Webinar | Commonwealth digital lending markets in Africa feat Finch Technologies’ CEO Michael Bowren

Webinar | Commonwealth digital lending markets in Africa feat Finch Technologies’ CEO Michael Bowren

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Hi, everybody. Hello and welcome. And I hope you're all having a great day. For everyone who's joining new to our virtual events, I'm Julia Charlton. I'm the chair of the Commonwealth Chamber of Commerce. And I'm based in Hong Kong at the moment.

I'm delighted to have you with us today. And for our regular people, great to have you back, but I'm delighted to have with us today, Mike Bowren. So he will be taking a closer look at one of the latest innovations in the FinTech ecosystem called digital lending marketplaces.

Digital lending marketplaces are online platforms that provide customers not only with the traditional consumer or business loans from financial institutions, such as banks, but also loans based on alternative credit scoring from additional sources, such as investors, crowd funding, peer to peer lending, et cetera. This also enables them to bypass the need to visit traditional banking branches, and they can apply for loans through paperless means with ease of use and time saving, due to what should be efficient and quick electronic verification processing. Those such platforms have been around for a few years and have become increasingly popular. Many are still not aware of their operations and the unique opportunities and challenges that come with using them.

Global trends predict digital lending will become a 45 billion US dollar market by 2030. So it's really relevant for Commonwealth nations to understand these marketplaces and to capitalise on them as a means to address funding gaps, particularly with individuals and promising SMEs. As I mentioned, I'm absolutely delighted to have with us today, Michael Bowren, CEO, and Co-Founder of Finch technologies, which is a South African based digital lending marketplace and comparison platform that uses unique algorithms to match consumers with over 75 of their financial service providers who are partners of Finch. Finch technologies uses modular technologies that allows them to provide their partners with services for the whole process, from matching borrowers to lenders and creating their online portfolios to provide viable loan packages based on their credit scoring systems and dispersing of funds.

Finch is a prominent and leading digital landing marketplace in the Sub-Saharan African region and particularly in South Africa. And I can't wait to find out all about it from Mike. But to start off today's webinar. First of all, I'm going to invite my colleague, Mateena Hammad, to give a brief overview of the concept and trends relating to digital lending marketplaces.

And that'll be followed by a presentation by Michael Bowren about his company,Finch, which will be then followed with a deep dive conversation on the topic, which I'm sure will bring a lot of meaningful insights and takeaways on the future of FinTech funding ecosystems. Now Mateena over to you. First of all, I'm super excited to be here. I just wanna share a little bit about digital lending and digital lending platforms within the Commonwealth and around the world.

And just provide a brief context with just to supplement the discussion that Julia and Mike will have later on. So just to start off, I wanna talk about the global digital lending platform market. As of right now, it's a $10 billion market, but just by 2030, that's just eight years, as Julia mentioned, it will be a $40 billion market. So that means that overall, when it comes to a compound annual growth rate, that's 26%.

So it's definitely great, and it's a booming market. And then I just wanna go into the leaders of these digital lending platforms. So according to the World Bank, the leading market share is actually owned by North American region. And within the region of North America, the US has the leading digital lending market size, which is currently at US$1.13 billion. And they're also having a compound annual growth rate of around 11.4%.

Which means that obviously it's still growing, despite the fact that only 6% of US households as of yet are unbanked. And obviously they also have the unmet credit demand of approximately a hundred billion, which does show that even despite being such a mature market, there's still potential there. There's still areas of growth. And you can see here that these market platforms have been active since 2007, maybe even a bit earlier, but overall, as of yet, they have dispersed 40 billion US dollars in loans. And then when you look at Africa; so Africa right now has 11 times more unbanked population than the US. You can see here, they do not have bank accounts.

And just within 30- just within South Africa alone, 31% of households do not have access to bank accounts. They don't have access to loans and 90% of them originate from outside of Africa. So although these numbers may seem a bit disappointing to some actually it shows and it entails a huge market potential within the African continent. And if you look at, already, that just in 2021, you saw a 102% increase in online alternative financing. And this is expected to grow annually 5.7% up until 2026. And you can see here that just in five years, this market size went from a 100 million to 563.8 million, and it's still yet to grow.

So this is definitely an exciting area of development for the African finance ecosystem. So as you can see here, I've shown you a little bit about the external debt of Africa. Why am I showing you this? Because well, like it or not, external debt does have an indirect consequence of the economy. On the domestic economy of a country. So when you have too much external debt, your capital income can be low and there could be a higher inflation.

So for the normal citizen, also having to face the stress of low income and then not having access to crucial loans can be quite a disappointing- it can be quite a nightmare for a lot of people. So how are they supposed to get out of this? How are they supposed to survive? How are they supposed to have their businesses thrive? And the reason I mentioned businesses is because in Africa, 80% of all African businesses are SMEs. SMEs are small or medium enterprises. And not only is it 80% of all businesses, it actually employs 80% of the continent's population. And just within Sub-Saharan Africa, that's already 70%.

