 0.21 to 1.34, a very pleasing result that demonstrates the accretive impact of our acquisitions over time and ability to integrate and improve operational performance. Our leverage ratio stands at 2.5x, flat on last quarter and significantly down from the 2.9x at year-end. As a reminder, our medium-term target remains 2x or lower, which we believe is appropriate given our current structure. You'll also see that we have received Competition Tribunal approval for the Bank Zero transaction, which will deliver meaningful funding and balance sheet benefits once integrated into the group. Net revenue as a whole came in at ZAR 1.6 billion, up 16% on the previous year.

Our merchant division net revenue pulled back 2%, primarily due to our refocusing of the merchant distribution force on clients with a high potential for cross-sell and integration, as well as ongoing pricing pressure in the market. As mentioned in previous quarters, merchant is on a transformative journey. Consumer delivered another standout quarter, with net revenue rising 38% year-on-year to ZAR 567 million, marking another record performance for the division. Enterprise continues to show solid progress, delivering ZAR 217 million in net revenue, a 67% year-on-year improvement. This reflects the business's post-restructure base and includes inorganic benefits from the Recharger acquisition. Lincoln will unpack the drivers behind each division in his operational review. Group-adjusted EBITDA grew 47% year-on-year to ZAR 304 million, slightly above the midpoint of our guidance. Merchant segment adjusted EBITDA was ZAR 170 million, a decrease of 6% from last year.

The current fiscal year is transformative for merchant. As outlined in our Q1 investor presentation, we are building the foundations for future growth with a focus on three aspects in particular: bringing several businesses together, unifying our merchant brand and investing in new product offerings to clients, and rationalizing our infrastructure in order to capture efficiencies. Successfully combining merchants' numerous products and companies into a cohesive go-to-market strategy requires thoughtful planning and disciplined implementation. Our new management team is making good progress, and we look forward to driving growth in an industry that is ripe for disruption. Given the transformation, we expect the growth profile of merchant to be flat for the rest of the fiscal year, with a return to growth in FY27. Consumer achieved yet another excellent performance with segment Adjusted EBITDA more than doubling to ZAR 159 million.

With ongoing improvements in distribution and strong cross-sell momentum driving ARPU, we believe consumer remains well-positioned for continued growth. In particular, following the strong performance of our lending activities, we expect strong earnings growth in Q3 and Q4. Enterprise delivered ZAR 24 million in segment adjusted EBITDA. We continue to invest in our platform, and we expect stronger earnings contributions later this year and into FY27 as new product platforms come online and we internalise merchant acquiring volumes. A quarterly run rate of approximately ZAR 40 million-ZAR 50 million remains our short-term expectation. Our group costs were ZAR 50 million this quarter, a pleasing reduction over the previous few quarters and closer to our anticipated long-term run rate. Adjusted earnings per share continued their upward trajectory, rising more than sixfold to ZAR 1.34, reflecting the success of our combined organic and inorganic growth strategy.

Cash flows from business operations continue to be healthy, totaling ZAR 419 million for the quarter and in line with our EBITDA evolution. ZAR 385 million of that cash flow was reinvested into our lending operations and ZAR 101 million to fund our interest costs. Capital expenditure for the quarter was ZAR 84 million, of which ZAR 48 million was spent investing in growth. This consists primarily of the continued expansion of our SmartSafe product, capitalization of software development costs, and funding additional merchant acquiring devices. Our leverage ratio came in at 2.5x in line with Q1, despite funding required to grow our lending book. We anticipate our leverage ratio to trend lower through FY26. As mentioned earlier, the Bank Zero transaction will allow us to fund expansionary cash flows from our lending activities with customer deposits, further deleveraging our balance sheet.

This will materially increase our cash conversion rate relative to our current funding structure. Over the last five quarters, we are beginning to see the emergence and impact of the platform business we are building. As our business continues to grow through our wide distribution footprint and product innovation, we see a pleasing increase in operating margin from approximately 15% a year ago to 19% this quarter. Post the transformation of Merchant and the acquisition of Bank Zero, we anticipate that our operating margin will trend towards 30%. Reflecting on our CAPEX, we are seeing a similar trend. As stated in previous presentations, we expect our CAPEX to be below ZAR 400 million a year. On an LTM basis, we see CAPEX as a percentage of EBITDA decrease from approximately 46% a year ago to 33% this quarter.

