The founder and CEO of exponentially expanding EasyEquities is the picture of bouncy optimism despite a share price that’s dropped from 330c to 215c in the past two months. Purple Group’s boss man Charles Savage reckons the fintech sector’s move into ‘recessionary mode’ opens up the opportunity for Easy to move out of its home base to global leadership. In this podcast, he tells Alec Hogg of BizNews that today’s expansion to add the UK and European stocks to its offering serves notice of its ambition.
Charles Savage on the fintech sector’s recessionary move
The opportunity set is just shifting, but opportunities aren’t going away. What I mean by that is, the last two years have been categorised by a huge run of retail investors towards investment services. And what that meant is there has been more competition and more money chasing fintechs like ours. What you’re finding is people are returning to work; they have less time on their hands, inflation is in the system, so there’s less money to invest. There is less capital chasing these opportunities, which means there will be less competition for us. While we may not acquire the same levels of customers we have had over the last two years, we see lots of opportunity emerging at the end of … let’s call it a recession because I think it pretty much is; with there being less competition, fewer platforms like ours, delivering services to their customer base. At the end of that, there is much more opportunity for us. It really feels like the dot-com bubble of 2000. I remember it well. If you think about it, lots of money chasing e-commerce sites. The tide went out and there were few survivors. Then the next waves of capital that supported those e-commerce survivors took them on a kind of 17-year run, you know. It took Amazon from a $6 stock to a $3,000 stock. That’s exactly what you’re seeing in fintech. Those that have scaled and are profitable and have got the right shareholding structures will survive this recessionary move – will emerge stronger in a less competitive environment – and the next wave of capital will last longer and be more sustainable. So actually, it’s hard for me to say this presents more opportunity for us as a business than Covid-19 did two years ago. It does simply because we scale, we are profitable and we’ve got incredible shareholders. I don’t think there are a lot of companies in our sector that can say those things.
On Purple Group’s biggest currency being two things that don’t necessarily require capital
The capital constraints that have built this business came out of scarcity, of being a very small group seven years ago, of very good disciplines to keep, especially now in a recession. I think having too much capital right now, you could fall into a trap of thinking this is going to be a short-lived recession; you’re going to buy assets too early or invest in projects too early. So, would I like to have more of a war chest on our balance sheet? That definitely helps me sleep better but we don’t require it, given the environment we see ourselves operating in over the next two to three years. However, we will be strategic if we’re seeing opportunities that we want to invest in at the right price. Then we definitely will take advantage of those opportunities. Our biggest currency is two things we bring that don’t necessarily require capital. The first is we can partner distribution with our platforms and get access to markets without having to spend marketing money. That’s a massive differentiator. Two big partnerships launching in the next four to six weeks – Discovery and Telkom – will give us rails into new customer basis. The second one is that we can partner fintechs and give them access to our distribution in return for equity. We’ve done that with Easy properties and I think there is opportunity to do more of that in the next three years, where there is this scarcity of capital and really what start-ups want. They want access to customers; it presents a big opportunity for us and I expect this where we did two deals in the last two years. I would take a stab at doing about 10 deals in the next three years that are both on the same model.
On fintech’s customer base
Let’s take a really good start-up that has a product set that works inside our customer audience. I cannot think of one that comes to mind now, but they are out there. If we take them from a start-up and scale them to profitability by introducing them to our clients; and rather than taking a share revenue, we say look, we just want equity. Then we get our equity for free. I mean, in easy crypto, we got 51% of the company for free. And today, depending on what multiple you value it on, that equity is worth anything from R50m to R100m[MG1] . And all it cost us was access to our customers. Our customer base in the South African context, 1.6 million registrations, 800,000 active accounts. At today’s growth rate, that’s about 30,000 new customers a month, which is 50% of where we were at the height of Covid-19. But it’s still 30,000 accounts a month. That’s a big number for a fintech like ours.
On levers for growth
You cannot be criticised for transparency. The numbers are what they are. What’s more important is the levers for growth. If new customers are the strongest lever for growth, then that should be a concern to investors, but it’s not. So, we’ve got four levers for growth. The first is in these assets on the platform and the largest customer segments are those that are already on platforms. They are one and a half million opportunities, of which 800,000 are active on the platform we need to get to give us more money and invest in more things on the platform. And this is our strongest lever for growth. I mean, those in our site don’t cost us one cent to target, activate and engage them and get their assets. The second lever for growth is revenue per customer. And what we can do to improve that is to introduce more products and services so we get a greater share of wallet and greater stickiness from our customers. Today we launched Euro GBP. So, we want to get allocations from their offshore assets and grow our distribution into those markets.