Meaning, according to the World Bank, more than 20 million formal and informal SMEs are actually there without a- they actually lack capital. They have a lack of access to loans. They have a lack of access to good income. So this is quite a concerning issue, and that is why digital lending platforms can be so important because they can provide an alternative.

They can provide alternative loans. They can give these SMEs a crucial second chance to actually thrive and make their businesses develop. Now that we've actually established this context. I wanna give two examples of digital lending platforms that are already in existence.

So number one, we have the Indian digital lending platform, BankBazaar. BankBazaar opened in around 2008. And over here, you can see that they help with not only with loans, they help with credit cards, mutual funds and insurance products. So these digital lending platforms, they're not just about capital. They can provide you other incentives, other financial services as well that maybe you didn't have access to before.

And you can see here, even though the EBITDA margin is minus 25, which may seem alarming, but you must understand the context. This was 2021; in 2020, it was minus 50. And just within one year they had a 48% increase in revenue.

Not only that their investors include Sequoia, their investors include Amazon and 14 more investors. And not only that in 2023 BankBazaar is, actually announced that they're going to do an IPO and employ 1,500 more employees. So you can see that not only is there financial access there's job market opportunity as well. Now let's compare this directly with the more mature market. So MoneySupermarket is a UK based digital lending platform. It's been around since 1993.

You can see that they're very mature and they have quite a good current net profit margin. That's 16.6% of a net profit margin of an annual revenue of almost $116 million. So you can see that this is a thriving area of business yet it's still- when you look at Africa, it hasn't been penetrated into yet. Just yet.

There are companies like Finch technologies that are leading the way into that. This is why this is so important. And if you wanna ask again, why are they so important and why are they better than traditional banking? I can give you five reasons. Number one, easier loan disbursement, because when you have big data and when you have technological advancements helping you, not only do you have a better process. So usually which takes two to four weeks can be done in two to three days.

And you can see over here that there's easier data entry. So instead of having piles and piles upon documentation, that seems tough and very intimidating. You have an online form, something which all of us are quite accustomed to at this point. Not only that, but it's easier to capture critical, crucial and sometimes complex details in a more easier way. And then on top of that, you have quick decision making because you have a lower margin of human error. So when you have a lower margin of human error, the time taken also decreases.

And when time decreases on this, you actually have more time to be efficient. You have more time to look into, you can increase your efficiency and you can increase your consistency. Cuz with that time you can double check things.

You can make sure everything is right. The screening process is good. So when you have that, it's already a better experience, not just for the lenders, but the borrowers and everyone involved.

And then lastly, if you wanna look at the profit and loss gains, a McKinsey report shows that in the US, for medium to large size banks that have transferred to digital lending platforms they- with a balance sheet of 250 billion- they have seen an increase of profit of almost US 230 million from their loan revenues. So if you're thinking this is just a benefit for customers or for the platform, it's not, it's really good for all the financial institutions and finance providers that are willing to join these digital lending platforms. So you can see here, this is a win-win for everyone. And I think that for Commonwealth nations, this is a great area that you can definitely look into.

Thank you so much. Thank you, Matina. That's very interesting to hear about those stats on global and Commonwealth digital lending marketplaces. It's interesting. Isn't it? How much the US are used to using credit consumer credit and also business borrowing.

And I just wonder how fast Africa's gonna catch up and whether that's really such a great thing to have that level of penetration of credit availability. Anyway, that's a whole other subject. But I'm sure that your stats have given great context for the people joining this webinar. Now, Mike, over to you for your presentation about Finch and all the exciting things that Finch is doing. Thank you, Julia, and Mateena.

Great to be on your show. So thank you very much for having me. I will go ahead now and just share my screen.

Okay. So I am going to be discussing my perspective on the digitalisation of lending solutions. During my presentation, I'm gonna touch on two types of lending, your consumer lending and your business lending.

So I'll be discussing both spheres of the lending process. And before, before I get started into my next slides, I'm just going to run you through the flow from a consumer perspective, as well as a business perspective on how the current lending solutions work and operate in South Africa. And and Sub-Saharan Africa.

So a majority of your African countries work like this. From the consumer perspective, an individual, if they are applying for finance, so a personal loan and not only limited to personal loans, think of any banking product, majority of insurance products, they follow a multi-channel onboarding or disbursement or application process. So what that means is they might start the journey on a website online. Then they might be handed off to a call center to collect documents, and then they might be told to go to their closest branch to hand in those documents.

So that as you can imagine is a- is an extremely friction full process. And with it comes a lot of drop off, a lot of human error and a lot of lag time. So you do not have instant decision making in those processes.