These metrics give a clear indication of our improving fundamentals as we scale our platform. I will hand over to Lincoln, who will take you through the revenue drivers and KPIs for merchant, consumer, and enterprise. Lincoln.

Lincoln Mali (CEO)

Thank you, Dan. Good morning and good afternoon, everyone on the call. I'll begin with the merchant division. As Dan mentioned, the division is in the midst of a significant transformation. We are integrating our businesses, unifying our brand and offering, streamlining cost and infrastructure, and operating under a new leadership team. While this is a period of meaningful change, I'm encouraged by the energy across our teams and by the early benefits we're seeing from the restructure. Before turning to performance, there are two terminology updates to note. What we previously referred to as micro merchants, largely serviced through Kazang in the informal market, are now called community merchants. In the future, community merchants will also include sole proprietors and micro merchants such as hairdressers, food vans, and other owner-operated establishments.

The formal sector, historically serviced by Adumo, GAAP, and Connect, is now referred to as corporate merchants and will be geared to serving medium and large businesses with a focus on hospitality, fuel, and retail. This more closely aligns to customer needs in terms of product and distribution focus. This quarter also marks the first like-for-like comparison for the merchant division in several quarters. As Ali mentioned, we have standardized how we present merchant. We now show a single overall active merchant base, a single aggregated ARPU, and a single product penetration metric. This reflects how the division is managed operationally, particularly as we evolve into One Lesaka, as Ali referred to in his opening remarks. Active merchants increased 8% year-on-year to just over 130,000 merchants.

We have moved away from reporting points of presence and now focus on active merchants, which better reflects revenue generation engagements in our monetization strategy. For clarity, an active merchant is defined as a merchant who has made at least one customer-initiated transaction in the past 90 days. Merchant ARPU is down 10% to ZAR 1,835. This was primarily driven by lower airtime volumes and continued margin compression with the ADP product. We also saw some margin pressure in acquiring, driven primarily by our strategic push into the Tavern market and simultaneously upgrading our terminal estate for community merchants. These hardware upgrades are an investment in our customer experience, improving reliability and strengthening our competitiveness over time. Similar to consumer, we are now showing our penetration rate for our multi-product merchant offering, which we use to measure our product layering success.

At the end of quarter two, we had 46% of our merchants using more than one of our products. Turning to our volumes processed, card acquiring TPV grew 7% year-on-year, reaching ZAR 12.1 billion for the quarter. Active acquiring merchants increased 8% to 73,500. We are actively focusing on our on-platform acquiring merchants and actively moving away from non-acquiring corporate base. Our go-to-market focus remains on expanding and deepening ISV partnerships as we see a compelling opportunity through this distribution channel. Following the launch of a proprietary switch by our enterprise division, over 40% of this quarter's card TPV were processed in-house. While this will lead to improved profitability and greater retention of value in the group over time, it has already significantly reduced our reliance on outside parties, materially improving our ability to innovate and to more effectively service our clients.

Cash TPV reflects a continued contraction in the corporate market and growth in the community market, resulting in an overall TPV growth of 5%, with device numbers broadly flat. Community vault TPV increased materially year-on-year, underscoring the momentum in this segment. While cash deposits are typically smaller and more frequent and therefore have lower margins on a standalone basis, they play a critical strategic role in delivering an ecosystem of products. Cash deposited into vaults immediately funds merchants' digital wallets, enabling prepaid purchases, supplier payments, and EFTs, and directly supports growth across our broader ecosystem. This cash-led strategy is clearly reflected in ADP's performance, where we have seen the knock-on effects. ADP's TPV grew 27% year-on-year, with active merchants up 8% to 102,000.

