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Lafferty Group recently spoke with Tauriq Keraan, the chief executive of Tyme Bank, the South African digital retail bank. Mr Keraan has been involved with Tyme since 2013, tasked with helping to develop the bank, and he rose to become deputy chief executive and then chief executive.

Please watch the full interview or read some of the things we touched on in this hour-long conversation below.

Tauriq, how has Covid-19 impacted your first year in business?

We are benefitting from the global acceleration of digital adoption. We had to pull back from lending substantially: of course, we are going to lend, but in a responsible and measured way. So we reduced our reliance on unsecured lending.

We will take a buy now pay later product to market next year (2021). Looking at this from a customer’s vantage point, as cash flows are under pressure, and BNPL is an easy way to pay. And as a lender, with BNPL, you understand your losses a lot quicker than you would if you were getting into big-size, long-term unsecured loans.

How do you go about taking on the big four or five, who are the well- established banks in South Africa?

We compete in a number of ways. We compete on our ability, on our cost to serve, which has to be lower, and markedly lower, than our competitors. What is driving that? As a digital bank, by its very nature, your technology stack is next generation and is a lot lower cost to maintain. So for example, the fact that we are hosted in the cloud, it might be an obvious point but it’s an important point, so we have elasticity. You use technology that is hosted in the cloud and run it as software as a service.

The second reason, if you think about the conceptual construct of a digital bank. What digital banking doesn’t mean is that you are driving customers to digital channels. That is partly true but it’s the most superficial conceptualisation of digital banking. The fuller conceptualisation is that you are digital through the business stack. So we see technology and operations existing on one continuum. What it means is that you don’t blow out the cost in the back office by hiring hundreds or thousands of people to run the back office. You use technology to use those problems systemically and then you have humans to catch exceptions.

The third aspect is to do with how data moves and gets captured and utilised in the digital bank. We’ve invested a lot in our data stack and all the tooling that goes with it. So it’s not only about seeing data in real time, but we use data as a mechanism of continually enhancing and optimising operational processes in the bank, so you maintain operating leverage. Finally our distribution is different to branch based banks so we don’t believe in digital channels only, certainly not for democratising banking in a developing economy. So we use physical points, that are not proprietary. It might be our partners in Zion Christian Church or Pick and Pay. That means automatically you don’t have bulletproof branches or thousands of tellers. That’s how we can keep our cost to serve low.

Do you regard Tyme Bank as a fintech?

We started as a fintech. Fintechs play a very important role in the ecosystem. They are getting into niche forms of lending in the SME space. And I say this respectfully, but it’s hard for fintechs to bring about the scale of change you need for systemic disruption. So it makes them susceptible to consolidation.

The way I speak about neobanks is one that has a banking licence and balance sheet leverage but the agility and similar sort of business architecture constructs as a fintech.

The big incumbents are absolutely formidable. And not only are they formidable, they play a very important role in society. In the South African context, I don’t think they face an existential crisis. We are talking about market share loss.

Can you give us some insight into the role data plays in your banking decisions?

In complex businesses like banks, the battle is actually won in your architecture, and the way your have architected the technology stack for data to flow in its totality. Once you’ve got the data to flow properly, you then catch it, and you can have all the tooling overlaid on that to do all sorts of clever things and you can hire smart people. That drives continuous improvement and makes sure we maintain operating integrity over time, but also because of the way you reach customers and talk to customers, nudge customers, and present next best offers and so on.

Increasingly, a source of competitive data is not the smart analytics but is getting access to third parties data such as the loyalty programme of Pick and Pay. So we can see, that if a customer who always buys fresh fruit suddenly stops buying fresh fruit, that behaviour correlated back to a sort of deteriorating unsecured borrowing behaviour.

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