So if your consumer is needing funding, so your consumer or your business is needing funding, a process like that would take a couple of weeks for the funds to disperse out to their consumer or the business. Then from the- from a company's perspective, the current ways of working without digital- without a digitalisation or a tech enabled solution sitting behind your business. You've got a pretty heavy, a pretty heavy business from an expense perspective. So you're running call centers and you're running bricks and mortar.

You've got bricks and mortar branches that's, that are around the country. All of these kind of add to an expense line, which if you enable- if you bring technology into your solution you can streamline those processes and in effect, what we're, what I'll get to my next slides is the savings that the company makes through efficiencies. You wanting that company to hand those savings, pass those savings down the line to the consumer or the business getting the product at the end of the day. So I'm just gonna take a step back here and tell you a little bit about our business and how we started our company. So I am a Co-Founder along Chris Ball, who is the other Co-Founder.

We started Finch Technologies around seven years ago and the real thesis behind, the real- the reason why we started the company was because it was actually a brainchild of Chris's. And there was a realisation that there's a misallocation of people to products, so that in, in the South African market, what that means is that the companies who spend the most budget will be the companies that acquire the most customers. And you've got a low level of knowledge and understanding of financial products in the South African market. And in a lot of third world countries. So there's a lot of effort has to come in and be brought into the market in educating an individual on what solutions are best suited for them.

So when we launched Finch Technologies seven years ago, we started off with a marketplace, both a consumer marketplace and a business marketplace. We currently, as Julia alluded to earlier, we currently compare around 70 insurers, banks and lenders in the South African markets. And the idea is to create a transparent marketplace.

So that users come on, they do a simple application and they get shown a list of companies who best suit their needs. So that's how the business started off. Since then, we've matured from marketplace to incorporate a second product called Gathr and Gathr is a document collection and vetting solution. So you can see there in those bullet points, we do ID verification, bank statement collection and reading, address, bureau reports and e-signatures.

So in essence, what this does is it removes the need for a bank to have bricks and mortar branch. And Gathr is a- I'll actually just use an example to describe it. So we use Gathr in our marketplace to reduce the drop off that happens in an application process. So 60% of the users of our marketplace. So be that an SME looking for business finance, or be that an individual who's looking for a 20,000 Rand loan.

They would go through the application process. Their affordability is good enough. Their credit score is good enough for funding and for finance, but they stop the process because they're asked to go down to their closest branch, print their three months bank statements and, that's a friction full process. So one of our- so off the back of that document collection friction, we designed Gathr as our second product into the market.

And coupling Gathr in the marketplace we now offer an end to end solution for businesses and consumers and a fascinating stat that our- a fascinating conversation that I had with one of our partners was the beginning of last week, was that in the marketplace we used to, prior to us collecting documents, we used to see a- around a 10% conversion rate. So that's from application all the way through to disbursement of product with the main drop off being because of document collection. And since incorporating Gathr into the initial flow.

So application, document collection, and then live scoring that conversion rate moved from 10% to closer to 50%. And that is simply by bringing the document collection and affordability forward in the process rather than having it done out of a sales- out of a sales team and call center environment. So, the the, where we are now, where we started off was with a simple marketplace. Where we are now is powering financial access in Africa. And I'm really excited to get two slides down because that discusses the reduction of cost of capital, which is our real goal. And we believe is the kind of essence and a main driver to enable powering financial access in Africa, which comes down to two key areas that we believe we have clout in.

And we believe that we have the ability to make a difference in, and that one is in technology. So creating efficiencies in technology. And then the second is through distribution. So naturally if a SME or a consumer doesn't know about you, they can't do an application through you. So distribution is key and distribution also speaks to access.

So this and that kind of- I'll get to that now on on a driven or on one of the main drivers of reducing the cost of capital, which speaks to alternative scoring. But we believe that if you reduce the cost of capital you will be able to power financial access in Africa, and you will be able to enable companies to operate more effectively, and you will be able to distribute more funding to SMEs and consumers using alternative scoring as a starting point. So alternative scoring is just a definition when I say that.

What I allude to is using other data points and not the normal- which kind of sit outside your normal bureau information box. An interesting project that we are working on. One is worth- it's it's a partnership between three companies. One is a bureau and the other is a balance, an inter international balance sheet provider and Finch Technologies.

And the main objective of the solution is to distribute SME funding into SMEs who historically have been excluded from the market. So reasons for these SMEs being excluded are due to having less or not having the correct accounting systems in place. Not using accounting systems that are recognized and tracking their financials on a month to month basis.

Another reason could be because it's a cash heavy business, so they're not having card transactions EFT transactions. And so the recording of transactions becomes more complex. And thirdly, which is an underestimated amount of businesses, is that they just simply don't have bank accounts.

