SIMON BROWN: I’m chatting now with Charles Savage, CEO of Purple Group, which of course owns EasyEquities. I own Purple – disclaimer upfront. [Results] for the August year-end revenue up 26%, headline earnings per share up 190%. It’s not perhaps the big story.
Charles, I appreciate the early morning time. [You have] 737 000 funded accounts. I remember working in the industry 15 years ago and we thought the industry size and its totality was maybe 700 000 or 800 000. You’ve blown past that. How big can you get in terms of a customer base – I don’t know, let’s dream big – over the next decade?
CHARLES SAVAGE: Good day, Simon. First you start slowly and then it happens really fast. I guess it went slowly for a long time and now it’s moving really fast. I think the runway for growth is millions and millions of accounts. If you look at the formal work sector, let’s put a number of round about five to seven-and-a-half million people. So our first target is to get to those kinds of numbers rather than the ones we’re at now.
We’re growing at 60 000 accounts per month.
I think you can understand the context of how big that is in the South African sense, and that’s growth rate. We’ve still got new growth rails, distribution rails, that will be extended early next year. We’ve signed Discovery and Bidvest Bank – both of those will launch in the first quarter of next year. I don’t know how many accounts they’re going to add, but they are going to add accounts. So that 60 000 accounts [added per month] should accelerate nicely over the next 12 months.
The other thing is that we are seeing equity markets specifically … finally getting some lift for retail investors. That’s always a catalyst for further growth. Money brings in more money and so I think we’ve got a really good period ahead of us in terms of retail growth, focused on getting to that one-million account number. That’ll be something worth celebrating and beyond.
SIMON BROWN: That 60 000 a month is 720 000 a year. You should be there quickish. Of the 60 000 a month how many come through Capitec, how many sort of come generically through your front door?
CHARLES SAVAGE: …It varies from month to month. Capitec will average about 20% of that and the 80% balance is through our own front door.
SIMON BROWN: That’s chunky from Capitec, a significant number. I worked for a broker who once basically had as many accounts as you sign in a month. Looking at profit per account if I distilled the numbers, it’s about R67 per account … per year. It’s very much sort of the Checkers model. That is what EasyEquities is. Keep it cheap, make it easy, make it accessible. What is the cost of acquisition and onboarding per account? Is a new account profitable in year one?
CHARLES SAVAGE: It is. We’ve got the lowest cost of acquisition in the country. We haven’t seen anyone who has got it lower. It’s R50 of marketing spend and R9 of onboarding costs, which is KYC etc. That’s super low and that that magic really sits in our customers referring customers. If you refer a customer, you get R50, and that’s why there should be no surprise that it costs us R50 to [acquire] our customers. That’s really low, so we make money from our customers in the first year.
I think the point to talk to is that Arpu [average revenue per user] is improving. It’s difficult to see it in these numbers because the income statement improved recently, which means that our biggest amounts of customers arrived in the last 12 months and you can’t see what the value of the customers that arrived five years ago is, because they are crowded out. So you must [remember] it’s not R69. A customer who has been with us for five years … is worth about R300/400 to us. So it’s something that I think no one really has picked up on. If I could show them what a 2014 customer looks like in terms of the demographic, relatively it’s exactly the same as the customer that is arriving today. The big difference is the Arpu is like five times the value of that customer who arrived five years ago.
SIMON BROWN: Okay. That makes sense, because when they arrived five years ago they were testing the water, they were a little bit unsure. We all remember our first trade; truthfully It was scary. I remember a box popped up on my website and said: ‘Are you sure?’ The answer was, ‘heck no, I don’t know what I’m doing.’ As they sort of get more comfortable with it, as they make profit, they put more money in and spend more.
CHARLES SAVAGE: Yeah, exactly. On average they add about 18% of their own money to their portfolio and then the equity markets give them about a 12% lift. So, if you compound that there’s like a 30% growth rate that’s inherent in our customer base.
So as long as we keep them happy, keep them engaged, and markets do what they’re supposed to do, we should see a 30% increase in value of our customer NAV, which will translate obviously into high Arpu per customer.
SIMON BROWN: [Your] average account size is around 11 500. Of course, that’s going to be skewed. That’s an average, not a median. There are going to be some giant and there are going to be some small. How much of that is offshore, because of course you also offer clients access to offshore markets.
CHARLES SAVAGE: Yeah. We’ve got 225 000 [accounts] offshore. I can’t do the maths in my head, but that’s a couple of billion rand offshore. Your offshore is the fastest thing in the business. I don’t know if you remember, but we used to put minimums on the FX – we used to have to pay a minimum of $5 roughly to move your money (transfer costs). We’ve eliminated that minimum and, guess what, more people are arriving. Average amounts offshore are about $3 500. So quite significantly larger than the South African average, but that’s because we put this gate up that says you have to pay a minimum of $5. So I think the average will go down, but customers offshore have just reached 70 000 active accounts.
Now we are expecting that we’ll get to about 50:50 on those accounts over the next 18 months, so we are targeting about 250 000 US accounts over the next 12, 18 months.
SIMON BROWN: Part of that 10% now, so getting closer to 50 000. I see the attraction – offshore is a bigger market. It has the Teslas and just a wider market. Part of the place where you are now, 737 000 funded accounts is a giant number. What you’ve starting to do – and we see that evidence already – is introduce new products. We’ve got EasyProperties, we’ve got EasyCrypto, which is, what, 500 million invested. And I have no doubt that you and your team have a roadmap for new products still to come to sell to the existing base.
CHARLES SAVAGE: Yeah. The year before we launched EasyProperties and EasyCrypto, and we scaled those two businesses, which had been around just over a year really fast. I was checking in with EasyProperties yesterday. At year-end it had 35 000 customers; as of yesterday they had 51 000 customers. The business is scaling really fast, and the same can be said of EasyCrypto. EasyCrypto has over a hundred thousand customers; [we achieved] that in two years on our platform. EasyEquities itself took four years to get to that number….
We’ve got a pipeline of 10 new products and services. Our target is to roll out three or four of them. We are not entirely sure which ones, but I’ll tell you those that have a lot of traction and which I think will be the ones that we will launch.
EasyFX – so that people can move their money more easily to wherever their best investment opportunities are and, importantly, there we are adding sterling accounts … and euro accounts, so you can trade UK and Europe. That’s got a lot of traction, Then EasyVentures has a lot of traction, and that’s going to be very similar to EasyProperties, but this time for venture capital. So you can invest alongside the best venture capital firms in South Africa, and what they’re investing in. That I’m particularly excited about. And then EasyAustralia – we’re going to put a lot more effort around that. I know the product’s been live for a while, but we’ve done nothing with it for two years in Covid. So we’re going to put a lot more effort around those.
And there are more products stacking up behind those. If we focus a little and get some breaks in terms of time and resources, then we’ll also launch EasyInsure next year, which is life insurance built for investors.
SIMON BROWN: I’ll leave that there. That’s Charles Savage. It’s an astounding story listening to the interview. A lot of folks look at that share price and think it has all happened. I have to say, I think I agree with Charles. I think it’s only now starting to happen. Charles, I appreciate the early morning.