EasyEquities still building up steam on the platform

Purple Group’s EasyEquities concept of bringing share ownership to anyone with a smartphone won over first-time investors, with client numbers up almost 102% over its first half to end-February. But earnings have retreated and the financial rewards have y

HAVING had a euphoric 2015 in terms of profit growth, the first half of 2016 has seen earnings slump 35%. Is this to be expected given the push you’re making to grow EasyEquities?

If you look at the expense side, our investment was about R7-million, so that’s a very small number when you consider the opportunity that EasyEquities is presenting. You could ask: “Is that even enough?” The answer is, quite frankly, yes: there should be an expectation that we are going to increase expenditure but we have to do it in a manner that balances income, earnings and investment.

We’re not going to sweat the entire income statement, which we could if we wanted to, but I think it’s a good discipline to grow the business while at the same time delivering earnings and dividends to shareholders. I think it would be reckless of us to go and invest everything at this point that we produce in our income statement in EasyEquities.

But we’re not going to under-invest in the opportunity: instead we’re looking for partnerships that give us access to markets, distribution and capital that will see EasyEquities get the investment level it requires, given the fact we see it as such an extraordinary opportunity.

Satrix Now is one of those partnerships – what’s the importance of teaming up with them?

They’ve been around about as long as we have and they’ve been the leader and pioneer of ETFs [exchange traded funds] in this country. They’re still the largest provider and their strategy is also about making investing accessible and easy for everyone. So there’s a natural synergy between the businesses. We’re both trying to achieve the same thing, the only difference is that they’re trying through ETFs and we’re using ETFs and shares.

Satirist Gus Silber coined the phrase “democratisation” of the JSE — which is what you’re seeking through EasyEquities — but is it taking longer than you’d hoped?

No, I think it’s going to be quicker. When we set out we [wanted] to get 100 000 customers within three years. We’re 18 months in and got 20 000 customers, which is only 20% of that target. But the more customers we get, the more momentum we’re getting in our customer acquisition rate.

About 40% of the clients that come to us are as a result of our own marketing initiatives and capital spend, and then the other 40% is referrals and that side is like a snowball running down a hill: the more customers we’ve got, the more referrals we get, the more customers we get, et cetera, and that is picking up substantially. In addition to that, the Satrix partnership exposes us to an extraordinary distribution base which on its own could allow us to reach those client acquisition numbers, just through that single partnership.

There will be a tipping point when the momentum of that customer base referring customers will start to produce numbers that we haven’t been able to comprehend. If you look at Capitec: it opens 100 000 accounts a month now, but they didn’t start at 100 000. They started small and grew.

We’re thinking about the ideal next partner, where we’ll find that distribution; we’ve had several discussions and I’ve got no doubt that we’ll put another partnership on the table before we close out our year-end in August.

What is the profit tipping point for EasyEquities?

This time last year we were talking about a R1.1-million loss, now we’ve got a R1.6-million contribution to revenue. If we stopped marketing we’d be profitable tomorrow, but we’re not going to do that while it’s growing at the rate it is. The original business plan was to be break-even at about 100 000 customers; we built an economic model that said customers would come to us but behave in the same way as with a traditional stockbroker — which is, typically, they pitch up four times a year, deposit money and then invest two or three times a year. What we found is that our guys are pitching up every single day, they’re making 10 to 15 deposits every month and they’re investing every time they make a deposit — the client engagement levels are way beyond our greatest expectations. So we’re not going to have to wait to get to 100 000 customers.

What are the obstacles to getting people to embrace share ownership?

The first obstacle we find that they have to get over is literally the first share they buy. Once they’ve made that first transaction and they’ve trusted themselves to do it, they then become engaged investors. So the real obstacle is to put a platform in front of people and then get them through the door to make their first investment.

Global Trader was a bit of a pioneer but IG Markets, Saxo Bank, et cetera have entered South Africa in the past few years — is there a big enough investor pool to sustain the competition?

I think what we missed, all of us, is that 15 years ago everyone set about delivering [derivative products to South African retail investors], and what we missed is that while it was appropriate for overseas, we forgot the fact that South Africans hadn’t started with the basic introduction [to the market], which was buying shares.

So if you’re going to go and trade derivatives but you haven’t traded shares, it’s a bit like going to university before you go to school. It’s almost [the case] that we’re going back to first principles to say: let’s grow a community of share investors; out of that community we will grow derivative investors — but we can’t grow derivative investors who haven’t yet bought shares. We almost wasted 15 years and that market opportunity hasn’t really grown. It’s just got more competitive for all of us.

Do you think there’s still a stigma attached to the Purple Group and GT 247, after the blowout you suffered during the financial crisis?

I don’t think so. We operate in a space where fintech has become a bit of a buzzword, but we’ve been doing it for 15 years, and along the way we made some mistakes but we’ve learnt from those mistakes and we’re much more resilient as a result of them. I think the legacy of 2008 is gone and the evidence of that is you’re the first person who’s asked about it in a long time.

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Talevi is a BDTV presenter