So the objective of this solution is to find alternative data pieces that can assist in scoring. So there's no- we've done a bit of research, quite a lot of research in this space and these companies that aren't finding the funds that they need aren't bad businesses. They're companies that have been around they're SMEs that have been around for a long time and their cash flow is good. They're cash positive. They sustain their families off the back of these businesses, but they're not getting funding because currently the market and your lenders aren't able to score them effectively. So by bringing in alternative data, you've got alternative scoring, which allows for your distribution to actually reach the key cogs in an economy that, that need it the most.

So from a South African perspective, our economy and our employment are driven by SMEs. And a lot of those SMEs are in the informal markets. And so I think it's a really, it's a really impressive and a really fun project and tasks to be involved in as there's a lot of upsides in, in reaching those types of businesses. So the reduction of cost of capital comes down to creating- removing friction full parts and capital intensive parts of a business, which are your technology arms. So if you don't need to, if you don't need to have a bricks and mortar infrastructure, if you don't need to have individuals wasting 20 minutes or using 20 minutes of their time to read a bank statement Inc, where they could- where there could be creep of human error. You have a technology that can read that bank statement and produce out a cash flow summary.

And so I think that those, your alternative scoring your distribution and your technology are the key pieces of the pedal that can reduce the cost of capital. And in a nutshell, what the reduction in cost of capital means is that your consumer and your business will be paying less for the funding than what they currently do. So how the market works now is that you'll have a- or how the flow of funding works now is that you'll have a balance sheet provider. And that capital will go to an intermediary who would be your lender or your bank.

Your lender and your bank would disperse the funds to the SME or the consumer. So your balance sheet provider will go be going after 12%, as an example, will be going after 12% return, your lender and your bank will also need a return. So let's say that they then put on a five or 6% and then the consumer is charged with a 18 or 21% loan at the end of the day. So if you can create the technology and the infrastructure to go straight to your balance sheet provider, you can reduce the interest rate and the cost to your end consumer and your business.

So that last slide was really the main objective that we think we can that we think we can tackle in this industries. We're starting off in South Africa and we are going to be moving north into other countries on the- from the African continent and the results in a nutshell of digitalising a lending solution would be more accurate scoring would be lower defaults, a healthier book. And then perhaps the most important would be servicing individuals and SMEs using alternative metrics and the speed of metrics. So the speed of answering an application in some instances that is instant.

We believe that if you digitalise your business, these are the key results that'll come out of it. And in effect you'll help a lot mores SMEs, a lot more individuals who historically were not included in the banking sector or in the financial sector and would just be a good result overall, I suppose. The helping of SMEs again like, it is in South Africa, they are the backbone of our economy. So any good that you do there will be positive for your country. And that's the end of the, presentation. I hope it was- I hope it came across simple enough.

It's- that's great. That's great. Thank you very much, Mike. It's very informative and obviously we learned a lot about how they actually achieve the interest rates and they come up with them and so on. So let's dive into this. And first of all, can I just ask you, we heard a bit about Finch but what about your personal journey before Finch and maybe even during Finch? Sure.

So I have lived in South Africa, a majority of my life. I did a little stint in America at one stage when I was a teenager. Our family moved over there and I studied a BSc at the University of Cape Town. And did my degree then went off to a little place in the Karoo, which is in the middle of South Africa.

And I worked on a farm for two years. So instead of doing a gap year and traveling around the world. If one's in the fortunate position to do that I rather went to where there's no cell phone reception and did some farming in the crew. Well you probably learned way more. That's amazing.

So what did you farm? What kind of farming were you doing? We did livestock, so it was cattle and sheep. Cool! Yeah. And then came back to Cape Town and worked as a junior engineer.

And it was in that time that, Chris and I got chatting around some business opportunities. And Chris is a long term friend of mine. We were at school together university together, and we've done one or two projects together. And, yeah we came across this idea as it's a very needed solution in the south African context. Absolutely.

Are you- do you think that a lot of the users use mobile phones to access the platform? Or do you think they do it through an app? Or how, do you think they mainly access? What do your statistics show? The majority are through mobile. Yeah. And the majority are through mobile, and then in the age groups, the majority of applicants between 26 and 35. And then our second biggest group is 18 to 25. And then the third biggest is, in your thirties.

So yeah, it's a it's an interesting one, I think in a- in our market. And I'm assuming this will be in a lot of the third world countries is there's a natural barrier to entry with a laptop or computer. So in third world countries, very mobile operated like individuals operate off their mobiles quite heavily. And then as soon as you break into a computer side of things, you're now you're in a different LSM. So, I've read correct me if I'm wrong.

I don't know how accurate this is that the mobile phone penetration in South Africa is around about 75%. Is that your understanding as well? I would actually argue that it's higher than that. Yeah. I'm not sure on the latest Sounds a bit low to me actually that, but yeah. Obviously that's not.

