Chris Gilmour

The global financial world has been abuzz with "fintech" for some years. Terribly cliched, the word attempts to describe innovative and entrepreneurial start-ups in the financial services sector that are disrupting the banking and payments industries, generally in a positive way.

Despite banks having huge piles of capital at their disposal, they are not necessarily in tune with what their customers want or need. Fintechs, on the other hand, understand customer requirements exquisitely and thus provide the perfect symbiosis with large financial services institutions.

Walter Volker of the Payments Association of SA says there are about 100 fintech companies in the country and about 80% of them operate in the payments industry. One of them is Capital Appreciation (Capprec), which has migrated from special purpose acquisition company status to a main board JSE listing in the software and computer services sector.

Capprec, which was founded by serial entrepreneur Michael "Motty" Sachs, founder of Netcare and other JSE-listed companies, has been in an acquisition phase since listing on the JSE about two years ago. During most of that time, its main asset was cash - and interest received on that cash comprised the bulk of income. More recently, it has acquired two businesses in the payments space, Resonance and Dashpay, and a software and solutions company, Synthesis.

The latest interim results to September are, therefore, not especially meaningful, as they contain only operating company results for a few months.

The share is trading on a price:earnings ratio of just more than 14 times at the current share price of 74c. Annuity income comprises 52% of turnover and this figure will grow. A maiden dividend of 2c a share was declared, somewhat unusual for a growth company in start-up phase.

"The financial services sector is undergoing tremendous change, which offers great opportunities" says CEO Bradley Sachs, son of Motty. He highlights three important local disrupters: Capitec, Discovery and the Australian entity Commonwealth Bank SA (Tyme).

Capitec’s success, with about 9-million customers and growing, is self-evident and it is the perceived lowest-cost provider of banking services. The success of Discovery Vitality demonstrates the power of user experience, product bundling and data analytics. And Tyme reportedly only takes four minutes to "onboard" a new client.

"What a pity a foreign participant in the form of Commonwealth Bank had to figure out a way of payments to the masses," Sacks says.

Point of sale devices represent the archetypal user interface as far as electronic payments are concerned. In this regard, SA is a relative laggard, with only 4.5 devices per 1,000 people. This compares with 35 per 1,000 in Australia, 30 in Turkey, 22 in the US and 15 in Brazil. Point of sale offers great potential for future improved device penetration and Capprec is well entrenched in this arena.

Capprec’s future strategy hinges on three pillars: teaming up with established brands; innovating with its modern proprietary technology; and executing highly efficiently and seamlessly. Despite the big four banks having spent more than R30bn in the past year on information technology and associated infrastructure, they will still have an ongoing critical requirement to team up with innovative and customer-centric fintech operations such as Capprec.

Capprec is well capitalised and has more than R460m in cash. It continues to evaluate acquisition possibilities in SA and offshore.

With fintech dynamics likely to improve constantly, Capprec’s outlook appears rosy.