The Committee was briefed by TymeBank as part of the strategy to assist small and medium businesses to grow, innovation in the sector and views on the way forward in the banking sector. The briefing was in response to promoting innovation and assisting residents of the Western Cape.
Members were told that TymeBank was seen as a bank with the potential to cause disruption in the banking sector similar to the disruption by Uber in the car industry and AirBnB in the property industry. It had been invited by the Committee to engage on changes in the banking sector. The bank had been launched at the end of February 2019, and had reached close to a million customers in less than a year. The vast majority of customers earned less than R10 000 per month, and included social grant recipients.
TymeBank was in the business of financial inclusion. This was the message from the CEO. It used digital banking as a mechanism to empower people and to make banking accessible and dignified for customers. Achieving this goal rested on three pillars -- financial access related to affordability, physical access associated with digital adoption, and emotional access which was linked to trust.
Members wanted to know if the bank was offering client training to steer people away from cash transactions, access to the stokvel market, what could be done to reduce red tape and assist small businesses and the possibility of extending the services of the bank. Further questions probed the target market, access to rural areas, availability of public shares and the sustainability of the bank.
The Chairperson welcomed the representatives from TymeBank and African Rainbow Capital (ARC), and indicated that the briefing from them would cover an overview of the products and services, the strategy to assist small and medium businesses to grow, innovation in the sector and views on the way forward in the banking sector.
As background to the presentation, she said it was in response to a question that she had about what needed to be done in the finance sector to be more innovative and to assist the residents of the Western Cape. There was confusion when Uber started a business in the car industry without cars, and AirBnB had caused disruption in the property industry without homes. She was fascinated that TymeBank had launched without branches, and was thankful that it accepted the invitation. It was a huge step for the Western Cape Provincial Parliament. She appreciated their willingness to chat about the banking industry and innovative finance. There was a need to engage more with the private sector to determine what the respective mutual benefits could be.
Mr Tauriq Keraan, Chief Executive Officer (CEO): TymeBank said that the bank was venturing into new grounds. It was in the business of financial inclusion, and used digital banking as a mechanism. It was important for the country to democratise financial services, especially banking. They not only wanted to share, but also learn from the collective wisdom of the committee and were open minded and receptive for new ideas.
It was his tenth year of being involved in financial inclusion in the country. He was advising one of the big banks with a response to the Financial Services Charter about making financial services accessible and affordable to citizens. In order to make this a sustainable objective, it had to be a commercially viable business, and the Corporate Social Investment (CSI) approach would not work. A different business model was needed, and not one that mimicked the banking business model. The deployment at TymeBank was the third venture on his journey of financial inclusion. He offered to unpack why certain things did not work in the industry.
Tymebank: Digital banking to provide accessible services
Mr Keraan delivered the presentation, assisted by Mr Ainsley Moos, Corporate and Stakeholder Relations Executive: African Rainbow Capital.
The purpose of Tymebank had not changed over the last seven years. It had started out as a FinTech company that managed mobile money for MTN. Although it had changed to a standalone business since then, the purpose remained the same -- it was in the business of empowering people, and making banking accessible and dignified for customers. Digital banking was the vessel chosen to achieve this goal.
Access was the one thing that was preventing people from financial inclusion. The idea of access was identified as three pillars. Financial access associated with affordability, physical access related to digital adoption and emotional access, which was linked to trust. Banking had been too expensive for too long in the established banking sector. Opaque and complex fee structures were a breeding ground for mistrust in the banking sector.
Lowering the barriers to entry of financial inclusion rested on the three pillars:
Entry to the market was based on a proposition of a simple banking and savings accounts, with a debit card attached. The transactional banking account had the lowest cost in the market. It was not just a matter of charging low fees, but having a low cost base to be able to do it sustainably. The cost base was constructed as a low cost technology stack. TymeBank did not build each building block, but wrote pieces of code to connect the building blocks. It partnered with other organisations such as Amazon Web Services (AWS) who were experts in running the technology. Due to the extensive use of software that hosted the banking platform in the cloud, the cost to TymeBank was lower than that of other banks, which needed to invest in maintenance of infrastructure.