It is relatively high and it's probably even higher. But what about elsewhere in Africa where you're intending to expand into what are the mobile phone penetration rates like? So from our learnings in this country and, touching in on, on one or two other countries like Kenya and we were in chats with the business wanting to launch a business marketplace in in Egypt- in Jordan, sorry. So the main kind of output from that in the mobile penetration side is that I would estimate your penetration to be closer to 80, 85%. A lot of individuals have two mobiles especially here in South Africa. So, yeah, I think I once saw a taxi driver in Hong Kong who on his dashboard had 12 mobiles and he was running a business while he was driving with all these mobiles.

I dunno if anybody reaches that level in South Africa, but there are people who do that kind of thing. Yeah. There we go.

Exactly. I think that's, probably not too abnormal here. So obviously the, services are pretty good to have this level of penetration. They have really rolled out completely across Africa, right? Yeah, exactly. I think your in internet penetration is, getting there. It's certainly good in this country and yeah, there's a lot of emphasis from our telecom providers to, distribute access to internet.

So you mentioned Jordan is, some of, are some of the lenders, do they do Islamic finance as well on your platform? Some of the banks do not, the alternative lenders. So an alternative lender is basically defined as, as a lender. That's not a bank. And so it's not very big in South Africa, but in Jordan, for sure. Yeah.

That's the main market. So not a lot of our providers are present in Jordan. It would be a whole new kind of client base. That'd be interesting as well as about how you approach that market given, that slightly different dynamic, perhaps. For sure.

I appreciate you are the platform, but presumably it also impacts your platform a little bit. No, exactly. The logic behind, behind your technology would need to be adjusted somewhat. Even, just the language barrier for some simplistic example. Yeah. So do you use AI and machine learning on your platform? I would love to say that we do.

We do very basically. It's certainly something we wanna get more and more involved in. Certainly something we will get more and more involved in. So we, naturally deal with a lot of information. So we are strictly regulated by, national credit regulators. We regulated by bureaus and obviously lots of compliance that we go through because there's, a heap of personal information that we are dealing with.

So from an AI perspective our starting point would be on, I would say on like the affordability calculations, because those are like your affordability calculations and the other line items within your bank statements, as an example, are, could be used as key indicators on affordability, payment habits. When is the best, like what type of, so if you were to use an example let's say that we pull a bank statement from a business that generates a hundred thousand Rand a month. And you can clearly see there's, it's a, there's a cyclical flow of revenue. Let's say it happens every 10 days.

There's a kind of an influx of, revenue that comes through. And let's say that, let's say that the, outflow of cash is every seven days and the individual is paying for they've got DSTV accounts, they've got cell phone contracts for all their employees. You can start, building in some, really interesting analytics off the back of that and automated way to to understand the business and it speaks to that alternative kind of the acquisition of alternative data, which will help in these points because how you measure, businesses currently is your, you heavily reliance on bureaus. So the bureau will tell you the default rate.

How, or how many defaults, how many open accounts an individual business has, but they can't it's, very backward looking in the way that if I was to take a personal loan out and not pay it back, they would, you'd have historics on me, but you can't, there's no information that I've got a degree that I put. 5,000 Rand away to savings every month there's not those forward and those propensities to save. So I think that's an, that's a certain important point there actually on the AI side is, just picking up on those savings rates. Because if you look at it from a surface level on a bank statement, since it's an expense that goes out, it leaves your account. So it's, cash that goes out, but it, shouldn't be looked, at from an affordability perspective. Savings is a good thing.

That's a positive, it's a positive expense. So I think there's lots of metrics that one could dive into from a AI perspective. And we, as a company, we are very excited to, to get our hands into that. Yeah. So you have a credit rating license, right? So you're already doing some analytics effectively, right? In relation to credit rating, presumably. We are a credit bureau reseller.

So that gives us the license to resell bureau information. We aren't a registered bureau in of itself. Okay. So that information doesn't belong to you actually you're reselling it.

Yeah. Yeah. Yeah. So what would you do with this amazing data that you will accumulate? Which would be very interesting. Will you use it to grow your own business mainly or, is that something that you'll be thinking about in the future? So we've had this, we've had this idea of developing a financial health tool.

So not, your normal kind of budgeting tool but a financial health tool starting off on the consumer space and then perhaps going into the business finance space or business owner space. And what this does is it's basically brings all the pieces of information that, that we've got and you can provide value added, value added prompts and products to individuals at a certain time in their life. So you would, we would be able to see through the marketplace and through, the documents that are collected, you'll be able to get a lot of insight into habits. And you are looking, our whole thesis of our business is to assist South Africans to make better financial decisions. That's part of our thesis. So as an example we, currently see in we on a pretty common basis, we see individuals coming through our platform with numerous policies against their name.

So seven funeral policies against one person's name or four life insurance policies. And these individuals are normally your lower LSM individuals who. Who in the South African context may earn 8,000 Rand a month and they are paying a thousand Rand a month off to seven funeral policies.

