TymeBank prepares to muscle in with acquisition

TymeBank has struck a deal with Retail Capital shareholders to acquire 100% of the SMEfocused funder in order to roll out a new business banking offering, a move that will pit it against rival offerings from SA’s traditional big four lenders, as well as Sasfin, Capitec and African Bank.

The deal, which is subject to regulatory approval by both the Prudential Authority and the Competition Commission, will combine TymeBank’s rapidly growing deposit base and extensive retail footprint with Retail Capital’s expertise in small business funding.

TymeBank’s business banking offering, which is essentially a transactional business account aimed at SMEs, has more than 100,000 customers.

“We believe that ownermanaged small businesses are probably the most chronically underserved and undercapitalised segment of the SA economy,” TymeBank CEO Coen Jonker said on Wednesday. “We believe that we have a shot at becoming one of the leading business banks in the country built around the capability that Retail Capital brings to the market.”

TymeBank, which is backed by Patrice Motsepe’s African Rainbow Capital, has racked up more than 5-million customers since its launch in February 2019 and is now adding an average of 150,000 customers a month.

Retail Capital’s integration will allow the SME funder to leverage TymeBank’s wider deposit base to reduce its cost of funding, while also tapping into a new and growing market for its business banking services.

Nevertheless, it will find itself up against stiff competition in the form of established business

banker Sasfin and the likes of Capitec, whose purchase of Mercantile Bank in October 2019 marked its own intention to shake up business banking.

African Bank’s announcement in May that it was buying Grindrod Bank to move into business banking is also a clear sign that the SME business banking segment is hotting up.

However, Retail Capital CEO Karl Westvig, who will become TymeBank’s new head of business banking, said the new SME bank offering will target businesses earning less than R10m in annual turnover, a threshold that is often ignored by SA’s traditional big four lenders (FirstRand, Standard Bank, Absa and Nedbank).

“There’s been a gap in our proposition to our customers ... that is providing businesses with working capital solutions ... the ability to buy stock they need and other things to keep developing and growing their business,” said Jonker.

“We’re starting with the simplest sole proprietor — single-person business — but, as the proposition expands, we will move up that curve.”

Over the past decade, Retail Capital has pioneered a lending model called merchant cash advances, which provides SMEs with funding against turnover and cash flow rather than against assets. Instead of charging a specific interest rate over a fixed term, Retail Capital’s model is to agree on a loan repayment amount with borrowers who then make repayments based on a percentage of revenue earned by the business over time.

“Most small entrepreneurs don’t have assets to put up as collateral, hence decline rates are very high,” said Westvig. “We follow the cash flows and collect a percentage of the cash flows on a daily basis. If they have a good month, we collect more.”

TymeBank’s long-term plan is to expand its SME-focused banking offering to the Philippines and Pakistan, where former CEO Tauriq Keraan is leading its offshore expansion.

The bank’s leadership says the rationale for expanding into Asia — as opposed to the rest of Africa — is that the structure of the banking market, as well as the regulatory regime, is more similar to SA than in other parts of Africa.

“The entrepreneurship base in the Philippines and Pakistan [is] also multiples of what we have here,” said Westvig.