The bank was able to provide competitive interest rates on savings accounts. Money in an account for more than 90 days and with a 10 days’ notice, earned 10% interest on a monthly basis. No penalties, no minimum deposits and no minimum balances were applicable.
The partnership model was another driver of low cost. Examples were the partnership with shops which were better situated in terms of customer access, such as Pick ‘n Pay with their branded retail footprint, and the Boxer footprint. The digital platform was fully regulated as a commercial bank. It benefited from the integration into the Pick ‘n Pay Smartshopper programme, which was the largest loyalty programme in South Africa. Customers got double Smartshopper points when swiping the TymeBank card at Pick ‘n Pay. As a value added offer, points were also earned when customers used the Smartshopper cards at other stores outside of Pick ‘n Pay.
Digital on-boarding opened up the niche markets of the millennials and the affluent. The proliferation of devices that could accommodate apps were on the rise. The cost of data was still incredibly high compared to other developing economies. TymeBank learnt that physical contact with customers was still critical. The on-boarding of customers on the website needed to be done in a fully compliant manner. Functionality was limited for accounts opened through the website. On-boarding at kiosks accounted for 85% of applications with the issue of a debit card, with the facility of deposits and withdrawals at low costs. To date, 750 kiosks had been opened at Pick ‘n Pay and Boxer stores. The stores offered comfort, familiarity and legitimacy by having a tangible and branded presence. Customers could use debit cards at any automated teller machine (ATM) and pay a Saswitch associated fee. The meant the facility to get money in and out of the account was at Pick ‘n Pay and Boxer stores. The stores were able to facilitate deposits of up to R5 000 at till points at a charge of R4. The reason for the low cost was the use of existing cash handling capabilities. The next lowest fee in the market was R50.
The banking sector was notorious for its complexity on communication and the lack of transparency regarding fee prices. A simple fee structure was one way of building trust. Offerings by TymeBank were based on a pay-as-you-go principle, and required no monthly fee and no minimum deposit. Making products customer friendly and the engagement with customers, through ambassadors at Pick ‘n Pay and Boxer stores, was demonstrating that the bank had a human touch. The role of the ambassadors was to explain the products to customers and assist with on-boarding. It had to be pointed out that they were not always present at the stores.
Of the 23 million active credit customers in the country, eight million did not have an extensive track record with credit bureaus, which made it difficult to vet customers. To lend responsibly required going beyond the normal means of vetting. For this reason, TymeBank had an exclusive arrangement with Pick ‘n Pay. The agreement allowed access to the purchasing patterns of Smartshopper cardholders in order to build an alternative scorecard for customers who would not normally qualify for loans.
Products and Channels
The bank made the decision for a limited set of products. It had been done deliberately to avoid the complexity of multiple products and cost structures.
Under-serviced consumers were targeted with a personal and a goal savings account. An unsecured term loan had been launched recently, but was piloted below the line. If it was in the best interest of customers to have affordable life insurance, TymeBank would offer life insurance policies through partnerships with a third party.
The business accounts were almost a duplication of the consumer accounts. The business account with a savings account attached was being piloted with a small number of customers that were pre-registered.
The digital point of sale (POS) device strategy was being considered for small and medium enterprises (SMEs). This would enable small businesses to accept electronic payments and would include other value added services over time. Lending facilities would be limited to the merchant cash advance and working capital loan options, which would be done on the back of supply chain management (SCM) information.
SmartApp and web: The business ran on a SmartApp and through an internet banking website that could be accessed on any device. The service for both channels operated on a zero-rated data consumption basis, except for one small telecommunication company, which was not affecting a lot of the customers.
Chatbox: This was a financial education tool. It was a stand-alone service that was not yet embedded into the banking app.
Call centre: This was established for obvious reasons.
