Spotting the Gap for a New Money App
A highly accomplished business executive with diverse international experience, Andre Hugo, has a flare for building and scaling companies, he is the CEO and Co-Founder of South Africa’s first open banking marketplace.
CIARAN RYAN: Today’s podcast is sponsored by Draftworx, which provides automated drafting and working paper financial software to more than 8000 accounting and auditing firms and corporations. CFO Talks is a brand of the South African Institute of Business Accountants. Today I’m very happy to welcome Andre Hugo, who is the CEO of Spot Money, which is an interesting new fintech that is South Africa’s first open banking marketplace. In other words, it connects you with multiple service providers for loans, insurance and bank accounts, and is also enabled for making payments. He has a financial education background and a passion for technology, which drove him to start eleven new business while he was with Deloitte, where he headed up Deloitte digital business. Now, the amount of disruption that we’re witnessing in the financial sector spaces, unlike anything that we’ve seen in the last two decades, and this is a great opportunity to understand how this will impact the lives of CFOs and finance execs. First of all, welcome Andre, where are you talking to us from?
ANDRE HUGO: I’m in Cape Town, thanks for having me on the show.
CIARAN RYAN: Let’s start with a brief description about Spot Money, which I see you’ve launched with Bidvest as a partner, and you’re also using Mastercard technology. How did this all come about?
ANDRE HUGO: So to maybe articulate what we are is an open banking marketplace or a super app that combines three trends that we’ve been observing in the market for a number of years. The first is the need for a consumer to have ubiquitous payments, meaning that you have a solution that you can use a card with, you can tap it, you can dip it into a POS machine, you can use that same card for e-commerce transactions, you can scan any QR code in the market and you can do online payments for bill payments and your day-to-day lives. So that was the first trend that we observed. The second one was the advent of digital banking and going branchless and being able to do banking from your couch, bringing banking into your day-to-day lives. So the likes of Monzo, Revolut internationally, Tymebank in South Africa, as well as FNB are largely driving towards the digital banking space. Then the third area that we looked at, which makes us unique, is the, the marketplace, and there, we actually looked at it and said, well, consumers are tired of getting spam, SMSes, emails, and phone calls from automated machines, trying to sell you a loan every single day, and you most probably get three to five of them in any day. So we said, well, why don’t we create a marketplace by basically combining the likes of Hippo and Clear Score into one app that allows you as a consumer to see customised offers for you, but it gives you the power to engage with those offers or those brands when you want to, therefore, eliminating the spam calls. So that’s really what we’ve done is we’ve created those three themes into one super app called Spot Money, South Africa, and we launched it on January 27.
CIARAN RYAN: Wow, okay, that’s very new. So would it be correct to say that Spot Money is the financial services equivalent of Hippo, which you’ve just mentioned is a very prominent aggregate in the insurance space?
ANDRE HUGO: I would say it is, but it’s more than that. So it’s a combination of Hippo, it would be a combination of if you built one app with Zapper, SnapScan and Masterpass, and if you then put your digital banking into the middle of that. So that’s really what we’ve combined to create the super app being Spot Money.
‘We’ve created a multi-banking strategy to cater for the millennials in the market and the future of banking.’
CIARAN RYAN: With the launch of Spot Money, what does this tell us about the future direction of the financial sector? The experience in South Africa is there is quite strong bank loyalty. It’s not easy to get a customer to move from one to another. Do you think that spot money will change that?
ANDRE HUGO: Our strategy is not a switch in play, we don’t anticipate that you will turn off your FNB or your Capitec or your Standard Bank account, and then moved to Spot Money. What we’ve observed and we’ve seen, particularly with generation Z and millennials is that they are multi-banked. Let’s, let’s be honest, they’ve got multi-store cards in the market, they’ve got multi-loyalty cards. Why not have multi-bank cards? As a result of that, what we created is that you can join with your current bank card and you can log into it, you can move funds from your current bank account into Spot, and you can use Spot as you go about your day-to-day lives. And that’s really the difference here is that we’ve created a multi-banking strategy to cater for the millennials in the market and the future of banking.
