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The ‘digital economy’ has arrived

Until now, ‘going digital’ was still a discussion point for many businesses. Now it’s the only reality.
In years to come we will evaluate the world as pre- and post- Covid-19, in much the same way our calendars refer to BC and AD. Image: Bloomberg News

Last month Pick n Pay launched an online scheduled delivery service to help quarantined customers get their grocery essentials. Customers can select the products they want delivered routinely, and have them delivered on a set day of the week or month.

Last week it upped the ante, announcing the introduction of its new same-day grocery delivery app. This came shortly before President Cyril Ramaphosa announced that the country’s lockdown was being extended by two weeks – for a total of five weeks.

Read:

In November last year Shoprite launched a one-hour delivery service called Sixty60. Makro has offered online buying for years. Takealot resumed online selling of essential items at the start of this month, after a brief shutdown in March.

Officially, South Africans do just 1.4% of their buying online according to card company Visa, but that figure is likely exploding during lockdown.

While the real economy could contract 10% for calendar 2020, it is already likely down 40-50% of normal production for this time of year and will require a robust reboot later in the year to salvage the country from an economic wipe-out.

That’s not to say that segments of the economy aren’t booming. Content streaming services such as Netflix, anime content provider Funimation, Prime View and Disney+ couldn’t be happier as millions plonk themselves in front of screens to stave off boredom during lockdown.

As Moneyweb previously reported, online conferencing tools such as Microsoft Teams, Zoom, Google Hangouts and Slack are having to scale up to handle a massive increase in new subscribers.

Read: Look who’s winning during lockdown

Global Internet Protocol (IP) traffic, a proxy for data flows, grew from about 100 gigabytes (GB) per day in 1992 to more than 45 000 GB per second in 2017. And the world is only in the early days of the data-driven economy; by 2022 global IP traffic is projected to reach 150 700 GB per second, fuelled by more and more people coming online for the first time and by the expansion of the Internet of Things (IoT). That’s according to the 2019 Digital Economy Report by the United Nations Conference on Trade and Industry.

Events go online

Conferences that were planned for this time of year have been postponed or have gone online. The SA Institute of Business Accountants (Saiba) moved its planned Practice Management Conference online, making it available to its 10 000-plus members scattered across the sub-continent.

Nicolaas van Wyk, CEO of Saiba, says in years to come we will evaluate the world as pre- and post- Covid-19, in much the same way as our calendars refer to BC and AD.

“Everything is digital now. Going digital was only a discussion point for many businesses but now it’s the only reality. A shrinking economy means fewer sales and if we want to maintain profit levels the only thing left is cost cutting. Digital technology empowers you to do this.

“Our whole business environment is undergoing a cataclysmic transformation. As a result, we see clear fault lines appearing.

“As a service organisation we handle hundreds of membership applications each month. These will now all be automated. Support will be provided via video and robots with consultants having to focus on sales.”

Performance will count for more

Van Wyk says many companies will be forced to overhaul their remuneration models, with salaries based on sales rather than hours spent. Companies are going to have to work smarter and harder to attract clients.

The post-Covid environment will drive convergence with a sense of urgency.

“Combining and integrating service sectors will become the norm. As a professional body we will sell memberships, insurance and software,” he says.

Slow-mo services get fastracked

Even government departments are having to embrace digital engagement with urgency. While the South African Revenue Service (Sars) has offered eFiling of tax returns for years, Namibia required source documents for Vat to be hand-delivered to its offices in Windhoek.

Since lockdown, these can now be submitted electronically.

Sars has closed its physical offices and opened electronic channels for virtually all services, including disputes, complaints, account queries and requests for statements of account.

Service companies such as law firms, accountants and consultants have been subjected to a crash course in remote delivery and digitalisation.

Banks too are having to accelerate the roll-out of their digital platforms as reports abound of customers seeking loan repayment holidays being unable to speak to a banking consultant. This opens the door for online competitors and fintechs with more flexible lending arrangements that typically offered by banks.

Hands being forced

A Gartner survey of 192 chief financial officers and finance executives in small organisations suggests 54% of them plan to slow payment to vendors to preserve cash in the coming weeks. Larger organisations are already drawing down on existing credit lines, while smaller organisations are twice as likely as large organisations to withhold rent for April and May.

Another Gartner study shows three-quarters of companies surveyed plan to shift some employees to remote working permanently as part of cost-cutting.

Expect to see more office rental space going for bargain prices in the coming months, while real estate prices take a tumble.

Fintech companies offering short-term financing to cash-strapped businesses are being slammed with online enquiries for help.

Responsiveness a growing advantage

The advantage some of these companies offer over traditional banking is a fully automated application process with a turnaround time of 90 minutes or less. For that the company applying needs QuickBooks Online or a similar accounting package, or if that’s not possible the company’s bank statements, which allow the fintech to plug into its financials and make a rapid risk assessment.

Bridgement CEO Daniel Goldberg says the speed with which applications are assessed and money transferred to borrowers contrasts with the typical banking process, where reams of documents are required, often resulting in delays of weeks or even months before loan applications are accepted or rejected.

“Especially in these times, businesses need quick turnaround times and a simple application process. They are struggling to meet their month-end payroll, and are having to stretch their creditors.

“They cannot wait weeks to find out if their application has been successful or not.”

Bridgement’s average loan size is R500 000, either through revolving credit facilities or advances of up to R5 million available through its invoice discounting scheme.

A week ago, Business Partners went live with its portal accepting applications for R25 000 grants and interest-free loans for 12 months (whereafter loans are charged at prime lending rates) but shut it down after a few days after being 2.8 times oversubscribed.