Kiosk: The on-boarding of customers takes place at Pick ‘n Pay and Boxer stores through engagement with ambassadors. The kiosk made provision for the recording of fingerprints in a repository which was integrated with the Department of Home Affairs (DHA) database. This allowed for the matching of fingerprints as a vetting mechanism. A green alert from the repository would give access to a TymeBank account. A poor match would be flagged as a red alert. The customer would still get a bank account, but with the lowest limits, and only after answering a set of multiple choice questions. The bank used the risk-based approach in terms of the amendment to the Financial Intelligence Centre Act (FICA), which required identification of risks through the Know-Your-Client (KYC) process. The credentials of customers with red alerts would be checked against other databases, by running a financial crime algorithm, to identify perpetrators of fraud, terrorism and other financial crimes.
Retail till point: Partnering with other institutions would expand the network to facilitate deposits and withdrawals in all food stores.
Ambassadors: The 750 ambassadors were not on the TymeBank payroll, but outsourced in terms of contracts. The operating model made it possible for the bank to aim at a customer base of a million people with only 250 staff members. The ambassadors were all unemployed youths from marginalised communities. They were managed by more than 50 experienced and capable supervisors to help them grow. The Harambee programme, which was the leading youth employment initiative in the country, had developed psychometric predictors to test self-mastering capabilities. An example would be to ask a young person to have an identity document (ID) certified. Although it was a simple task, it may not be easy to do without resources, and if there was no police station nearby. Inferences of self-mastering could be made when a certified ID was presented. Training of ambassadors was piloted before the bank was launched. 80% of ambassadors had since moved on to better opportunities with a significantly high chance of remaining employed.
TymePOS: The POS device would enable small businesses to accept electronic payments.
A competitor analysis had been made in terms of the costs of a transactional bank account. It indicated the costs that customers would incur in terms of two baskets, one of 12 and the other of 17 transactions based on predefined transaction types. The determination was done by the Solidarity Union, which was considered a good yardstick based on their annual report on banking fees. For a like basket of transactions, the costs were significantly lower than the competition and could mean a saving of R400 a year. It may not be a huge amount but it was material for TymeBank customers.
TymeBank was launched at the end of February 2019, and had reached close to a million customers in less than a year. It was growing significantly faster than other digital banks, and had learnt from the customer base that the proposition appealed to people from all walks of life. The vast majority of customers earned less than R10 000 per month. Social grant recipients were also signing up. The purpose of the bank was to provide banking to ordinary South Africans, but it did not expect that 45% of the customer base would be older than 35 years.
The bank subscribed to an agile way of working, as the software development required the ability to respond quickly. The current development involved expanding distribution beyond Pick ‘n Pay and Boxer through a mobile version of a kiosk. The plan was to take the mobile kiosk to taxi ranks.
Personal loans would become more prominent in the first quarter of 2020, and would be based on linking profiles to purchasing patterns.
Small business bank accounts were priced similar to consumer bank accounts. Customers could have both a personal and a business account, with two separate profiles. The small business segment was grossly under-serviced, and the proposition was to facilitate interaction with owners, suppliers, customers and employees of SMEs. The approach involved having a payment acceptance mechanism that would allow for card transactions, backed by a low-cost banking account. The ability to order and pay for stock was a massive impediment for SMEs. The strategy was to integrate into selective wholesalers that would allow for electronic order and pay options. This would make it possible for TymeBank to view spending patterns in real time, and to grant working capital loans based on card enquiry transactions.
Looking at historical patterns and data helped with the mitigation of risks. The bank collected more money as businesses made more money.
The Chairperson thanked the CEO for the presentation and requested that he think about legislative challenges during the tea break. After the tea break, the CEO presented a one minute video of the experience of a customer, as part of the Goal Save campaign.
Mr R Mackenzie (DA) asked whether the bank was offering client training to steer people away from cash transactions. He raised this question in light of people who get robbed on Fridays in Mitchells Plain, which was his constituency. He asked how the bank planned to access the stokvel market and what offering could be provided for the handling of cash by stokvel members. He enquired what the bank was doing about digital literacy and what government could do to assist. He was of the opinion that people did not access digital platforms, as they did not know how they worked. He questioned what could be done to reduce the red tape and assist small businesses and people who kept large amounts of cash at home. He asked whether the fingerprint technology was owned by the bank or by a third party. He said that the Western Cape government was looking at youth employment, and asked how the bank could partner with him to accommodate young people who already had basic training, to become ambassadors.
