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FirstRand expands services

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FirstRand is emulating Amazon.com with a digital offering that will span everything from insurance, car license renewals to locating plumbing services as the South African bank chases new revenue sources.

Africa’s biggest lender by market value is pushing customers to make more use of its mobile-banking applications by extending the services it offers through “applets” within the main interface, Chief Executive Officer Alan Pullinger said in an interview at Bloomberg’s Johannesburg offices.

These include connecting home buyers and sellers, house valuations, tracking an investment portfolio or linking its business clients to consumers.

“We’re wanting to become more of an Amazon-like business, which is a platform player,” rather than an operation like Walmart Inc. that relies on physical branches, the chief executive said. “We want to solve for everything, your financial wellness. We see runway for ourselves with our strategy.”

Revenue at FirstRand has grown at double the pace of its three largest Johannesburg-based African peers in the past five years, according to Bloomberg Intelligence.

Pullinger, 53, attributed that to improving the number of products used across 8 million clients, a jump in transactional volumes, and increased use of the app of its consumer unit, First National Bank, which saw a 65 percent surge in transactions in the year through June.

Cost Advantage

The company also owns investment bank Rand Merchant Bank, auto-loans provider WesBank, wealth manager Ashburton Investments and specialist UK bank Aldermore, which is being combined with second-hand car retailer, MotoNovo.

FirstRand is considering ways of entering the health- and life-insurance markets using its own licenses rather than partnerships over the next seven to eight years, taking on established players like Discovery, Pullinger said.

Discovery, the biggest health-care administrator in the country, plans to start its own banking operations in March.

“In a lot of this space, because of the model that we are following, we should have a cost advantage,” he said, by avoiding the expenses typically associated with the process of signing up new clients, such as confirming where they work, stay and their identity.

“I don’t have to find a customer, I don’t have to on-board you. I don’t have to pay for a distribution channel, I don’t need a broker. It’s digital.”

Big Players

For now, FirstRand is more focused on its peers like Standard Bank, Absa, and Nedbank. in terms of how they’re going to respond to intensifying competition. Billionaire Patrice Motsepe is looking at launching his bank, TymeBank, by the end of the first quarter.

“At the moment there’s a lot of hype around these guys and all of them are going to take time to scale,” he said. “Our much more immediate focus is the big, established banks because they have got the tools and the capabilities right now to come into the market.”

It won’t, however, repeat the mistake South Africa’s so-called Big Four made when smaller, but rapidly growing rival, Capitec Bank Holdings, started opening its branches on Sundays, with the larger banks unable to respond fast enough.

Since starting in 2001, Capitec has become the country’s sixth-largest bank by assets, has almost 10 million customers, and recently broadened its offering to include business banking.

Feeling Better

Turning to politics, Pullinger said the company is “feeling a little bit better about 2019,” when the elections are expected to give President Cyril Ramaphosa a clear mandate if his African National Congress wins a convincing majority.

That could allow him to make the structural changes to the economy needed to rekindle growth and will give him increased control over his cabinet choices.

And while “the hard data is still bleak” for the economy, FirstRand is focusing on implementing its strategy, which is already gaining traction, he said.

It managed to grow its customer base by 4 percent in the year through June even through the economy contracted in the first half of 2018.

First National Bank will continue to be FirstRand’s growth engine in the foreseeable future because it has good momentum, which the company expects to continue “for a bit,” Pullinger said.

WesBank will possibly have another difficult year although it will not be “hitting a wall or falling off a cliff,” while Rand Merchant Bank will track South Africa’s growth path, he said.

Bloomberg

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Banking / Insurance

Microinsurance ready to disrupt African insurance industry

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Marius Botha, Group CEO of aYo Holdings (Source: aYo Holdings)

When it comes to insurance, there are few more exciting markets to be right now than Africa. Before COVID-19 struck, McKinsey predicted the African insurance market would grow at around 7% per year between 2020 and 2025. That’s nearly twice as fast as North America and three times faster than Europe.

The pandemic slowed that growth to some extent. But we’re still seeing significant innovation in the African insurance sector, where fintech insurers like aYo are using technology to reach previously underserviced markets across the continent, making microinsurance products available through mobile phone networks.

With the exception of South Africa, traditional retail insurance remains largely undeveloped on the continent. But Africa is a prime market for microinsurance, which is small, rapidly underwritten financial protection against a specific risk over a relatively short period of time – like hospital cover for accidents, for example.

