ON THE SPOT Van Zyl convinced Tyme is right for African Rainbow’s digital bank

Does SA really need another bank? Listed BEE investment group African Rainbow Capital (ARC) seems to think so, confirming this week that it will buy out the shares it doesn’t own in digital banking start-up TymeDigital, from the Commonwealth Bank of Australia (CBA). Business Day asked ARC’s co-CEO Johan van Zyl, why the buyout? Was it mainly because CBA wanted to exit their position?

The board changed its strategy to focus on Australia and New Zealand. We were about to launch the beginning of September and we had certain rights and [they asked] would we be interested to take over those rights. So we did our sums; we’re very happy with the focus and the plans and we decided to exercise the rights, rather than bring another partner in their place. It’s like a prenuptial that was drawn up: they [CBA] never thought they would go — they always thought we would go. I remember when we had the negotiation three years ago that the guys laughed quite loudly, they didn’t anticipate that situation [of them selling], but that was the one that came through.

But you don’t intend to keep Tyme as a wholly owned subsidiary?

We don’t have bankers (within ARC) and a whole lot of the Tyme franchise was run by CBA people sitting in Hong Kong and a lot of the technology comes from Vietnam and SA. We have to have those people and we’d like to bring in some of them and give them a bit of equity, but we have to get the thing in our name first. Going forward, there are a few of the big investors in the world looking at fintech and digital banking platforms and they learnt from CBA that they were going to exit and so we were inundated by people. The whole ARC model is that we take a strategic stake with partners. We’d like to keep more than 50% of it to make it black-owned.

I still don’t understand the obsession with bringing new banks into SA: Michael Jordaan’s Bank Zero, Discovery’s Bank, the Post Office, all in a totally stagnant economy?

Internationally, 95% of banks make their money off their lending activities and they make about 5-10% off their transactional activities.

In SA that is 50-50. So people do pay when they borrow but fees are very high if they transact, and that’s the reason why everybody comes in with a transactional banking franchise that can drive costs down. The big banks can’t offer certain clients cheap rates without eroding half their income base. Somebody will have to do it from the outside, the top five can’t do it. That’s the basis of all these new things happening.

Cheaper fees, what a win. But it’s a flat-lining economy and you saw that in Nedbank’s loans and advances figure….

Because everybody is now battening down the hatches, to launch something now is absolutely great; something that can save people massive amounts of money. An ordinary pensioner who is getting an average of R15,000 a month can save — just on transactional stuff — around R150. That’s a big amount.

I thought your target market was the digitally savvy?

No. You don’t have to have a computer or anything like that. This is a digital bank and there will be 700 of these terminals within Shoprite, Boxer and a whole range of other retailers where you can get your card within five minutes and go right away and start transacting. In just the few pilots that we’ve run we’ve put 400,000 people with cards, of whom 75% are using the two or three products we have. And we’ve not put out a single advertisement.

In CBA’s 2018 results, Tyme made a loss of $78m. Are those just normal start-up costs?

It’s a new bank, we have 250 people working there, they’ve been working for two and half years, so that’s the losses. We’re happy that we can launch and break even.

Of course, if you grow a loan book quite aggressively you’ll have to put in more capital. If you take a little longer, your deposits are more than enough to get the thing to grow. It depends on the strategy.

Does that suggest ARC will have to put capital into Tyme?

We wouldn’t mind putting in some capital if the returns we’re going to get are great — but mindful that it’s also good to take a bit of the risk off the table by getting partners. There are massive opportunities for us to partner with others in Africa and use the technology.

How worried are you as an investor in business in SA given economic stagnation, breakdown in municipal governance and the intent on expropriation without compensation?

Well, we raise our risk premium for the country and then we factor a lot of that in. You get partners [to] spread the risk. Secondly, you increase your target return.

But what if you don’t get the return if the economy is in the toilet?

Well, the worse it goes, the more people go towards the lower end. This is how Shoprite and Pep made a living. That lower end of the market is where there is always opportunity when it goes badly, and this is particularly where we’ve pitched this thing and where it will work. I must just tell you, with this technology that we have, the foreign businesses don’t have to put a cent into this but we’ve been inundated with people who want to be part of it.