Mr D Mitchell (DA) asked what the possibility was of extending the services of the bank beyond Pick ‘n Pay stores and rolling it out to rural areas. As a representative of Murraysburg in Beaufort West, he pointed out that the closest Pick ‘n Pay store was in Graaff-Reinett, which was 170 kilometres from Beaufort West.
Ms N Makaba-Botya (EFF) said that the idea sounded like a good banking concept. She asked what the target market was, and whether mechanisms were in place to educate people in rural areas. She enquired about the availability of shares for the public, and how long the company had been in the market. She queried how the bank made money and whether the business was sustainable in light of charging the lowest rates. She asked about the co-founders and beneficiaries of the bank.
The CEO replied that the strategy of the bank was to leverage on the software technology of other parties and also to leverage the technology of the bank to provide services to other parties through identity verification technology. The technology could be used to facilitate the distribution of selected insurance products and to enable payment of claims. Logistically and economically it would have to make sense to use existing hardware at the kiosks for other products and services.
The bank worked primarily through Harambee to source candidates. Consideration should be given for collaboration to plug into the same database. Other opportunities existed in the ecosystem, such as the Youth Environment Services (YES) programme to allow for the funding of youth programmes. The bank had been approached by other companies to accommodate ambassadors.
The literacy problem was at the heart of why certain past ventures were not successful. Cellular telephone (cellphone) penetration was ubiquitous, which opened up the approach to encourage digital literacy. It was a struggle to get rid of cheque payments, but it had stopped when companies stopped accepting them. The same would happen with digital adoption. Digital payment acceptance would be adopted the more it was used. The cost of data should be reduced through opportunities to subsidise cellphones. Customers could unlock rewards for performing digital engagements. Millennials encouraged digital adoption by older generations.
Banks were trying to formalise a structure that was inherently informal in nature. The challenge was that several members required the same level of governance. The Goal Save account could facilitate up to ten pockets. Members might want individual viewing rights.
The bank had started with Pick ‘n Pay and Boxer stores, but it was part of the strategy to expand to rural areas. Enabling withdrawals on a SMS device was on the cards. This would allow customers to go to the nearest TymeBank agent to cash in and cash out.
The bank had designed a proposition to meet the needs of the Living Standard Measure (LSM) 5 -7 market. The vast majority of customers were low income bracket, earning less than R5 000 a month. Ambassadors played a key role in educating customers. The sustainable way was through the commercial distribution channel.
The company had started out as part of a consulting project, but had become a standalone FinTech business in 2012. In 2017, it was granted a banking licence by the South African Reserve Bank and had been in the market since February 2019. The three shareholders were African Rainbow Capital (ARC), African Fig Tree Investments (a vehicle for the co-founders and starting crew) and Ethos Artificial Intelligence (AI) Fund, which was a private equity fund with the smallest shareholding. It invested only in businesses where AI could give a disproportionate competitive advantage and return on equity. The ARC, as the majority shareholder, was wholly-owned by Ubuntu-Botho Investments, which in turn was held by a number of church groups, trade unions and women’s and other organisations. This would ensure that future proceeds would flow back to ordinary citizens at grass roots level.
Mr Ainsley Moos, of African Rainbow Capital, explained that Ubuntu-Botho had been partnering with Sanlam for the past 15 years and was successful in positioning itself in growing capital. Ubuntu-Botho was an empowerment partner of Sanlam, and its shareholders benefited from the relationship. This enabled ARC to be part of the journey with TymeBank.
The CEO said that the shares were not currently available to the public, but the position might change in future.
Mr Moos said that shares in TymeBank were privately owned. The indirect route to get exposure to TymeBank would be to buy African Rainbow Capital shares at R4 per share.
The CEO explained that the revenue sources of the bank were derived from net transactional fee income, net interest income and from loans. The mix and ratio of the revenue sources looked different from ordinary banks. Transactions fees were low, but that was justified by the low cost. Some money was made from the Goal Save account, based on the tier system. Customers started earning interest at 6%, 7% after 30 days, 9% after 90 and 10% after a notice period of 10 days. The bank did not make money off savings accounts, but on transactional accounts. Margins for income on loans would be realised as more loans were granted and the risk was appropriate to the management of risks.
