Entersekt profits from banks’ new faith in fintechs

● When engineer Schalk Nolte was deployed to Nigeria to oversee the operational expansion of South Africa’s largest telco in the country, Vodacom, he battled to decide whether he had been sent or sentenced.

At the time there were about 100 000 fixed telephone lines in the country. With a population exceeding 100 million, it took about a year for someone to get a new line.

But the advent of mobile phones changed the way people conducted their lives. At the end of last year, Nigeria had 144-million active mobile lines, according to the Nigerian Communications Commission.

Nolte witnessed the revolution firsthand. “This is a powerful device because it’s a personal device,” he said.

He returned to South Africa in 2008 to join his engineering student brother, Dewald, and three of his University of Stellenbosch classmates to find a way to leverage the power of the mobile device to offer banks sound security and authentication measures.

Entersekt, the security software company founded by the five men, was launched in Stellenbosch in 2010. The founders had developed a mobile authentication system now used by 80% of the banking market in South Africa, replacing one-time pins previously used to verify online transactions.

“We wrote a piece of software that makes a device unique and breaks through to that specific device, asking you if the transaction is what you want to do. So we created a secure, encrypted channel between an enterprise and a device,” Nolte said.

Today Entersekt operates in Cape Town and Johannesburg. It also has offices in the UK, Germany, the Netherlands, the US and Canada. Its engineering hub remains in Stellenbosch because development costs are cheaper in South Africa, Nolte said.

According to American research company Gartner, the technology that Entersekt’s software is based on will have penetrated 80% of the global financial services market by 2020. Entersekt now has over 30 global banking group clients, including Ecobank, Capitec, Barclays Africa, Discovery, Investec and Coutts. Nedbank was its first client.

Rand Merchant Investment Holdings and Endeavour Catalyst, which is based in San Francisco, have also come on board as investors, which is helping Entersekt grow its reach in the US and Europe.

“Five guys said we’re going to build software and we’re going to sell it to banks and it’s going to be easy. Well, it was not so easy,” Nolte said. The reason for this, he said, is because banks are large, risk-averse and “glacial” in their adoption of technology.

“They want to ensure that whatever technology they adopt is right. As a startup they’re placing a bet on you. They’re going to train their customers to use your product, so you’d better be around in a year or two.”

Pieter Zylstra, regional director for digital transformation at Orange Business Services, said banks globally had now shifted their strategies to embrace fintech.

“Banks are taking a more opportunistic approach, realising fintechs can strengthen their hold on the mobile channel, the only channel that matters in Africa. So banks are refocusing their attention towards ‘banking-as-a-platform’ strategies,” he said.

As the mobile banking app becomes the new forecourt, banks will partner with other companies, including telcos, to deliver a suite of services like flights and movie tickets through their portals. In the longer term the strategic opportunity will be in knowing the customer.

“The prospect of offering millions of micro-loans still creates a huge credit risk for both retail banks and mobile telcos,” Zylstra said, so safely capturing biometric data through an app will be beneficial.

With mobile banking expected to continue to flourish in Africa, Entersekt, which charges banks a negotiable subscription fee per user per year, has significant scope for growth.

“We’ve been profitable for over two years now and have recently closed another round of investment, which is more than we need to sustain our accelerated growth going forward,” said Nolte.

We wrote a piece of software that makes a device unique Schalk Nolte

Co-founder of security software company Entersekt