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How Transaction Capital hit the jackpot with minibus taxis

It’s a huge business, and only getting bigger.

Transaction Capital’s gravity-defying growth since listing in 2012 tells us something about the state of South Africa’s minibus taxi industry.

There’s no question that 250 000 minibus taxis are the oxygen of the SA economy, accounting for 15 million commutes a day, far greater than the two million daily commutes by train or commuter bus.

It is a R50 billion-a-year-business spawned by SA’s lack of a coherent public transport system during the apartheid years. Government would like to see public transport play a far greater role in the life of the country, to the point of offering generous subsidies for trains and buses. But nothing can dislodge minibus taxis as the preferred means of transport in the country.

Transaction Capital is arguably the largest taxi-focused business in the country, providing finance, insurance, auto repairs and loyalty programmes to taxi operators. It has 30 000 taxis on its books, and has turned what was previously an informal and poorly coordinated sector into a massive opportunity – not just for itself, but for taxi operators.

 

It filled a gap that others figured was too fraught with risk – financing and servicing the needs of taxi operators. “No one was giving taxi operators funds to purchase taxis, nor were they willing to insure them,” says Transaction Capital CEO David Hurwitz. “Go back 20 years and it was a very informal type of business, but today we are seeing a far more sophisticated operator.”

A good operator can make a net R30 000 a month from a single taxi. Using telematics provided by Transaction Capital, operators can now quickly establish which are the most profitable routes, and which have the highest incidence of accidents.

That information is pure gold in the hands of operators.

Source: Transaction Capital

The company has two main components to its business: minibus taxis and associated businesses, and non-performing debt recovery.

Both businesses are nearly 20 years old, but since listing in 2012, the share price has generated a return of roughly 30% a year.

“We’ve been able to maintain a strong rate of earnings growth in an economy showing almost no growth,” says Hurwitz.

After-tax profit over the last four years has grown at a respectable 20% a year.

The taxi finance business has a debtors’ portfolio of R11 billion at a net interest margin of 11%, with credit losses of around 3 to 4%.

Its taxi insurance business earns premiums of about R900 million a year.

Other businesses include the sale of telematic systems for tracking vehicles, and SA Taxi Auto Repairs, the largest panel beater in the country. The beauty of this business is that it deals almost exclusively with taxis. Repairing a single model type cuts the costs of parts and generates greater efficiencies than auto repair shops catering to a variety of models.

Loyalty

More recently it launched a loyalty programme that offers taxi operators discounts on fuel and other purchases. This is potentially one of the more exciting parts of the business as the loyalty network expands and new suppliers and retailers sign up for membership.

Transaction Capital has just 12% of the SA minibus taxi market, so there is plenty headroom for expansion. “We’ve moved deeper into the taxi business, and broadened our addressable market to cover a greater segment of the taxi industry,” says Hurwitz. “This has given us our growth.”

Telematics growth

Another growth avenue lies in the telematics part of the business. In addition to data about routes, it provides intelligence on the fuel refilling habits of drivers and other behaviours – factors that can influence an operator’s monthly returns. A taxi needs to achieve a certain mileage to generate a decent return for the operator, and the telematics data will show which taxis are underperforming.

The company already knows which routes are the most accident-prone, and some of this data is surely of vital importance to traffic safety authorities. For example, Hurwitz says one of the big causes of accidents is when taxi operators switch from their usual routes to long-distance haulage over December and Easter.

“We want to try and prevent accidents, and we do this by sharing our telematics data with taxi operators and associations,” he adds.

“We can also tell how operators spend their rewards, how often they change their tyres and parts, and where they refuel. This tells us a great deal about the professionalism of the operators, and can guide them in achieving a better business return for themselves and extend the life of their taxis.”

Hurwitz concedes that taxi drivers have a poor public perception and are seen as having scant respect for the rules of the road. “People like to take pot shots at taxi drivers, but they must understand taxis account for 69% of all commutes in the country and without them the country would come to a standstill. That should definitely be factored into the equation.”

The SA National Taxi Council, which represents an estimated 90% of taxi operators in the country, owns 25% of SA Taxi.

Transaction Capital shares are being steadily accumulated by institutional investors because of its outsized growth.

Governments the world over are trying to solve the problem of overused roads with better public transport systems, and SA is no different. “We have tried to engage with local government on bus rapid transport systems – we know where all taxi nodes are, and the last and first kilometre travelled are done by taxi,” says Hurwitz.

“We share the telematics data with the taxi associations. They haven’t used the data as much as we think they should have. In earlier years, government was trying to build buses and trains to remove minibus taxis and modelled our system on the Brazilian rapid bus transport system. That didn’t work so now it has adopted an integrated public transport model, which allows for the coexistence of minibus taxis.”

Collection services

The other main part of the company’s business is Transaction Capital Risk Services (TCRS), the largest collector of non-performing debt in the country. Loan books are bought at a discount to face value, which is another booming business in SA. Of 36 million adults in SA, 24 million have credit accounts and 10 million are in distress.

TCRS has built a vast database on the credit performance of South Africans and can predict with decent accuracy who is able to pay their accounts, who is likely to default, and even the best time of day to reach them by phone.

It makes 37 million outbound calls a month, resulting in seven million interactions and one million payments.

Its artificial intelligence is able to determine the likely success of a phone interaction based on tone of voice.

The weak economy has created a credit crisis for many more people as a result of job losses and rising living costs. Recovering debts in this climate is becoming more difficult, says Hurwitz.

Understanding the predicament faced by creditors, and with its use of intelligent robotics, this is still a business with a huge future.

Transaction Capital going places

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There probably isn’t a group i’d stay further away than exposure to taxi drivers. Fast top line growth is worthless without margins being maintained. Hard pass.

Unfortunately there is one group that is not hitting the jackpot and it is the most important group, the customers/passengers. Transport was, so I thought, all about safety but in the case of the mini-bus taxi industry the customers are massacred at an alarming rate. Another tragedy is that the authorities and Government have more important things to do than protect the lives of passengers by ensuring a basic level of standards. The only thing that will change this is if the taxi industry becomes white-owned and operated because then Black lives will be a priority.

Any chance we could enforce some rules-based disqualifications such as a. death of passengers, b. death of others, c. driving recklessly.
I think Taxis are great, as long as they didn’t make me want to kill them on a daily basis.

With proper data analytics, such as that implemented by Discovery, it would be a great story if Transaction capital would take a pro-active stance in putting pressure on taxi owners through the financing that they are providing…

I.e. You drive recklessly, your financing costs much more.

I wonder if Transaction Capital is such a responsible corporate citizen, or whether they are just chasing the buck?

Exactly, this is my comment every time TC release results. With the focus on ESG you would think that all TC stakeholders would be taking the slaughter of innocent passengers seriously but I doubt this is happening. When taxi thugs are involved it seems people back-off in fear of violent retaliation. Sad for a society when the threat of violence prevents it from doing the ‘right thing. I believe providers of services to TC should gather and start a boycott to get the ball rolling. Taxi advertisers – on the actual vehicles – also have the power to create because I don’t know what mileage you get as a business when a lawless thug recklessly flies past you at high speed with ‘XYZ’ advertising emblazoned on it.

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