Which is a complete, it's completely not necessary in, you only need one funeral policy. How does that happen? How do they get induced to buy these? So the, way that the way that a lot of industries are run is that there's upside in selling value added products. So, if you are gonna open up a, an account, let's say, I want to open up let's say I wanna open up a life insurance policy, or I wanna open up a credit card or a store card that, that store card might require me to have a funeral policy. And so then the consultant will say Mike, you need to have a funeral policy with us in order to get the store card. So then I will take that funeral policy if I really want that store card.

And then the next store card, or the next credit card might say the same thing, but the consumer just doesn't know that they can say, hold on a second, I've got a funeral policy. There it is. And send proof of that funeral policy in the form of a document because going out and, giving that hard copy of a document is a friction full process.

So hence where Gathr kind of fits in. So yeah that's, how it sold in a nutshell, it's putting on a value added product Yeah. If you can put a stop to that, would be an enormous benefit to the economy generally to allocate that money more efficiently for everybody. I think so. And, just putting the information out there to the consumer so that they know what, they're in for, they know their expenses and they know yeah.

They just know what they're getting in for. Yeah. So how do you mainly market your platform and your services? So we do, we're mostly a B2B business, so we're software as a service. So Gathr will be, we've, we will sell that out to telecoms company, to banks, to insurers to property or real estate agents. They might use different modules within the Gathr solution. So company A might only need ID verification.

Whereas Company B might need bank statements and ID. So softwares, Gathr is sold out as a software as a service, and then our business and consumer marketplace is also sold out like that. So there's a big barrier to entry for the marketplace.

So I think one of the questions is that one of the questions I often get answered, asked, is why don't companies just go ahead and build the technology themselves and create the contracts themselves. But there's about a three year barrier to entry with, your bigger banks in getting a contract and getting integrations over the line. So from initiation call to all the way to converting and actually having them as a part of your business, there's is a good amount of time that comes in. And yeah, and also it's easy to say is, oh, go and build yourself a platform, but really they're not tech companies or maybe some of them are becoming tech companies, but it's a bit like saying I need an office. I'm gonna go and build it myself. It's a similar sort of principle.

Isn't it to think that everybody could just go and do this themselves rather than use a platform? No, exactly. Exactly. So the benefit of, using a platform or an existing infrastructure is that we can say to our clients, all right, so you want a business marketplace or a consumer marketplace. It's gonna take X amount of months of integration work and there you've gotta fully, you've got a business straight away and revenue driving for them.

Yeah, absolutely. And also you are committed to keeping this up to date and updating it all the time, which is a huge ongoing investment on your part. Isn't it. Exactly, So how do they pay for the use of the platform? So there's there'll, it's broken up into, so our marketplace I'll detail that first, is there's naturally a set up fee, so there'll be integration work. So there's a set up fee then there's normally a.

Kind of a, slight monthly, fee just to cover maintenance. So it's a, slight maintenance fee, which gets offset to the main kind of revenue driver, which is a revenue share off the marketplace. So our revenue share in the marketplace is, we get paid by the bank or insurer for each product that is dispersed. And then we would share that with the business who's, using our platform. I love that.

A slight charge. I'm gonna use that in myself. A slight charge.

Marketing. It's that marketing speak yeah, it's I suppose slight is, depends who you're talking to as to what slight is. No, It's just a good term to use. Yeah. Yeah.

It means proportionately, not a lot of money I suppose. Yeah, exactly. And, we try, like we try and we, price our, products to to the revenue share aligns everyone. It aligns us and aligns our company.

Rather than saying he has a flat rate where there's no alignment there if there's ups or downs in the market. Yeah, absolutely. So of the sort of loans you provide, we talked, touched on whether you might be doing, doing a platform, which would accommodate Islamic finance, but what about, is it just straight lending or are there mortgage lending? Student loans, building loans, anything like that? Okay. I'll go back to, our story on when we started the business to answer this one. So when we started the business we, looked at comparing the entire financial sector.

So we, compared savings, accounts, check accounts, business accounts, credit cards, loans, the whole suite of what a bank and insurer offers. We, we then weaned that down because there was just too much focus all over the place. Hence no focus at all. And it was very hard to get structure in the business and it was very hard to, create value. So your number one, you're wanting to create value for the consumer, the applicants.

So therefore you must have a good user experience and you must be able to compare the product properly. And then on the other side, you're looking to reduce the cost per acquisition for your bank or your lender. So if you can send them the correct lead that meets their risk appetite, and they've got a high conversion rate, that means that they're going to, they're going to have a lot of efficiencies and they, their cost per acquisition will reduce because if you're sending a thousand leads a day and they're only converting 2%, they there's a big, there's a big misallocation there.