Supplier payments within ADP continue to perform strongly, growing 48% year-over-year, supported by traction from the cash solutions and targeted vault placements by our sales teams. We now have more than 1,900 suppliers on the platform, materially reducing cash handling risk and improving administrative efficiency for both merchants and suppliers. Within prepaid solutions, TPV increased by 2%, with ongoing pressure on airtime volumes offset by sustained demand for electricity and vouchers consistent with the trends seen in quarter one. Corporate lending originations reached ZAR 205 million for the quarter, representing 35% growth year-over-year. While our credit scoring criteria remains unchanged, the reduction in the minimum loan sizes has expanded our addressable market. The loan book grew 28% year-over-year to ZAR 389 million, and although penetration remains modest, the growth opportunity is encouraging.

In our software businesses, which include GAAP and Masterfuel business, active merchants increased 5% to just over 10,000. We continue to drive the adoption of our cloud-based Unity platform in the hospitality vertical. While Unity may result in lower initial subscription fees, it significantly improves customer lifetime value, supports long-term growth, and enables the merchant acquiring and software cross-sell. This strategy positions us as the partner of choice for restaurants seeking to modernize and scale. We would like to give slightly more color into the corporate versus community split and how we categorise our merchant base. In our corporate segment, we have the historic Connect and Adumo businesses, which comprise approximately 25,000 merchants with an ARPU of circa ZAR 5,900 per month. The distribution model is largely driven through corporate channels at a franchise level and through ISV partnerships.

The sales cycles generally take longer as the product offering is more complex. On the community side, we have approximately 105,000 merchants using our services. The sales process is driven by our boots-on-the-ground salesforce, with our teams going into townships and rural markets and engaging directly with merchants. The sales cycle is much shorter, and the implementation is simpler. However, ARPUs are lower at circa ZAR 800 per month. We have spoken a lot recently about layering our products and services as we deepen our merchant relationships. From a financial perspective, the impact is profound when we get this right. For an example, in corporate, when we add an acquiring solution to a typical software client, we can see an ARPU uplift from ZAR 3,000-ZAR 5,000. In the community segment, adding acquiring to a typical ADP merchant can see an uplift from ZAR 550-ZAR 950.

With our comprehensive merchant offering, layering and cross-selling solutions through deeper relationships supported by continuous product innovation is the core pillar of our strategy going forward. I will now move on to the consumer division. I am pleased to report another record quarter with improvements across all our primary KPIs. We achieved a significant milestone in quarter two, with our active base exceeding 2 million customers, representing a 21% increase over last year. In another first, for quarter two, Lesaka recorded the highest net new additions in the grant beneficiary market, surpassing Capitec and other competitors for the first time. As I mentioned in the last quarter, we believe these results are due to our focus on delivering relevant products with an appropriate value proposition through convenient distribution channels for our consumers.

The core drivers of this significant growth include continued research and development in our proprietary technology platform, Bonga, which enables our frontline staff to efficiently onboard and provide a full-fledged operational account in under five minutes. Our ARPU has increased by 15% year-on-year to ZAR 91 per month, driven by continued engagement and cross-sell success for our lending and insurance products. Our penetration rates have improved consistently as account holders recognize the value propositions our products offer relative to our competitors and the ease of access which we provide. At the end of quarter two, 19% of our active consumer base has a transactional account, a loan product, and an insurance policy, up from 14% at this point last year. Combining our base of consumers beyond just a transactional account, we have circa 50% of our base engaged.

We believe that this is a clear demonstration of our product-market fit within this segment, but also leaving room for continued growth. Our lending product has been a key driver of the consumer division's recent success, and quarter two performance has continued and accelerated this trend with record originations and book size. During quarter two, we originated circa ZAR 1.2 billion in loans, an 88% increase over last year, with the outstanding book up 106% at circa ZAR 1.5 billion at quarter end. This is a milestone achievement as we've dispersed more than ZAR 1 billion in a quarter for the first time. These growth rates have been supported by the new loan product launched last year, which increased the loan size from ZAR 2,000 to ZAR 4,000 in the maximum tenure from six months to nine months.

