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TymeBank buys Retail Capital, expands business banking offering

The acquisition means we can provide a unique quality of service to pretty small businesses throughout the economic cycle, and a very affordable form of capital: CEO Coen Jonker.

FIFI PETERS: TymeBank is planning to expand its business offering, and it’s planning to do this by acquiring Retail Capital. This is a fintech company, a fintech financer of many small to medium enterprises.

Read: TymeBank reveals plans to acquire SME leading funder

We do have TymeBank CEO, Coen Jonker, on the Market Update for more on the deal. Sir, thanks so much for your time.

So what’s happening here? I feel like this deal is really saying ‘game on’ to the likes of Capitec and African Bank and I’m wondering if that’s the play here. Are you going for their slice of pie?

COEN JONKER: When you think about small business in South Africa, our view is that particularly micro and small entrepreneurs – owner-managed businesses – are possibly the most chronically underserved and under-capitalised segment in the whole economy. So the way we think about it is that there’s a big blue-ocean opportunity here that is not trying to fight for market share in the mature market with existing players, but actually serving customers who have not been served properly ever in the past.

So we think of things like cash as bigger competitors for us than necessarily other banks, and particularly bigger competitors than the traditional banks.

FIFI PETERS: So what you are saying is that you’re trying to bake a bigger pie. So how does this deal enable you to do that?

COEN JONKER: As you possibly know, we already provide solutions and products for small and micro businesses. As we speak, we’ve got more than a 100 000 on our platform and we provide them mostly with transactional banking [and] savings solutions. Now we are expanding into payments-acquiring solutions, car-acquiring and so on.

But what Retail Capital does that is unique is they’ve got technology-enabled solutions that allow us to extend unsecured working capital to these businesses.

That aspect, that ability to provide businesses with working capital, is what is really unique and exciting about this deal.

FIFI PETERS: So that’s what it will enable you to do that you weren’t doing previously. Who is Retail Capital? It’s not a company that’s front and centre and public that a lot of people may be aware of. Tell us who this financier is, and how successful they’ve been in providing this unsecured capital for their customers.

COEN JONKER: Retail Capital has been in business for 10 years, and they are hugely successful. They are a profitable business and they’ve remained successful and profitable even through the most difficult business cycle, which was a one-in-a-100 years disruption in small business caused by the Covid lockdown. So it’s a very resilient, very strong business, very technology enabled, and it is really this technology enablement, the fintech nature of the business, that has allowed them to actually manage risk well, and also provide a unique quality of service to pretty small businesses throughout the economic cycle.

FIFI PETERS: So I imagine the plan may be to sort of onboard or offer the product out to your existing banking customers – 100 000 I think you said, or 100 000 is listed in your statement – but I imagine the plan is to grow beyond that. So talk to us about the growth plan and the time frame that you are hoping to achieve that growth in.

COEN JONKER: Yes, these things are by definition difficult to predict. But we see sort of two areas of growth. The first is that this allows us to expand our services to our 100 000 small-business customers, and also to allow customers who have not traditionally made use of this kind of banking service to join us.

But Retail Capital is already at the moment providing financing to somewhere around 40 000 to 45 000 customers through their distribution parties. We are point-of-sale providers into the market, the likes of Yoco and Core Cash, Sureswipe and so on. And we will support them in continuing to grow their business and to help their distribution partners grow their businesses. So we really see it as not only helping current and future TymeBank customers, but also strengthening the current Retail Capital proposition and supporting their distribution partners.

FIFI PETERS: Okay. I know Yoco. One of the founders is Katlego Maphai. So then what happens to Retail Capital in this deal? What’s their role in the future structure?

COEN JONKER: This is a 100% acquisition, so Retail Capital in South Africa will really become a division of TymeBank and the Retail Capital team will become our sort of business banking team. The CEO of Retail Capital, Karl Westvig, will come onto our group exco and will also help us take this proposition to the rest of the world.

Another little piece of news hot off the press is that we have just opened our first TymeBank account in the Philippines today. So our bank vehicle, GoTyme Bank, is now officially live and up and running in the Philippines, and we will be looking to take the Retail Capital proposition there as well.

FIFI PETERS: Thanks for the scoop. Good to know what you’re getting up to elsewhere. So the ease of capital is great for SMEs and, as you say, Retail Capital has been doing this without necessarily requiring any assets to back it up; it’s unsecured. But the challenge has come with the cost of that capital in the unsecured space, which has traditionally been a lot more than secured lending. So what interest rates are we looking at here that funding is provided at?

COEN JONKER: I think this question of the cost of funding is a very important one, and the way Retail Capital works is it’s not an interest-based product in the traditional sense.

So how it works is Retail Capital actually buys a portion of the future revenues of the business – and what the actual interest rate is, is actually a function of how fast the business is able to pay back.

So we look at it obviously from an ethical perspective, as well as from a practical business perspective.

I think the short answer is that for small businesses this is a very affordable and very consistently cost-effective form of capital.

FIFI PETERS: All right, because your parent company, African Rainbow Capital, issued a statement earlier this morning, letting its shareholders know what you were getting up to as its subsidiary, and in that statement described Retail Capital as the largest financier of SMEs of its kind.

I asked myself what they meant by that. How do they do things differently, as it were, to other financiers of SMEs? You’ve just mentioned perhaps one of the ways, just in taking some of the cash flows of some of the companies that they finance as a funding model. But what then is the [criterion] that they use to choose whom to give money to or not?

COEN JONKER: It’s a very interesting and pretty unique model in that what they do is they track the turnover that comes through a retailer’s point-of-sale device and through their bank account on a day-to-day basis. And what they are very able to do from tracking that – without any access to financial statements or anything else – is to predict the future turnover of that business. Not only do they track and lend against or provide capital against that turnover, they also collect from that same source of capital.

So instead of the business paying back, say, monthly or weekly, as they would do typically with banks, Retail Capital actually takes a percentage of that turnover as it evolves. In doing this they actually follow the cash-flow cycle of the business.

So essentially then, if the business has a lot of money they will repay quicker. If the business doesn’t make a lot of money, if the turnover is down, they collect more slowly.

That works for the business because the business doesn’t have these big events where they have to repay capital, and it also works from a risk-management perspective because the cost and risk of collections is significantly reduced in this mechanism.

FIFI PETERS: When do you hope to get this deal done?

COEN JONKER: The deal is signed. It is now subject to regulatory approvals. As you know, these things are not predictable. But we are thinking that we should be able to close in the next two to three months.

FIFI PETERS: And how much are you buying it for?

COEN JONKER: We have not yet disclosed the purchase price. I think once we’ve got the regulatory approval we’ll share that information.

FIFI PETERS: All right. That’s just me trying my luck there, thinking that you might disclose it to me.

Coen, thanks so much for your time. We’ll leave it there. That’s the CEO of TymeBank, Coen Jonker.

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