Banking on fintech

Technology is affecting every business in the world,” says Bradley Sacks, joint CEO, with former Macsteel CEO Michael Pimstein, of fintech investment firm Capital Appreciation (CAPPREC). “But there is no greater impact than in the banking and financial sector.” In this sector, he says, the “impact is huge” because so much of the work is already technology dependent.

At the time of listing, in October 2015, CAPPREC was the first special purpose acquisition company (SPAC) to list on the JSE. In terms of the rules, a SPAC cannot have its own operations at the time of listing and has 24 months in which to make its first deal.

CAPPREC – with a heavyweight board that includes the likes of former Netcare chairman Michael ‘Motty’ Sacks; Bidvest Bank CEO Alan Salomon as chief financial officer; former SABMiller CEO and chairman Meyer Kahn; former Registrar of Banks Errol Kruger; and former Old Mutual executive Kuseni Dlamini – raised R1bn through a private placement. Of this, R250m was invested by the Public Investment Corporation (PIC) and R50m by African Rainbow Capital.

“We told investors that when we do make acquisitions, we would be looking for good fundamentals for growth,” he told finweek in an interview following the group’s results announcement in May. CAPPREC did due diligence on many companies and sectors before deciding on a fintech positioning.

Working with banks

Banks have antiquated legacy systems, which creates a business opportunity for fintech companies like CAPPREC, Sacks believes.

But he says that fintech companies that think banks are dead, and believe they’d be able to take over banks’ customer bases, are “naïve”.

Banks are stringently regulated and have developed a sense of trust and stability with their customers, he explains. This is why CAPPREC has chosen to work with the banks, helping them give their customers a better banking experience.

CAPPREC can make it cheaper and more efficient for financial institutions to offer services, he says, and it has invested in new capabilities that will bring added value and potential new revenue streams to
these institutions.

As part of its focus on fintech, CAPPREC has to date purchased three companies in South Africa – African Resonance and Dashpay, which now fall under its payments and payment infrastructure division, and Synthesis, which falls under its software sector. It also bought 17.5% of payments business Resonance Australia.

Many consumers find payment systems opaque, says Sacks. He gives the example of climbing out of an Uber taxi and not having to think about payment.

“Credit cards are not dead,” he says. “They have just taken a different form. The credit card details are now on your device; you’re not having to swipe all the time, it’s become a back-of-mind activity.”

CAPPREC offerings

African Resonance primarily sells, distributes, maintains, rents and manages payment devices to, for and on behalf of its banking and institutional clients, while Dashpay has developed a multi-product, multi-party, universal transacting platform, positioned to provide transaction processing services, solutions and products.

Since being acquired by CAPPREC, African Resonance has concluded deals with two big banks. By the end of last year, it had 75 000 payment devices in the market – more than double the 32 000 it had at the beginning of 2017.

“We are increasing penetration and growing our customer base,” he says, adding that by 2019 African Resonance plans to have over 100 000 devices in the market.

Synthesis Software Technologies, the third company that CAPPREC acquired, is a provider of technology and solutions to the financial services industry and a partner with Amazon AWS cloud service, which it provides to clients in Africa, Europe and the Middle East.

Sacks says the economics of cloud storage are “compelling”.

“A business can save 60% of its infra-structure costs,” he adds.

With its research and development unit, Synthesis is exploring machine learning, artificial intelligence, big data and blockchain technologies. Blue-chip clients include Absa, Standard Bank, Rand Merchant Bank (RMB), Capitec, HSBC and Investec.

Sacks says that Synthesis, which focuses mainly on the regulatory and compliance landscape for the financial sector, has a good reputation for “high-end”, “highly skilled” work, which means its offering is at the top end of the market.


According to him, all three subsidiaries have made “excellent progress” in their first period under the CAPPREC banner.

Its results for the year to end March showed headline earnings of R143.4m, or 9.53c per share. The results represented 11 months of trading with the acquisitions made in 2017. It also declared a dividend of 4c per share.

Revenue was R571.3m, compared with R80.2m for the previous period, which excluded the acquisitions. After-tax profit totalled R143m. The firm is highly cash-generative, with cash generation of 116.8% of after-tax profits, it said. CAPPREC had cash resources of R513.2m at year-end.

Sacks says that CAPPREC is “tremen-dously pleased” that the businesses have performed “exceptionally well” for the 11 months they have been part of the group.

“Shareholders and investors who have been tracking CAPPREC since its initial capital raising in October 2015 will, no doubt, conclude that the 2018 financial year was a significantly transformative period for the company,” he comments.

“Not only were certain viable-asset acquisitions concluded but, more importantly, each of the acquisitions has successfully fulfilled its commencing expectations as evidenced in this set of results, which reveal both solid trading performance and the appropriateness of the purchase price paid for the businesses acquired.”

While shareholders only approved the acquisitions in May 2017, CAPPREC had signed the deals in February 2017. “We have been living with these businesses for 18 months,” says Sacks. “We have seen what they are capable of.”

The results have also buoyed the share price, which reached a low of 66c a share late in January, down from a listing price of 119c, according to IRESS data. The stock was trading at 100c at the time of writing on 12 June.

Commenting on the results, Sacks states that the company’s organic growth potential is “large and compelling”, and that the sector also presents “several interesting acquisition opportunities”. Adding that there are also opportunities to expand and transfer its business models into new markets, he says the improved confidence in the economy leaves them “cautiously confident in suggesting better times ahead”.

This article originally appeared in the 21 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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