So, we started off as a very broad marketplace and we have since weaned that down to products and verticals that we do really well. So currently what we compare is business finance and that covers I think it's about 12 verticals within business finance. It's like unsecured secured invoice, discounting, merchant cash advance and, a few more.

Business finance, personal loans, life insurance, and funeral insurance, because those are two insurance policies that we believe consumers need the most, kind of, knowledge about. And then we do vehicle finance. So those are the, five verticals that we're focusing on at the moment. And just trying to nail down the best value for both the consumer and the business. And I think the bigger kind of goal and or what Mateena presented earlier when, she spoke about BankBazaar and Money Supermarkets is that those businesses who are in effect our competition in both India and the UK. They they've got a comprehensive marketplace where I think they're doing about 20 products, so we will get there.

But you are doing about what? About 10 at the moment? Yeah. You're already, I can totally understand why you're focusing on on doing the ones you're doing well. Because that will be the strength of building out the platform won't it I would imagine. And presumably some of the borrowing needs in Africa and even in different parts of Africa are not gonna be the same necessarily. Presumably different, somewhere like Nigeria is a massive market, isn't it all on its own. Are there any particular differences in your approach between the consumer marketplace and the finance market with a sort of funding hub for the business stuff, what are the main differences that you have to take into account in your tech approach to that? I'd say there's two, one is on the consumer side, you've got a client who's very reactive.

And on the business side, you've got a client who's very proactive. So the consumer who's shopping around and is, and I, and me rephrase that specifically in your short term lending, so inside Africa, your short term landing is, loan amounts less than 8,000 Rand. So those are individuals who suddenly realize, they've got to put food on the table or pay a bill or do something like that. And it's a reactive decision where they are going online or they're walking down the road to their closest spot where they think that they can just get the money as quick as possible and walk out.

So your consumer you, need to be very careful with how you deal with them because there's distress. Whereas your business lender takes a lot more of an astute, a lot more of a calculated approach to this. And therefore the kind of application process is, perhaps in most instances a lot longer yeah, you've got a business who, let's say it's a restaurant down the road and they're looking to redo their kitchen and they're wanting to redo their kitchen in three months time.

So they're gonna shop around and they're gonna get quotes. They're gonna chat to different companies. And they take a completely different view on, the funding options. Thank you. So I think you mentioned Hippo insurance as a competitor.

Who are your, how do you see the competitive landscape generally for what you're doing? Yeah. So Hippo is a, can be viewed as a competitor. When we entered the market, they were the biggest and arguably are still the best known brand in the market. There are, there's another two telecoms.

That are looking to enter the kind of financial space or diversify out of telecom space because that's very competitive here. And look for other, areas of revenue. And then you've got additional companies like there's roadside assist business, there's companies who offer vehicle finance, but specifically within dealerships, these are companies that are looking to diversify into the personal and business funding space. And these are companies that we try, our business model has moved a little bit away from creating a, consumer front end brand and more into, here's a product that can fit within your business if you're wanting to enter the financial space.

And there's two reasons for that. I think the one is that as a young company, that we are, you, it's very capital intensive to, to put out marketing budget and try and compete with the big banks and insurers, et cetera. So, from a business perspective leveraging your technology into other companies is a great way to still generate traffic through, through your engine. And then secondly, speaks to the distribution.

If we are going to, if our, our end goal is to power financial access in Africa, and it is to assist an individual make a better financial decision. They need to access you. And I think our view on that was to be less brand conscious or brand precious and say we've got the contracts and we've got the technology. If you are, if, there's a company that's wanting to venture into the space, you can take our technology and put your branding on it. And then everyone that they reach still comes through our scoring mechanisms and is going to go the responsible and the, kind of information.

Go through the information flow and hopefully you make like an informed decision at the end of the day. So taking our kind of preciousness on our brand out, and saying here's a technology. And then you leverage those businesses for your distribution.

Yeah. I totally understand that as a business model, but I just wonder, presumably you've thought a lot about whether that would reduce your evaluation in the longer run to this big named platform, which is more likely to attract fund the funding that you probably feel would put you at a better competitive advantage to market and to develop and so on. Please comment on that, but and I guess I'm also interested in what's the funding environment like in South Africa and where you are. Yeah, sure. So we, certainly, so when I speak about like less on the branding side, I speak about, we're focusing less on the branding side from Fincheck and Fundinghub perspective, which are our consumer and business marketplace front ends, but we're putting a lot of time and effort into Finch Technologies. Which is in essence, the IP that powers Gathr and, the marketplace, But does everything say powered by Finch Technologies? Yeah, exactly.

Exactly. We trying to move into that space where we started off as Fincheck and now we've got these three products and we trying to build out our, business as as, a young company moving into the next phase of your development, you need to consolidate one or two things. Yeah.

So, very much very keen on and excited about building out our Finch Technology brand and, value. And then on the South African investment side, it's an interesting one. So the VC space is there's, one or two players and there's one or two players that are doing it really well.

