SOUTH AFRICA:Fintech finds traction

Cape Town-based contenders are fast making their mark on an increasingly vibrant fintech scene. Fintech essentially involves technology services used to support and enable banking and financial services.

Cape Town has a long history of innovation in this regard – remembering that in 2011 a locally developed mobile payments company Fundamo was sold to financial services giant Visa for $110 million.

Some of Fundamo’s shareholders included Remgro, Sanlam and Mark Shuttleworth’s HBD Capital. Who can forget that PSG aligned Capitec Bank combined technology and banking services to offer a low cost banking model to the multitudes of ‘unbanked’ in South Africa. Indeed, even Naspers – originally a media company – is harnessing technology to drive its fast expanding e-commerce offering.

Last month news broke of Prodigy Finance - an international fintech platform specialising in student funding loans – clinching a R3.19 billion fund raiser. This includes a R532 million equity round led by venture capital firm Index Ventures with participation from Balderton Capital and AlphaCode (part of Rand Merchant Investment Holdings) as well as a R2.66 billion debt facility led by a global investment bank.

Since Prodigy – which has more than half of its staff headquartered in Cape Town - was established in 2007 it has provided more than 7 100 students over R4.32 billion in funding.

The business expects to lend to 20 000 customers by the end of 2018. Prodigy Finance’s global credit model assesses applicants based on projected earnings rather than historical credit, allowing the company to provide funding to students without collateral, a co-signer or guarantor.

Cameron Stevens, the founder and CEO of Prodigy Finance, said Prodigy was excited about the investment.

“It will help us double the size of our student portfolio. We saw a market failure in international lending and have spent the last decade rectifying this problem. Our business model and the schools we work with have also allowed us to build a talented team of experts, including our tech professionals and programmers in Cape Town.”

Dominique Collett, the head of AlphaCode, reckoned Prodigy had a truly differentiated business model that solved a real customer need.

“It is powered by a talented team, and is one of the leading lights of international fintech.”

Another Cape Town company that is making waves in the fintech sector is mobile money transfer specialist IMB. Since 2009 it has processed transactions to the tune of R3bn and its customer base is growing at a rate of about 10% a month.

CEO Glen Jordan said this showed there is a market for mobile money transfer services as long as the offering met the actual needs of South African customers. One of IMB’s key innovations is its hybrid model that links customers’ mobile wallets to an optional MasterCard debit card that unlocks access to the “real” world via ATMs or any shop or retailer with a card machine.

Jordan said IMB had reasserted the value of a human interface by creating a network of service centres owned and operated by members of the community where they operate.

“This establishes a trusted point of contact for would-be customers in the form of someone who lives among them.”

Of the about 31 million debit orders that are processed nationally each month, roughly 1.2 million go unpaid (according to the Payments Association of SA). Jordan said IMB gave consumers control over their repayments with a unique account protected from debit orders.

“This gives customers back control of their finances, allowing them to manage their cash flow on their own terms.”

The market potential for IMB is sprawling. Jordan pointed out that Although three quarters of adult South Africans have a bank account, the “unbanked” and “under-banked” still make up a large portion of rural and disadvantaged communities.

“This is a large group who are trapped in poverty, without access to financial services, restricted to cash and unable to store money safely. Cost and physical location are both barriers to entry for this group, and mobile money and mobile phones offer a financially inclusive solution for them.”

Another fintech firm to watch is Wonga, the short term lender of unsecured credit that is in the throes of re-investing itself in South Africa.

Formed in the UK, Wonga’s South African operations are managed out of Cape Town and revolve mainly around offering loans up to a maximum value of R 8,000 for up to 45 days.

First time borrowers are able to borrow R3 000 with interest rates capped at 3% per month for the duration of the loan. CEO Brett van Aswegen said that following engagement with the credit regulator in 2015, Wonga went through a significant strategic review of its business.

This saw a strengthening of the lending criteria and re-approaching the role it played in securing its clients’ financial wellbeing. Van Aswegen – previously employed by retailer Edcon, Standard Bank and furniture chain Lewis - joined Wonga in 2015 to lead the company through the strategic review and into a new growth phase. Van Aswegen said revamped Wonga is now positioned as a disruptive fintech business.

“We think we have something special. We have a five year plan. The first two years have been around transition, and we are now building a substantial springboard for growth into other financial service territories.”

He stressed that Wonga’s fintech model bridges some of the challenges faced by lenders with a branch infrastructure. Branchbased lenders will sit with cost to income ratios of more than 40%.

"We will be much lower, probably better than 30%, which gives us the ability to deal with pricing challenges.”

Although the company is now significantly smaller that its original format, Van Aswegen said year on year the new look Wonga had seen growth of 20%.

“What we are really presenting the market with is a cash advance application – a digital overdraft for people that don’t usually have access to an overdraft facility.”

SOURCE:CAPE BUSINESS NEWS