Its growing popularity is giving millions of Africans access to life and hospital insurance for the first time. And while microinsurance started out largely being targeted at under-insured people, it’s only a matter of time before it moves up the value chain to disrupt the traditional insurance sector.

One of the biggest challenges facing the traditional insurance industry is to develop products that are suitable and accessible to people with lower incomes and younger generations with different needs. That’s why we’re increasingly going to see fintechs creating completely new kinds of insurance that will meet the dynamic needs of so-called millennial and GenZ audiences, disrupting the traditional model and increasing the user base of people insured in the process.

Right now, we’re seeing several trends combining to create a perfect storm of growth for the African insurance sector.

A surge in mobile coverage

The key to the growth of the microinsurance market on the continent has been the rapid expansion of mobile network providers, which provide the ideal delivery mechanism for the spread of the product. Insurance in the palm of your hand? It doesn’t get faster, more convenient, or easy to use than that.

A joint venture between telecommunications giant MTN and financial services group Momentum Metropolitan Holdings (MMH), aYo’s MTN connection has proven invaluable not only to drive access to markets, but to provide credibility and trust in the relatively new brand.

A growing digital economy

At the same time, we’ve seen Africa’s digital economy grow exponentially over the last year, largely driven by Covid-19. The pandemic has dramatically changed consumer behaviour, and consequently, how insurers interact with clients.

More than ever, consumers don’t want to sign paper forms, or stand in queues. They want to access their financial products quickly and easily from their mobile devices – and here, microinsurers have proven agile enough to deliver the right products through this channel. At the same time, technology is making it possible for higher levels of product customisation than ever, with the ability to meet a growing range of niche needs.

A vast under-insured population

Perhaps the most transformative aspect of microinsurance is that it protects those who need it the most. People with lower incomes need insurance even more than the middle class, because they are more vulnerable and have a smaller cushion of resources to draw upon in times of need. Having insurance shields users from the type of economic shocks that would otherwise have kept them locked into an endless cycle of poverty.

Mix together a boom in mobile coverage, a thriving digital economy and an underserved population, and the ingredients are in place for an insurance revolution. By providing insurance to millions of Africans for the first time, innovative fintechs and microinsurers are truly driving financial inclusion across Africa and making a tangibly positive difference to people’s lives.

Author: Marius Botha, Group CEO of aYo Holdings

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Current Legal Issues Arising from Banking and Financing Arrangements

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In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.

The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.

This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.

Financial Conditions and their Implication on Covenants in Finance Documents

Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity.  These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.

Also Read: Helios Investment Partners Backed Africa Specialty Risk Group Launches

However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.

In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties. 

Legal Considerations for Borrowers and Lenders

With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.

First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.

Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.

It usually includes confirmation that:

(i) no Event of Default or a potential Event of Default has occurred and is continuing; and

(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.

In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.

Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.

Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.

Conclusion

The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.

It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.

Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.

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Financial Inclusion: Ecobank Group And Alipay Partner On cross-border remittance

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Alipay users to benefit from Ecobank’s cross-border remittance solution

LOME, Togo, February 12, 2020 – The leading pan-African bank, Ecobank has signed a cross-border remittance agreement with Alipay, the world’s leading payment and lifestyle platform, that aims to bring more inclusive financial services by providing a fast, safe, affordable and convenient way for workers to transfer money back home.

The partnership will facilitate instant transfers from Rapid transfer, Ecobank’s remittance solution, to users of Alipay, which serves more than 1.2 billion people globally together with its local e-wallet partners. This provides an additional channel option which will increase options available to users, help lower transaction costs and enhance the quality of service in the market.

Also Read: How Tech Is Enhancing Recruitment: An Interview With Sandy Simagwali, Co-Founder Of Graft Africa

Nana ABBAN, Group Consumer Banking Head said: “Our panafrican cross-border remittance solution, Rapidtransfer, has over the years been delivering transparent, convenient, and affordable services to the African diaspora and their African-based dependants. So, it is a natural extension for us to use it to deliver the same advantages to migrant workers across Africa. Through our partnership with Alipay we are further leveraging the scale and capacity of our unified payments ecosystem on the global stage.”

“We are excited to partner with Ecobank and use our technology to bring fast, affordable, and convenient remittance services to more users globally, especially workers who are living far from home,” said Ma ZHIGUO, Alipay’s head of the global remittances business. “We are committed to working with partners such as Ecobank, using innovative technologies to help global consumers gain access to inclusive financial services, creating greater value for society and bringing equal opportunities to the world.”

The solution will be rolled out across our entire footprint, subject to required local approvals.

Ecobank

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