Investment app aims to enhance financial inclusion

Top-end investment products readily available to everybody with a cellphone and R10 per month to invest.
Fintech start-up aims to make investing inexpensive, uncomplicated and accessible. The author put its app to the test. Image: Bloomberg

Sometimes investing is just too complicated for small investors, while South Africans do not have a good reputation when it comes to saving.

Those who do want to save and invest face a number of obstacles – they earn little to no interest, can’t get easy access to investment funds, products are complex, minimum investment amounts are too rich for their pockets, and they pay high fees in order to invest.

This is the view of Thomas Brennan, CEO of fintech start-up Franc, a member of Rand Merchant Investment’s AlphaCode fintech incubator.

Of interest is that the Franc app has simplified things to enable easy access to two top-end investment products – the Satrix 40 ETF (exchange-traded fund)  and the Allan Gray Money Market Fund. It chose only these two funds to simplify the investment process.

Barriers

“Often, barriers to investing are too much to overcome. People simply give up and keep their money in a bank savings account, where it attracts little to no return.

“It is estimated that over R300 billion is sitting doing nothing in current accounts. It benefits the banks’ bottom lines the most,” says Brennan.

“This tells us that consumers don’t know how to get their money to work for them. But South Africans are evidently keen to learn, as ‘how to invest’ and ‘investment app’ are popular Google searches and SA is in the top five countries in the world for these search terms.”

A quick look on Google’s Play Store for investment apps shows only a few decent options, including Franc, Liberty’s Stash, Fedgroup’s investments apps and Purple Group’s EasyEquities.

Most of the other options that come up in online searches seem to be very high-risk and offered by sometimes dubious foreign exchange and contracts-for-difference (CFD) brokers.

Two issues tackled

“We have seen that the main barriers to retail investing in SA centre around product complexity and minimum investment requirements,” says Brennan.

“Franc’s mission is to make investing easy and accessible to all. One part of that mission was simplifying the world of investing for a first-time investor.

“The second part of that was removing all minimum investment requirements,” he adds.

“Our aim is to make investing inexpensive, uncomplicated and accessible. Investment products often have minimum investment requirements and usually require consumers to start their investment by depositing a lump sum of as much as R50 000. This immediately excludes the majority of South Africans.

“We were frustrated by so many South Africans having no savings or investments that we decided to create the simple-to-use Franc app.

“In addition, consumers are often intimidated because investment products are so overwhelmingly complex. We minimised the complexity by narrowing the investment choices to just two funds, the Allan Gray Money Market and the Satrix 40 ETF. We chose the best-in-class, market leading, low cost, high performing funds from trusted product providers.

“With Franc, people can start investing with as little as R10 per month. In a world where there is an app for everything, the Franc app for investing can be used by anyone with a phone,” says Brennan.

Franc is privately owned and management and staff are the only shareholders. It is registered with the Financial Services Conduct Authority (FSCA) as a Category 1 investment advisor. Franc is licensed to offer automated advice for investment in both short- and long-term deposits, pension schemes and unit trusts. In addition, Franc is licensed to offer automated advice for both short- and long-term insurance products.

Fees

Users are charged an all-in annual fee of 1% of money invested through the platform. In other words, that 1% includes the fees charged by the underlying product providers Allan Gray and Satrix. There are no fees to deposit or for withdrawals (subject to limitations).

The fees are collected monthly. There is also a brokerage fee of up to 0.3798% on Satrix ETF purchases and sales that is passed through to customers.

Of interest is that Franc Stokvel is currently operated as a stokvel – the smaller and easier version of a mutual bank or mutual investment company.

Investment clubs and stokvels are allowed in terms of SA legislation that regulates deposit-taking institutions, which reduces administrative requirements and operating costs.

Brennan says the Franc Stokvel is an independent organisation with its own constitution and governance structures. Franc Group (Pty) Ltd has an arm’s-length service agreement with Franc Stokvel and assists in administering the flow of funds from the stokvel members into and out of the respective investment products. No investment contribution is channelled through the company’s bank accounts.

However, Brennan indicates to Moneyweb that Franc might have to revisit this soon given the remarkable growth since the product’s launch in October 2019.

“As the legislation currently stands, stokvels have an upper limit before they need to register with the Sarb [South African Reserve Bank] as a co-operative financial institution.

“We are actively working on solutions, which will likely come into effect later this year, to enable us to continue to offer a no-minimum investment requirement to Franc users,” says Brennan.

Educational aspect

Research done by Franc found that most people who save small amounts do so to create an emergency fund.

People also indicate on the app that this is the most common investment goal, rather than saving for wealth or towards a holiday or big purchase.

Brennan says that Franc aims to increase financial inclusion. As part of this mission to help as many people as possible be better with their money, Franc publishes educational content every week and offers a more structured learning academy.

Test run

Moneyweb downloaded the app and registered to test it. Registration took only a few minutes as claimed. It was a bit frustrating at times, due to the need to explain some basics, but this is probably necessary.

The only criticism is that we had to dig into the ‘fine print’ a bit to see the applicable fees for using Franc to get into the underlying funds. It requires little in terms of administration and the usual long list of certified documents.

The app includes a simple calculator that gives an estimate of how an investment will grow, and one can opt to limit withdrawals for a few months to keep the demons of temptation at bay.

Listen to Ryk van Niekerk’s Be a Better Investor interview with EasyEquities CEO Charles Savage, on how the platform has disrupted the SA investment market since inception (or read the transcript here)

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