The access to capital here is quite difficult. You've got I think if you're searching for less than 8 million Rand you can find that within a VC and you can find that within a, high net worth family office, if you are looking for funding of, I'd say about 30, 35 mil and north, then you're looking at institutions. So then you're looking at companies and those companies are gonna want a lot of equity.

So they're gonna wear a hat of private equity and not a hat of VC. So then as A startup, you are, you're gonna be giving away a lot of equity. And that's the frame of mind that, South African investments environment has at the moment. So in between your, 8,000 and your 30,000, it's very hard to find funding in South Africa. Maybe one day you'll expand into this type of funding much, right? Yeah maybe, that'll be the next vertical. But you, because it's, too much for a small, kind of VC firm and it's too little for a bigger institution.

So a lot of South African businesses then go to the US and the UK where, perhaps it's more, more advanced. There's a lot more capital that can be dispersed a lot quicker. They, the don't need to, don't need to tell, you and probably the audience too much about it, but Silicon Valley gets. Gets a huge kind of rap and about how they go about their funding.

And, we'll see on the long run, whether the risk averseness plays in their favor or not but, there is. They are there to, assist SMEs where I think or, young tech companies looking for funding for growth. Whereas I think it's a little bit harder in the South African markets.

Cape Town has the weather and it has the views, it just needs the Incubators and eco funding ecosystem, right? Yeah. Exactly. And on the incubators, there's all of the banks have their own incubation programs, which just shows that there's, a lot of, there's a lot of emphasis on the technology space. And a lot of, companies are trying to, I think it's a hugely exciting market in South Africa. A lot of companies are putting emphasis in trying to assess and work hard, hardly tackle this.

So yeah. Yeah. I hope they succeed and have, bring a lot of creative thinking to it.

Yeah. So a couple of questions from Andrew Wells in Hong Kong, from a Hong Kong perspective, there's a reluctance of investors to invest in sub Saharan Africa, partly from complacency at our end, but also genuine concern about political financial stability. How would you reassure people on that? And could Hong Kong play a role in providing more capital for South African ventures? Very, pertinent point. I think there, there is political, there, there is political instability in a lot of, in a lot of our countries.

I think that you've got to, you've gotta look at the, or our view of, on it, is that you look at, your client base. There's a huge population here, and there's a huge population that, needs financial products. So there's a lot of individuals who don't have access to, to finance.

I'm actually gonna broaden that into insurance, logistics, any technology that can assist matching a person to a business or person to person. There's a lot of scope for those kind of businesses, regardless of political stability. I think naturally you need to flag, countries who, you know who, who might be going through, if their currency is gonna be hugely effective. I think then that would be a, big flag in my view, but there's not a lot of countries that, that's actually too much of a worry. I think you've gotta, if you find a business and a bunch of, co-founders that can execute well, there's a lot of scope to build a business in an African country. Yeah.

Yeah. And there's some great companies in South Africa who've done that, aren't they? Yeah. Tech companies.

Exactly. And I think they've, proven in their ability to be able to hop over borders as well. So you can take your model you can find a different management team in another country and you can expand your company into different countries. Yeah. Yeah. And I know the second half of that, sorry, Julia, the second half of that was just, on Hong Kong funding in, Africa.

Certainly. I think that point that, we chatted about earlier on just the, lack of access to funding is perhaps a barrier. And, yeah, I think there's, certainly room for, Hong Kong investments in Africa. Great. Thank you very much.

We've already been talking for over an hour, Mike I just have a final question for me. Where do you see yourself in the company in five years time? Good question. I, in five years time, we'd like to have a very strong, I think we've got a, stronghold on the marketplace side. In South Africa, we are getting a stronghold on the Gathr side we've got quite a few leading companies using that. So I'd like to just cement that that would perhaps be in a 12 to 24 month period. And then really just look at, moving north from South Africa and, taking this business, taking this business and helping out other countries and partnering up with other banks.

Just to create more efficiencies there's lots of, there's so much room to move here and reduce time, effort and and costs and this whole model. Well it's tremendously exciting and tremendously beneficial. We, haven't had time to talk a lot about how this, to what extent we think this would address the funding gap of for SMEs and all that kind of thing. But I can really see where your business would fit in with that.

So that's really great. So thank you so much. Clearly we could have gone on for quite a bit longer, but thank you so much for being with me today to talk about Finch Technologies and to talk about your own experience and expertise in the digital lending marketplace in South Africa in particular and all your exciting plans for the rest of Africa. I hope we can perhaps do another webinar down the line and in a few months time and see what's developed since now. That would be really great. And thank you very much for everybody who's joined us today.

So we look forward to seeing you again soon at another event. Thank you for joining us and thank you, Mike again. Bye. Thank you, Julia. Thank you.

Bye bye.

2022-07-13 18:16

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