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TymeBank receives Tencent and CDC Group investment

‘Both CDC and Tencent have immense experience, have invested in many businesses in many different geographies, and the learnings they will be able to share with us will be invaluable’: CEO Tauriq Keraan.

FIFI PETERS: The digital bank that is backed by Patrice Motsepe’s African Rainbow Capital, ARC, has just raised over R1 billion from foreign investors, including Chinese tech giant Tencent. Shares of ARC Investments today finished nearly 6% higher on the JSE.

Here to explain what this capital raise means for TymeBank, I’m joined by its CEO, Tauriq Keraan. Tauriq, thanks so much for your time and it’s good to speak with you again. It is quite a considerable amount that you have gone out to raise from foreign investors. Talk to us about that process.

TAURIQ KERAAN: Good evening Fifi. Thanks for having me on. This is really an extension of our Series B that started last year. We started off by bringing Apis and JG Summit, our partner in the Philippines, on board, and then concluded with bringing Tencent as well as CDC.

It’s massively momentous, not only for our business but I think a huge vote of confidence in the banking scene in South Africa.

Both of these investors are not only bringing the capital and very strong pockets but, as importantly, are bringing massive value-add in terms of extended networks and expertise.

FIFI PETERS: Where is the money going?

TAURIQ KERAAN: Into two places, Fifi. About 30% of the slug of money will be going into our international business to fund expansion. In South Africa we’ve built a fantastic digital-banking deployment, which has significant applicability in other markets that show very similar attributes to South Africa.

The first market we are going into outside South Africa is the Philippines. We were recently awarded one of six new digital banking licences for the bank, which process is well underway and we need to launch that bank publicly to the market next year.

The rest of it, so about 70%, is going to fund third-phase expansion into South Africa. You know, our proposition has been getting richer, has become fuller over time, and it’s translated into rapid growth and diversification of our customer base in South Africa. [We are] looking to bring to market some very exciting products through the course of the first half of next year, as well as to bring to fruition our partnership with TFG, The Foschini Group.

FIFI PETERS: How’s that going?

TAURIQ KERAAN: The partnership with TFG – I think we signed that deal a couple of months ago. I must say that development has progressed very quickly, so we are already live with our buy-now-pay-later product called MoreTyme in over 400 Jet stores. Towards the end of next year or so we’ll look at expanding it into other TFG brands. But, very importantly, it’s all hands to the pump on bringing our banking proposition to fruition inside TFG stores, and there we are looking at launching 600 new kiosks through the course of next year. That’s a new technology, so it’ll be our third industrialised version of the kiosk in a shorter space – two-and-a-half years.

Then later on we will look at responsible forms of lending, off the back of the data that we build through buy-now-pay-later. So the partnership is progressing well and a relationship is forming well.

FIFI PETERS: Tauriq, you and I are having this conversation on a day we’ve had our GDP numbers coming out, and most of the sectors in the economy have been weak – except, I say, for finance. In fact, that was one of these sectors that grew, and you’re talking about bringing more money into this sector with more investments. We were having this conversation earlier among friends, to say that it’s welcome that the financial sector is growing, but we wonder just how labour-intensive our financial sector is going to be, especially in this new digital era.

Your investments – what will they mean for the branches you might be opening? What will they mean for jobs?

TAURIQ KERAAN: At the more macro level it’s incredibly sad at the human level to see what’s happening with the economy. I do think that the contraction we felt in the third quarter was somewhat cyclical in nature. The disruption through the civil unrest and how that knocked-on into areas such as retail and manufacturing was heartfelt. Nonetheless I do believe that while banks’ market caps are closely correlated to GDP, that’s really for mature banking businesses.

The challenge to businesses is growing on a different plane altogether, creating new market share, taking market share from other sides. I don’t think there’s a close coupling with the growth of challenger organisations against GDP. We’re not entirely insulated and not without our challenges, but we’ve got some excellent tailwinds as well.

This investment is significant because it’ll allow us to expand our product sheet, as well as our distributions substantially. But I think it’s also really important that we recognise that both CDC and Tencent have immense experience, have invested in many businesses in many different geographies, and the learnings that they’ll be able to share with us will be invaluable for the growth of the bank.

We’ve had a major impact on the lives of ordinary South Africans, Fifi. An organisation like CDC, which is one of the largest impact investors globally, would not have invested in us if they couldn’t see the positive impact and change that we’ve brought to the lives of ordinary South Africans.

So I think this investment both in terms of lessons learnt, the network effect they bring, as well as the capital, will just allow us to further improve upon that impact.

FIFI PETERS: You’ve brought a lot of South Africans who perhaps previously didn’t have bank accounts into the formal financial sector, and you do say that you’re growing pretty fast – four million new customers in 32 months. But Tauriq, how many of these accounts are actually active?

TAURIQ KERAAN: Just let me preface this by saying that, on the contrary, over the last 15 years or so since I’ve been involved closely in digital banking, the unbanked population in South Africa ha shrunk significantly, largely because of the way we handled the distribution of social grants. But there are still significantly under-serviced pockets.

Even those customers that are well serviced, many of them are not satisfied with the levels of service they get from their bank, so there’s massive opportunity.

Out of the just shy of 4.2 million customers, as we speak, about 2.6/2.7 million are active, which means that they’ve generated revenue for us over the last 30 days.

I’d just like to caution us not to look at the remainder as inactive and dormant accounts, because what happens is that the active rate has been improving with Tyme all the time. When we launched the bank it was less than 50%; it’s about 65% now, and this is due to the dynamic we’re seeing, where thousands of customers every month become active for the first time.

So that inactive base, because it’s incredibly low-cost for us to onboard customers, shouldn’t be seen as wastage. It’s unlike the branch model where you’ve got an Incredibly high cost of acquisition.

FIFI PETERS: All right, point taken. We’ll leave it there. Thanks much for your time, Tauriq Keraan, CEO at TymeBank.

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