Mr A van der Westhuizen (DA) said that innovation was high on the agenda of the Western Cape government under Premier Winde. He asked whether there was anything that could be conveyed to colleagues at the national level regarding licencing issues concerning the Reserve Bank. He suggested that the call centre and helpdesk might be under a lot of pressure, as the bank was operating without physical branches. From a website on the internet, he had established that TymeBank had come in for a lot of criticism from customers. 92% of users gave the bank a rating of two out of five stars. They complained that they were not able to make online payments. He asked whether the bank could assist small and medium businesses by enabling the use of zip-zap machines at spaza shops. He queried how interest was calculated in a case where a deposit of R1 000 was made and withdrawn after 100 days.
Ms Makaba-Botya wanted to know from the Chairperson what the intent and expectations were for bringing the presentation to the legislature.
Mr Shuray Bux, Department of Economic Development and Tourism (DEDAT), Western Cape, said that it could be helpful to support the type of business through the funding fare of the Department.
Ms Olivia Dyers, Director: Digital Leadership, DEDAT, Western cape reflected on her experience as a government official, where bank-stamped paper work was a frequent requirement in procurement and tender processes. She asked how this would be dealt with by TymeBank.
The Chairperson said that a big question often asked by departments and entities in the finance department was how to include the private sector in the conversation. There was a need to start building relationships with all partners. After Uber had caused a disruption in the transport industry, and AirBnB in the hotel industry, she was curious about the potential disruption by TymeBank, the first bank in 19 years to get a licence, when it indicated that it had no branches. It was not an oversight request. The idea was to be more informed through interaction with the private sector and because banking formed such a big part of the finance sector.
Mr Keraan said FICA legislation was highly enabling for their business. The on-boarding of customers would not have been possible a few years ago, based on the FICA rules before the amendment. The vast majority of TymeBank customers used e-commerce. There was, however, a particular piece of legislation -- the amendment to the National Credit Act -- where he would be grateful for the support of the Committee. The expunging of debt, as prescribed by the amendment, created a challenge in that big reputable banks would exit this market and open it up to predatory lenders. He would welcome a workshop to discuss the issue.
The business had been well received when it entered the market, but this had put pressure on the call centre. It had experienced bad dropped call rates, but that had improved substantially over recent months. Issues with on-boarding had also added to the backlog at the call centre. The majority of the calls were about basic issues, such as requests for bank statement and proof of payments. The system did not have the capability to access bank statements, but the functionality had since been developed. The bank would continue to improve the service to satisfy the needs of frustrated customers.
Interest was calculated at 6% annually for the first 30 days, and the balance would accumulate at that rate. The option to crack the piggy bank was available after 90 days.
The ability to accept various payments included cards, electronic vouchers and via a time code, which was an electronic code available on the digital platform, to withdraw money.
The CEO indicated that he would want to consult with colleagues on the matter of stamped bank statements in order to do provide a well-considered response. There should be ways to partner on consumer education and digital adoption.
Mr Bux asked how the bank could assist in cases where bank confirmation was needed for tender purposes.
Mr Keraan replied that options were available to provide proof of banking. A similar functionality was available for SME accounts.
Mr Bux asked how debit and stop order forms could be accommodated by TymeBank.
The Chairperson clarified that government prescribed forms needed to be bank stamped.
Mr Keraan replied that ambassadors were authorised to perform account verification for South African Social Security Agency (SASSA) grant recipients. This was done through an account verification system, which was a digital service that TymeBank was currently not part of.
The Chairperson said that the Committee took cognisance of the concerns regarding bank statement verification. She thanked the CEO for the suggestion of a workshop and suggested that it could be planned for next year.
Mr Bux said his colleagues were looking for interns, and he would alert them about the ambassadors. Every government building was a free Wi-Fi hotspot area, and a list of the buildings could be made available to them.
The Chairperson thanked the CEO and the representative of ARC.
The CEO said that he was looking forward to further collaboration with the Committee.
The meeting was adjourned.
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