The new lending product, with an increased tenure of nine months, represents 40% of our originations during this quarter. Our investments in distribution, technology, and training have also supported this growth. We are seeing increased use of our low-cost digital USSD channel, which allows customers to originate loans digitally with immediate disbursements. This not only improves customer convenience but also our unit economics. 8% of new loans originated in the last quarter came through USSD channels, and we are seeing a steady increase in this trend. Encouragingly, our borrowers' profile reflects deepening relationships with our consumer clients, with 78% of originations being to repeat borrowers and 80% being to clients of over two years. This is important from a credit risk perspective as we gain a deeper understanding and gather richer data sets on our customers' borrowings and repayment behavior. This facilitates improved credit scoring, provisioning, and product development.

As a reminder, we provide for default at 6.5%. We continue to actively manage the credit risk of our portfolios, and we'll adjust our provision methodology as required. Turning to our insurance business, we delivered another very successful quarter. We have tailored our insurance offering to provide funeral and pensioner insurance policies customized and priced for the grant beneficiary market. Gross premiums return increased by 38% to ZAR 134 million, and the number of enforced policies increased by 29% to 641,000. Promisingly, our collections ratio remains unchanged at a very high 96% for this end of the market. As mentioned in the last quarter, given the success of our insurance products, we are now pilot selling insurance policies in the open market and beyond the Lesaka consumer base from quarter three onwards.

We are currently focused on a number of exciting strategic initiatives which should continue this trend, including the migration to Bank Zero, the One Lesaka rebranding, growth of our digital capabilities and channels, and our expansion beyond our traditional grant beneficiary base. Turning to our enterprise division, as a reminder, this segment comprises three core businesses: alternative digital products, utilities, and payments. Starting with ADP, this business provides the integration technology that enables customers across South Africa to purchase prepaid solutions such as airtime and electricity, and to make bill payments through multiple channels, including major retail networks. We are one of the largest aggregators in the country. The ADP ecosystem brings together collectors and receivers. Collectors are the enterprises that act as sales and payments channels, allowing consumers, merchants, and businesses to access our platform, whether through a banking app or at a large retailer.

On the receiving side, our partners include all major mobile network operators, electricity providers, insurers, as well as gaming and money transfer services companies. Lesaka sits at the center of this ecosystem, efficiently processing bill payments for a fixed fee per transaction and facilitating the buying and selling of these prepaid solutions for a commission on volume. In quarter two, total ADP TPV reached ZAR 11.9 billion, representing 18% year-on-year growth. Bill payments account for over 75% of ADP volumes. Turning to utilities, this business sells prepaid electricity meters and prepaid electricity vouchers. Meters are distributed primarily through large national retailers such as Builders Warehouse, Leroy Merlin, and BUCO, while prepaid vouchers are sold across retail outlets, apps, and online platforms. Utilities' total payment volume increased 15% year-on-year to ZAR 465 million in quarter two, continuing our positive growth of both inflationary pass-through of electricity pricing and organic volume growth.

We now have over 500,000 registered meters, with 357,000 active meters up 6% year-on-year. We define active meters as those that have recorded a top-up within the last 90 days, akin to our definition of active consumers and merchants. We recently launched our proprietary payment switch and moved from the pilot phase to full migration of internal acquiring transactions. As mentioned earlier in the merchant overview, 40% of our merchant card acquiring volumes were switched in-house this quarter through the enterprise division. This will retain more value within the group, but more importantly, reduces reliance on third parties, which greatly improves our flexibility and responsiveness in servicing clients and product innovation. More broadly, the enterprise division has made significant progress over the past year in reshaping its operations to focus on core capabilities.

This included the exit of several legacy businesses while at the same time accelerating expansion of our collectors and receivers network. Growth on the collector side is particularly powerful through a force multiplier effect, with a single partnership unlocking thousands of distribution points. We've been successful in a number of key partners over the past few months. These include airtime products through Shoprite stores, which add over 2,500 distribution points to our network, as well as Investec clients through its native app and website. On bill payments, we've partnered with Spar, adding another 850 sites to our network. That concludes the operational overview for quarter two. I will now hand over back to Ali to take you through our guidance.

