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Largest Non-Bank SME Financier On Track To Disburse R8bn By 2023 – Insights Into A Decade Of The SA SME Sector

  • 6 min read

As it celebrates 10 years of being in business after starting out as a scribble on a napkin, SME financier Retail Capital has disbursed R4,1bn, excluding asset finance, since inception. As a Group, it is closing in on R4,5bn, with more than R1bn of that having been disbursed in the past year alone.

CEO Karl Westvig says that the growth rate has been substantial, but that the company expects to double this rate in the next year or two. “With the significant growth that’s coming, we’re looking at close to R8bn in two years from now,” he says. 

Being unlisted, in an industry with other unlisted operators, defining exact market share is not a science, but having funded 37,000 unique clients in ten years, closing very rapidly on 40,000 clients, Retail Capital is the largest player in the non-bank funding space servicing SMEs.

The growth has been nothing short of phenomenal, and Westvig attributes it to a number of key business decisions over the years. “It comes from increasing distribution and new market segments. Our traditional model was aimed at the food and beverage sector, and very much on the ground, face-to-face, with our own agents visiting these businesses. But you’re limited by how many people you can see and how many visits you can make.”

“Over the years we’ve shifted our business model from being face-to-face that requires manual data capturing and processing to a digitised process, which has resulted in quicker turnaround times. We do more business digitally than we ever did with the in-person model.”

“Another major shift happened six years ago, where we built a partner platform, providing funding to clients of strategic partners, such as Yoco, iKhokha, Sureswipe, among many more. What this did was expand our reach into new sectors. Whereas the traditional model was typically face to face with larger deal sizes with more formal businesses, as we have moved into the partner space using data, we increasingly provide funding to smaller businesses, less formal businesses and rural businesses.”

Westvig said that another big shift in the business occurred as a result of the Covid-19 pandemic, where Retail Capital’s clients had challenges servicing their customers and so they moved online. “We’ve built a significant online funding platform where we can fund all these new online businesses based on their transaction histories. The long and short of it is that we have shifted into new sectors, including the medical space and others, such as food deliveries.”

How the shift in payments has changed the industry and opened opportunities

Westvig says a major change in the industry over the 10 years is a substantial increase in footprint. He explains that traditionally the business was built on the back of payment rails – debit and credit card payments. “To a large extent, the major banks were the acquirers, so they were putting down payment rails for retailers to be able to transact,” explains Westvig.

This has been disrupted with a big shift to independent merchant acquirers that are supported by banks, as well as mobile point of sale (mpos) vendors. “Mpos, basically, is a small device that links to a cell phone and allows even smaller merchants easy and cheaper entry to accepting cashless payments.

“To give you a sense of the shift, estimates were that banks had about 400,000 to 500,000 devices in the market a decade ago. Yoco, alone, has added 200,000 merchants to this pie. There has been a massive growth in digitising smaller merchants, which obviously enables a company such as ours to offer funding far more broadly,” he says.

“An important element in the migration away from cash is a shift we are seeing among informal traders. We are definitely seeing a shift with informal traders now steadily starting to take on these payment rails. It’s not happening fast enough, but as they do and as they start formalising those payment rails, they can access funding and other financial services and value-adds. The knock-on effect for their ability to scale and support the local economy’s growth, alongside our growth, is apparent.”

Covid-19: the catalyst to fast-track e-commerce

“There will always be a few pioneers who go out and try things, but generally there needs to be a catalyst for change, and Covid-19 did just that, with e-commerce growing exponentially,” says Westvig. 

He adds that major corporate retailers have made very big and serious shifts into online commerce, including special sections in their annual reports dedicated to the segment, and this is being mimicked by smaller players, again, out of our new forced reality.

Westvig says that some sectors have been particularly hard hit by the pandemic, such as food and beverage, hospitality and tourism. Even among these, however, he says anecdotes abound of entrepreneurs changing business models almost overnight to capitalise on the power of online retail.

However, helped in no small part by the rapid surge in e-commerce, or hybrid retail models, some sectors have seen sharp rebounds and outperform others, often surpassing their pre-pandemic revenue. These include building materials, electronic goods, homeware, health and beauty, and fitness and gym equipment.

Where to from here?

Westvig says Retail Capital’s strategy remains solid, with a continued drive into the partner space. “A lot of our expansion is coming from working very closely with our partners so there is a mutual symbiosis, with the end client benefiting. We will also continue innovating with instant and embedded finance, using technology to be able to provide funding at the point when customers need it without them needing to go through long, document-intensive approval processes. Pre-qualified, real-time, embedded funding is very attractive to an SME sector overlooked by the banks.”

Accessing SMEs at a point where Retail Capital can assess them and provide real-time funding will continue to underpin their growth curve, whether it’s with a card acquirer, a wholesale provider or a medical switching platform – the key is Retail Capital being present where there is access to clients and data.

“Our purpose is to support the SME sector in this country, and our investment in fintech, strategic partnerships, acquisitions and mergers, are all done with this purpose in mind. We believe this is why we have enjoyed such strong growth, especially during the pandemic, and we believe it will underpin a very strong second decade,” he says.

As Westvig looks back over a magnificent 10 years, he sees a Retail Capital that has changed how it does business and where it does the most business, but it has not changed why it does business.