South Africa’s fintech startups, associated with AlphaCode, share how the country’s extended lockdown has provided some with growth opportunities as people adapt how they engage with their finances, while other fintechs share their challenges.
Andile Maseko, head of ecosystem development at AlphaCode explains: “Mixed experiences are expected for our members but those with a digital first approach are benefiting the most. Those experiencing difficulties are evaluating product offerings to better address the new normal, but the uncertainty of the COVID-19 environment adds complexity to pivoting.”
Business is better than usual
A business achieving records is Luno, a global cryptocurrency platform with close to four million users across 40 countries and the most popular crypto platform in South Africa. Record trading volumes were achieved in March and there was a 50 per cent rise in the number of active users month-on-month. Marius Reitz, GM for Africa at Luno, says: “This indicates continued cryptocurrency investment by existing holders and entirely new investors entering cryptocurrencies for the first time.”
Thomas Brennan, CEO of Franc, a digital investment platform that offers investors an affordable way to access money market and exchange-traded funds, says the business has seen the strongest monthly growth (25%) in terms of new investors. “COVID-19 has reminded people of the importance of having an emergency fund. With Franc, investors can get better returns than a bank without having to lock up their money in a fixed deposit,” he said.
Tami Ngalo, the founder of Oyi medical card, a savings card for medical spend says: “We’ve had some challenges but we managed to unlock opportunities from people being at home and hungry for digital. Our complete digital experience came through for us as we acquired 150 per cent more customers last month.”
Hayley Parry, co-founder of Worth, an ed-tech business that delivers financial education to employees and customers through its online training portal explains: “Because finances are such a significant source of anxiety for staff, we have seen that online learning through our platform has increased significantly. Employees are using this time to take control of their finances. In fact, we have seen the highest course completion rates during lockdown. We also created a new course around COVID-19 – a financial shock course via webinars and an online short course for employees developed for a household that’s had a financial shock.”
Graham Rowe heads Guidepost, a health- and insurtech innovator that allows insurers to significantly better manage their diabetes risk. “We had one of our best months ever during April. Providing virtual and remote healthcare services we have seen even more appetite from our customers, medical aids and pharmaceutical companies to get great healthcare services to people that they can access telephonically from their home. Patients suffering from diabetes are at risk during this pandemic and there has been increased willingness to engage with our nurses to improve the management of their condition,” he said.
Reviewing these businesses Maseko comments that, in addition to the digital first approach, what is also evident about these businesses is that they are offering services that address the health and financial security concerns of consumers. “Solutions in these areas, as well as contactless payments and credit, may be the theme for at least the remainder of 2020 in the South African fintech space,” he said.
Nicky Swartz is founder of Spoon Money, which provides loans at fair rates to women in Cape Town’s townships. She says the lockdown has been enormously challenging. “Our clients, informal traders in township environments, have been deeply constrained in trading point and then, where they can trade, from decreased demand. This has a direct knock-on our revenues and planned growth. Like every other business, we have re-forecast the rest of the year looking at the worst-case scenarios,” she said.
“On the upside, we have automated processes and have tested for levels of digitisation in anticipation of growth post lockdown. We’re using the opportunity to engage with our clients to understand their immediate and medium-term business needs and that’s opening our eyes to new possibilities.”
Idan Jaan is founder of Fundrr, an alternative lender for SMEs. He says the lockdown has been a setback. “We have had to cut salaries and operational expenditure to ensure that we can provide the relative payment holidays for our clients. Over 90 per cent of our clients are on payment holidays which has taken a massive toll on our revenue. We are getting a lot of requests for funding and have accepted applications for businesses that can continue to operate during lockdown levels five and four,” he said.
Fincheck is the country’s biggest financial comparison site as well as the biggest lead aggregator, having signed on 71 banks, lenders and insurers. CEO Michael Bowren reports that some banks and insurers have tightened their belts and risk appetites due to a rise in default rates and employment uncertainty, whilst others have remained open to new business and potentially more risk.
“The companies who have remained open are looking to take advantage of having ‘less competition’ during this period and move ahead with client acquisition,” Bowren said.
Simon Purdon, business development manager at FundingHub.co.za, which offers 30 alternative lenders and banks for SMEs looking for finance to grow their businesses, has noted a substantial increase in business applications, in particular, applications for purchase order funding and unsecured funding to cover cashflow shortages. “We have seen a reduction in lenders appetite to disburse funds due to uncertainty as to whether that business will make it through,” he said.
Businesses being forced to change
Peach Payments is enabling South African businesses to accelerate online commerce solutions and transform or pivot during COVID-19. Its monthly customer acquisition has grown by 400 per cent since February.
CEO Rahul Jain said the challenges faced by local tech startups vary, but the most significant is declining demand.
“Tech startups in the travel, tourism, food and beverage sectors are hit quite significantly with revenues drying up. However, we are seeing a huge push from SMMEs to embrace online sales and payments to supplement their existing business. Many are pivoting to new models. We’re seeing our merchants go from physical to online retail. We’re working with restaurants, coffee roasters, personal trainers, gyms, dieticians among many others. People are now creating videos, lessons, food plans and sharing via email, whatsapp, their websites and we help them to get paid digitally,” he said.
There is also increased demand for contactless (no-touch or remote) payment options, says Leonard Shenker, joint-CEO of walletdoc, which offers a number of payment solutions for merchants.
“Businesses are implementing digital payment solutions to cater for a changed consumer engagement. These include payment links, a ‘pay now’ button which is easily sent to customers via SMS, WhatsApp or email enabling customers to settle via card immediately.
Because of the increased demand for delivery services, drivers can be equipped with mobile tap-to-pay enabled credit card machines minimising contact. Another safe payment channel is equipping drivers and websites with QR codes,” he said.
FundingHub’s COVID-19 resources page lists everything you need to know about the different forms of relief available for SMEs in South Africa.
Dov Girnun is CEO of Merchant Capital, which offers small business loans. He explains that the pandemic has created chaos in an already weakened economy. “Turbulence has always been the official climate for SA’s SMEs,” he says, recommending that SMEs embrace the situation and try to find opportunities in the chaos.
“This is the time businesses should be really listening to customers, relooking their cost structures and engaging meaningfully with their stakeholders. Chaos creates opportunities. Coronavirus is pressing a reset button in many industries thereby creating a blank canvas for businesses that are agile, able to act fast and technology enabled. These businesses without large costs and fixed overhead structures are best placed to take advantage of opportunities to get products and services out to market quickly,” he said.
“We saw it during the global financial crisis where these types of businesses arose: Instagram, Airbnb, Pinterest and Uber. These fintech entrepreneurs found new problems to solve and new opportunities by adding real value to the world.”