Ali Mazanderani (Executive Chairman)

Thank you, Lincoln. Turning to our third quarter guidance for net revenue, we are providing a range of ZAR 1.65 billion-ZAR 1.8 billion, the midpoint implying a growth rate of circa 27%. Group-adjusted EBITDA is expected to be between ZAR 300 million-ZAR 340 million, with the midpoint implying growth of circa 37%. For the full-year guidance, we are pleased to reaffirm our net revenue range of ZAR 6.4 billion-ZAR 6.9 billion and ZAR 1.25 billion-ZAR 1.45 billion for group-adjusted EBITDA. As a reminder, these exclude any impact from Bank Zero should the acquisition complete in this financial year. Group-adjusted EBITDA includes all costs associated with office moves but excludes potential once-off marketing costs associated with the new brand launch. These imply growth rates of 21%-30% in net revenue and 36%-57% in group-adjusted EBITDA.

We are excited about the second half of the year and the earnings momentum we expect to take into FY 2027. Thank you for attending our earnings presentation. We will now address any questions you have for the team.

Operator (participant)

Thank you, Ali, Dan, and Lincoln. Chorus Call. Please, could you open the line for Theodore O'Neill from Litchfield Hills Research?

Theodore's line is now open. Please go ahead.

Theodore O'Neill (CEO)

Thank you very much. A question about the consumer segment. In the 10-Q, you cite an increase in transaction fees, insurance premiums, and lending revenue for the year-over-year growth. Is the increase in transaction fees an annual event? And on the insurance and lending, I want to understand the growth there. Is this an underserved market, or do you have to take share from competitors?

Dan Smith (CFO)

Thanks, Theo. I think, Lincoln, I'll let you answer that one.

Lincoln Mali (CEO)

Thanks, Theo. Yes, we do review our transaction fees on an annual basis, and some of those increases are there, you know, given on an annual basis. But I think what's important to understand is that on the transaction side, we are taking market share from an existing competitor, largely the Postbank, and from other banks. We are growing net addition customers more than our competitors, and that gives us the edge. When it comes to loans and insurance, these customers are underserved. Many of them do not have any formal institutions that are able to provide them with loans or provide them with insurance. On the loan side, many of these customers are being given loans by unscrupulous and unregulated microlenders. We are able then to give them, you know, loans that are fair, transparent, and they're able to afford, and hence the growth in that loan portfolio.

Insurance, there are other competitors, but I think that they are not as penetrated in this market as we've got now.

Theodore O'Neill (CEO)

Thank you very much.

Operator (participant)

Thank you, Theodore. Chorus Call. Please, can you open the line for Ross Krige from Investec?

Ross, your line is now open. Please go ahead.

Ross Krige (Equity Research Analyst)

Thank you. Good afternoon, everyone. Thank you very much for the call. I have 5 questions. I'll just ask the three on merchant first and then pause for you to answer. So just on merchant, the declining ARPU, if you could just, I think Lincoln mentioned a few of the drivers. Just in terms of the run rate going forward, how much of the impact is still got to come through there? How do you see ARPU trending, I guess, over the next six-12 months?

Then in terms of the cross-sell in merchants and the decline over the last year in product penetration, just wondering, is that a timing issue? When do you expect that to start moving the other direction? And then thirdly, on merchant, just the acquiring cross-sell, which could show the impact on ARPU, just wondering, is that sort of the key opportunity in the short term? And I wonder if you would comment on where you see that penetration going across the different parts of the business.

Dan Smith (CFO)

Thanks a lot, Ross. Okay, so firstly, on the ARPU, the principal driver is ADP, and as Lincoln said, airtime within that dynamic. How do we see it? I think that we expect that ARPU to stabilize and then ultimately increase over the coming 12 months.

