Re­fresh­ing rhetoric com­ing from the Pa­trice Mot­sepe’s ARCI camp

The Mercury - - BUSINESS REPORT - Andile Ma­suku Andile Ma­suku is a broad­caster and en­tre­pre­neur based in Jo­han­nes­burg. He is the ex­ec­u­tive pro­ducer at Fol­low him on Twit­ter @Ma­sukuAndile and The African Tech Round-up @african­roundup.

SOUTH Africa’s rich­est black man – and sixth wealth­i­est over­all ac­cord­ing to En­tre­pre­neur mag­a­zine – is re­port­edly de­lighted to have the Jo­han­nes­burg Stock Ex­change list­ing of his spe­cialty fi­nance sec­tor play, African Rain­bow Cap­i­tal In­vest­ments (ARCI), done and dusted.

Pa­trice Mot­sepe’s lat­est mega-ven­ture is no doubt be­ing mon­i­tored very closely by bank­ing in­cum­bents in South Africa, given the dis­rup­tive po­ten­tial of some of the firm’s plans to ag­gres­sively back in­no­va­tive fi­nan­cial ser­vices busi­nesses.

Mot­sepe’s African Rain­bow Cap­i­tal is ARCI’s ma­jor­ity share­holder and will lead the seed­ing of the com­pany’s ini­tial in­vest­ment port­fo­lio, which re­port­edly com­prises six­teen in­vest­ments in the fi­nan­cial ser­vices sec­tor and sev­en­teen in­vest­ments in other sec­tors. I’m most ex­cited about the group’s de­cid­edly for­ward-think­ing ap­proach to tak­ing on legacy play­ers in the fi­nan­cial ser­vices scene.

Their am­bi­tious rhetoric is re­fresh­ing, in an in­dus­try that ap­pears com­mit­ted to squeez­ing every last drop of prof­itabil­ity from dated bank­ing prac­tices.

The new kid on the block does, how­ever, boast sig­nif­i­cant in­sti­tu­tional share­hold­ers such as San­lam Pri­vate Wealth, the Pub­lic In­vest­ment Cor­po­ra­tion and the Sin­ga­pore sov­er­eign wealth fund.

ARCI is helmed by two ex­pe­ri­enced in­dus­try ex­ec­u­tives – for­mer San­lam chief ex­ec­u­tive Jo­han van Zyl, and for­mer San­lam In­vest­ments chief ex­ec­u­tive Jo­han van der Merwe – who are prob­a­bly wide awake to the mar­ket­place white space that ex­ists in terms of new profit growth op­por­tu­ni­ties.

ARCI’s more no­table tech in­ter­ests in­clude a 20 per­cent stake in the fixed and mo­bile data net­work op­er­a­tor, Rain.

Ac­cord­ing to Rain chief ex­ec­u­tive, Dun­can Simp­son-Craib, ARCI’s cap­i­tal in­jec­tion will help his com­pany to act on a growth plan that will see them go from the 1 000 sites and 1 500 base sta­tions they have cur­rently to 5 000 within three years.

Next gen­er­a­tion

And thanks to a handy agree­ment Rain has struck with In­ter­net So­lu­tions and its part­ners, the firm says it’s poised to of­fer clients next gen­er­a­tion 5G wire­less broad­band ser­vices.

ARCI has also pre­vi­ously an­nounced that they will be buy­ing a 10 per­cent stake in the Jo­han­nes­burg-based fin­tech lender, Tyme, from the Com­mon­wealth Bank of Aus­tralia (CBA).

The deal is ex­pected to help ARCI ac­cess a bank­ing li­cence which will po­si­tion them to take the game to bank­ing in­dus­try play­ers who are way over­due for fresh com­pe­ti­tion.

Mean­while, CBA’s en­list­ing of a Black Eco­nomic Em­pow­er­ment com­pli­ant share­holder will cer­tainly do a lot to im­prove its com­mer­cial prospects in South Africa.

I have ref­er­enced Tyme’s mis­sion in this col­umn a cou­ple of times be­fore. The start-up was founded to pro­vide af­ford­able yet com­mer­cially vi­able fi­nan­cial so­lu­tions for the un­banked, low-in­come mar­ket.

In Fe­bru­ary 2015, Tyme was ac­quired by the CBA for a ru­moured $40 mil­lion (R523.16 mil­lion) in a deal that came to­gether af­ter lo­cal ven­ture cap­i­tal and in­sti­tu­tional in­vest­ment in­ter­ests ei­ther passed up on the op­por­tu­nity or sim­ply didn’t act fast enough to close out CBA.

Since CBA’s ac­qui­si­tion of Tyme, the Aus­tralian bank has spent a great deal of time and ef­fort ce­ment­ing key strate­gic re­la­tion­ships in South Africa, China, Viet­nam, In­done­sia and In­dia, as well as over­haul­ing Tyme’s tech in­fra­struc­ture.