Listen to Nompu Siziba’s interview with Business Partners MD Ben Bierman:

Surprisingly, only 60% of the R100 million set aside for grants had been taken up, probably because of the need for sole proprietors to be tax-compliant.

Compliance versus educated prescience

Bridgement and other fintechs are less concerned about tax compliance or the so-called commercial solvency test being imposed on applicants for small business funding at Business Partners and other official providers of assistance to small businesses. Goldberg explains that solvency can easily be misinterpreted: many companies get through brief periods of insolvency as a result of seasonal trading patterns. Such tests do not mean it is unable to repay its bills.

Another fintech riding the digital wave during lockdown is Merchant Capital, which has an online application process and an approval process that is usually completed in hours. Founder and CEO Dov Girnun says the company has seen a spike in enquiries for short-term funding as a result of the lockdown.

“We’re not lending recklessly, and our focus right now is on essential businesses.

“For example, we are trying to support essential businesses with working capital to ensure they have sufficient stock on their shelves to match the demand. Supporting non-essential businesses such as a restaurant that is shut down because of the lockdown is more difficult.”

Merchant Capital’s loan repayment model also makes it attractive for businesses that might have short-term cash flow problems, particularly for retailers: it takes a small percentage of every card or electronic purchase until the loan is settled, which makes it less painful for business owners who are experiencing lower turnover due to the Covid-19 pandemic.

Once 70% of the loan has been repaid, the borrower qualifies for a new loan on the same terms or better. Four out of five borrowers come back for second or third loans as their business expansion requires, says Girnun.

It’s naive to imagine the world will return to normal once the Covid-19 crisis has passed.

Virtually every aspect of our working lives will have changed. Bills will be delayed and some may never be paid as potentially thousands of businesses go bust. Workers will be nervous about their jobs and union power will surely be weakened. Confronted with this emergency, however, companies can now attack costs in a way that was inconceivable just two months ago, through enhanced use of technology.

As some doors close, others are opening – and they are increasingly likely to be online.

Most common payment methods of online shoppers in South Africa as at January 2020

Source: Stats SA

 

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If u need to change banking details at sars you have to visit them.

They have more processes and forms than the high court.

If the ‘digital economy’ has arrived then the digital economy can pay the tax and those consuming electricity can pay for it.

Have a minor bathroom faucet pipe leak (behind the tiles in the wall…ouch) during lockdown. Struggle to get PLUMBER to come out. Can a phone App be created whereby the plumber can fix the pipe-leak remotely?? And what about replacing the tiles that will have to be knocked out?….I suppose it will need a separate “tile restoration” App for that task?

(Please don’t disappoint me by saying 4IR will only allow me limited usefulness by requesting plumber services & paying the person…and that’s it)

Have also been looking for a phone App that can allow my weekly gardener to mow my lawn remotely from his place(?) Maybe a lawnmower drone (…how about moving the rotors to the bottom, so it can have a dual task…mowing lawn and do the lifting/flying. But then I suppose we’ll also need a drone designed to suck up the cut grass from the mowed lawn, and another drone to “sweep” the pavement…maybe blowing it & then sucking into bag (without being shred to pieces by rotors).

Question is WHO will pay for the data?

It will cost 20X the service of regular gardener…so this idea may be dead in the water. It will also “steal” jobs…..so then one can have “destructive” drones that are specifically programmed to crash into & destroy drones that do their delivery & other work (..can be called a “counter-job-stealing service”)

People…wait…the plumber said he can remotely operate from my premises with his new drone-tech. One has wrench attached to it & another drone with MIG-welder. But he says, I’ll have to wait….there’s a backlog, and all his drone-batteries are waiting for a full charge.

Am waiting for drones to do construction sites remotely from the developer’s office 😉 Luckily no jobs will be lost, as a swarm of people will be needed in the warehouse to tend to a few hundred drones require battery-charging. At all times 95% of drones under charge, while 5% is out working.

I’m a plumber…… I’d love to come out and fix yr leaking pipe – but how u gonna pay me considering u now unemployed cause AI took yr nice office job??

…would love to pay you. Thankfully I can work during lockdown in order, so am still committed to pay my obligations.
And you are how far away from Klerksdorp? 🙁 Let me guess…with my luck you’re in KZN or WC?

Good thing AI does not affect plumbers in a practical sense 🙂 (Re your comment re the unemployed….WHY do you think I’m drumming up support AGAINST the current lockdown? Tragic for almost ALL types of businesses.

AI is great in any business (not to be feared). It will take repetitive tasks away from us, so that we can focus on our real respective skills….and serve more customers / at lower cost. Thank goodness the motor vehicle has replaced the horse & computer replaced paper billing.

Gardener has been sent home. I am mowing the lawn and fixing pipes. Also my industry very busy during lockdown, working online can keep many things moving.

With all the crime in Sa someone might also hijack.the drones.

This query is FAR from the digital economy:
Is the South African Post Office (SAPO) functioning during this lockdown? Has anyone noticed?

What I cannot fathom is statements like “It’s naive to imagine the world will return to normal once the Covid-19 crisis has passed”. What is going to happen – no lawns required to be mowed and gardens to be tended to, no leaking faucets, no construction, no farming, no health issues, no blah blah blah? All the Old Wise Ones is seemingly referring to the new age following COVID. What is going to change? Please be specific with statements, motivating your statements, cautions if the said statements are not going to be followed, alternative solutions and motivating the alternatives. This is structured communication. Sure, remote working and online purchases will increase once the population realises the advantages but my boss/ client is still going to insist to see me at least once a week if not more. My baked beans is still going to require a metal can, so Kumba is still required to mine iron ore. So, what is going to change? Why am I naive? Or not?

End of comments.

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