The driver of that increase is not individual product ARPU, because remember, that ARPU is a composite of the five. It's effectively as a consequence of the collective. In terms of cross-sell, so the product penetration rate is a percentage. So the number of customers who have more than one product or more than two products has not declined year-over-year. It's increased marginally. But the main driver of active merchant growth has been through the ADP product in the community segment. And there really the strategy is a land and expand one. We hope to ultimately be cross-selling additional product into that base, notably, as you mentioned, acquiring. And yes, acquiring is a core cross-sell offering in both the community and the corporate segment. And the most common attachment rate is ADP and acquiring in community and software and acquiring in the corporate segment.

It's one of the sort of principal areas of focus in that respect and one where we believe we have a moat that enables the APU to be sustained. Does that answer those first three?

Ross Krige (Equity Research Analyst)

Yes, thank you very much. Sorry, so two more, just one on consumer, one on general. On consumer, the lending growth or originations is obviously ticking up quite a bit. If you could just maybe talk to some of the drivers behind that. And then again, if we think about the outlook of the next year, is that a lever that you expect to continue or an opportunity that you expect to continue to execute on? What sort of growth rates and originations should we think of going forward?

On the marketing costs related to one brand that you mentioned would be excluded from adjusted EBITDA, I don't know if you could give us an idea on the level of that.

Dan Smith (CFO)

Sure. So on the consumer lending, I'll go to Lincoln.

Lincoln Mali (CEO)

I think one of the important things that we highlighted a couple of quarters back was we had made a change in the loan sizes that we were giving to our clients based on research and engagement with the clients. So we increased the loan size from ZAR 2,000 to ZAR 4,000. And so we also increased the tenure from six months to nine months. That we call the medium-term loan. That has been so well received by the market to a point where 40% of the originations that we've got in this quarter come from this medium-term loan.

We see opportunities for more growth in this medium-term loan. The second thing that is also interesting is the investment we made in our digital channel, the USSD channels, that enables people not to come to a branch, but be able, at the comfort of their home or workplace, to make a loan application. 8% of our new loans in this quarter are originated from that USSD channel. We see that as another potential for growth. When we look at the quality of the book and the quality of the lending that we're doing, we must remember that 78% of the originations are to repeat borrowers. These are customers that we know and understand. 80% of those clients have been with us for over two years.

That gives us very good insights from a credit risk perspective and also gives us better understanding of the repayment capabilities and behaviors of these clients. We do see opportunities for these clients to grow with us and then new clients that we are taking on board as we grow our customer base on the EPE side to also take on lending with us. Maybe on the marketing question, Dan, do you want to go first? Yeah, so specifically rebrand costs, we estimate them for the next two quarters somewhere between ZAR 50 million-ZAR 75 million. Okay, thanks, Dan. Sorry, Lincoln, thanks for that explanation. Just if I can follow up on the rates of growth going forward, what should we expect?

I think that I would see the same level of growth because we are still at an early stage of the evolution of this loan product. As I say, 40% are taking up this. We think that a larger group will take that in the near term. So there's more upside going forward. And as the book also is well managed and the book is behaving well, we think that there's good prospects for more lending in this market in the future.

Ross Krige (Equity Research Analyst)

Great. Thanks very much, Lincoln. Appreciate it.

Lincoln Mali (CEO)

Thanks so much.

Operator (participant)

Thank you, Ross. I'm going to move to the questions from the webcast now. What is the rand amount of deposits estimated to be transferred to Bank Zero in terms of current Lesaka customers once the merger is complete?

Lincoln Mali (CEO)

Thanks. I'm not sure who the question was from.

Operator (participant)

From Johan Buys.

Dan Smith (CFO)

Okay. Thanks, Johan, for your question. So we stated that we expect, as a consequence of the Bank Zero acquisition, that we would be reducing the gross debt of the business by north of ZAR 1 billion. I would say that that is the lower bound of that. As a consequence of that, you should expect, obviously, that the deposit base in the business would be substantively more. I wouldn't wish to provide a specific number at this stage, though.

Operator (participant)

Thank you, Ali, Lincoln, and Dan. Thank you, everyone. We are going to wrap it up here. As a reminder, there will be a replay of the webcast on the Lesaka investor website. The IR team will reach out to anyone with unanswered questions. Thank you, everyone, for your participation.