Tyme’s value propo­si­tion is viewed by many as the most sig­nif­i­cant emer­gent threat to the dom­i­nance of South Africa’s “big four” lenders since Capitec Bank launched 15 odd years ago.

Dou­bled cus­tomer base

That’s big talk con­sid­er­ing that Capitec Bank has re­port­edly dou­bled its cus­tomer base over the last five years while grow­ing its mar­ket value four­fold – this de­spite the South African econ­omy bat­tling re­ces­sion and house­hold in­come com­ing un­der se­vere pres­sure.

Capitec’s no-frills prod­uct of­fer­ing has clearly res­onated with con­sumers who have come to ap­pre­ci­ate that the cost of ac­cess­ing fi­nan­cial ser­vices needn’t break the bank.

De­spite be­ing ex­posed to the risks of the un­se­cured lend­ing mar­ket, Capitec has so far man­aged to stave off the neg­a­tive im­pact of the macroe­co­nomic down­turn by stay­ing away from tightly con­strained busi­ness ar­eas like mort­gage lend­ing and ve­hi­cle fi­nance, which are es­sen­tially the main­stay of the coun­try’s four big­gest banks: Stan­dard Bank, FirstRand, Bar­clays Africa and Ned­bank.

It also ap­pears that the fi­nan­cial ser­vices gi­ant, San­lam, def­i­nitely wants in on the race to close the awk­ward gap be­tween ac­cess and in­clu­sion, in terms of the de­liv­ery of fi­nan­cial ser­vices.

San­lam In­vest­ment Hold­ings’ re­cent ac­qui­si­tion of a 30 per­cent stake in Pur­ple Group’s EasyEquities busi­ness for $7.5 mil­lion will now en­able even more pre­vi­ously ex­cluded in­di­vid­u­als to par­tic­i­pate in the stock mar­ket.

Launched in 2014, the fin­tech plat­form has seen im­pres­sive growth, largely thanks to its at­trac­tive low-cost model and the fact that it en­ables clients to pur­chase frac­tions of shares with no min­i­mum thresh­old for in­vest­ment.

It’s worth not­ing that prior to the sale, Pur­ple Group dis­closed that EasyEquities was yet to turn prof­itable, and that its op­er­a­tions needed to be sub­sidised by rev­enues of other busi­ness units.

How­ever, the frac­tional in­vest­ment plat­form’s rapid re­mark­able growth could not be dis­counted, and that led to the de­ci­sion to rope in cap­i­tal from San­lam to sup­port EasyEquities’ growth while the busi­ness pur­sued prof­itabil­ity.

Mean­while, the Kenyan bit­coin pay­ments start-up BitPesa’s re­cent suc­cess in land­ing a fol­low-up round of in­vest­ment is help­ing to move the nee­dle for fi­nan­cial in­clu­sion on the con­ti­nent.

BitPesa was launched in Kenya in 2013 and now has a foot­print that spans Nige­ria, Tan­za­nia, Uganda, the DRC, the UK and Sene­gal.

Ear­lier in the year, the com­pany raised $2.5m in their Se­ries A, and this lat­est tranche of fol­low-on fund­ing led by Gr­ey­croft Part­ners brings the to­tal raised to $10m.

Bullish pro­jec­tions

Ac­cord­ing to re­ports, BitPesa founder and chief ex­ec­u­tive, El­iz­a­beth Rossiello, has said that the new funds are needed to keep up with growth that has sur­passed even their most bullish pro­jec­tions – this, even as they have ex­panded across Africa and into Europe. BitPesa has re­port­edly en­joyed 25 per­cent month-on-month growth over the last two years.

I imag­ine that the cur­rent Bit­coin surge has un­wit­tingly aided BitPesa’s fund rais­ing ac­tiv­i­ties in some way, given how the com­pany’s name ref­er­ences the wildly pop­u­lar cryp­tocur­rency.

I just won­der how they and other re­mit­tance plat­forms might have to in­no­vate their busi­ness mod­els for the sake of sur­vival in the un­likely event that Bit­coin, or in­deed, some other cryp­tocur­rency, truly goes main­stream all around the world.

But I wouldn’t lose any sleep over that prospect just yet. Most govern­ments and the global bank­ing fra­ter­nity aren’t about to let that hap­pen with­out putting up fierce re­sis­tance.

ARCI has also pre­vi­ously an­nounced that they will be buy­ing a 10 per­cent stake in the Jo­han­nes­burg-based fin­tech lender, Tyme.


African Rain­bow Cap­i­tal In­vest­ments (ARCI) chair­per­son Pa­trice Mot­sepe, co-chief ex­ec­u­tive Jo­han van Zyl (left) and co-chief ex­ec­u­tive Jo­han der Merwe at the list­ing of Mot­sepe’s lat­est mega-ven­ture.

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