CIARAN RYAN: How does Bidvest tie into this and also Mastercard? You’re using the Mastercard technology platform, but Bidvest is also a partner, so how is this going to work in terms of being a multi-bank platform?
ANDRE HUGO: In order for us to receive deposits into the solution, you need a bank license in South Africa. So we operate under the Bidvest banking license in their alliance structure. So the funds effectively that the individuals deposit into spot money are secured within the bank’s ecosystem at Bidvest. In order to do that, we have a BIN range and we’ve got the license to issue physical and virtual cards on Mastercard. So then what we’ve done is use Mastercard’s technology in a unique way to actually run as a bank account. So those three elements are what constitutes the Spot brand and the UI and the smart technology that we’ve built on top of it, the bank license that underpins it from a trust and security and regulation perspective, and then the issuing and network facility that Mastercard offers brings together the three elements that really make Spot Money.
CIARAN RYAN: We’ve also got Nicolaas van Wyk here, who is the Chief Executive of the
South African Institute of Business Accountants. I think what we’re particularly interested in, you do actually have an accounting background. You studied as an accountant, but you didn’t pursue that. I think from the point of view of finance execs and chief executive officers as well, we’re also always looking out for new products that would be interesting for that particular segment of the market. Do you want to ask something there, Nicolaas?
NICOLAAS VAN WYK: Yes, it’s quite interesting and we are happy to see how an accountant is moving into the world of banking, and hopefully you can bring in some integrity there. But what I’m interested about is two things, just a little bit more about your product. As SAIBA we represent about 9,000 accountants, and I know that accountants are also moving their own firms online. So there were a lot of touch points with what you were saying, how difficult it is to establish an online payment system for your clients, um, and assist with the management of your clients’ finances. So I was just thinking whether your solution would be working in that accountant, SME environment, either for the accountant to collect money from his client or how can he get these SME clients into your marketplace? I think that would be very interesting to know. The second one would be, obviously a bit about your career development, we have a lot of CFOs, especially now during lockdown, who previously worked overseas, and we get on a daily basis requests from quite competent CFOs who work in in Ireland or the US or Australia, wanting to come back to South Africa. Obviously, there are a lot of things that they can do here, and you moved from the accounting sector into banking. So maybe just share that experience, what you studied, how you developed and how you ended up where you are currently.
ANDRE HUGO: Let me answer the first question first around product fit to your audience. So whilst we’re a business to consumer strategy, we do have some discussions going in the SME market space as to how Spot can actually service that market space. So particularly for your existing CFOs, we’re a zero-fee bank account. So straight off the bat, there’ll be the ability to save money by having a Spot account. From an accounting perspective, just with my own auditing and accounting hat on, one of my biggest gripes was actually when I have to pay somebody, having to give them my bank details and expose those bank details or them having to give me their details in order to do an EFT payment. What we’ve done is we’ve shifted the view that you can pay a person as easy as sending a text message. So as long as you’ve got a contact in your phone, you can actually pay that person via Spot without actually sending any bank details across the network. The person would need to download the app, they would go through the registration process and on registration, they would then receipt the money or be able to pay you back. So that’s kind of the fit for your actual CFOs and the accounting fraternity. On the SMEs that they service, we do have a number of merchant agreements in place in the market, where we do the acquiring part of the business for them, and that’s the part that I’m looking to expand over time. So they will actually see Spot coming through into the accounts as we settle the transactions, if they’re servicing a coffee shop or a health and beauty salon and so on. In order for them to collect funds from their own clients, I don’t see us fitting into that banking world or business banking world just yet, quite honestly there are better solutions for that. But where we can also help them from a staff perspective is a number of firms that I worked for historically, have these reward cards or employee incentive cards, where they either put canteen money on or they pay per [unclear] or they reward people for behaviour. So Spot could actually be that end solution for those members of yours that could actually then pay their staff in rewards, and then also they can then track where that spend happens and limit the spend to specific merchants and so on. So there are multiple areas where Spot could fit into a CFO’s daily life and that of their staff. I don’t know if that answers your question on the first one? If yes, I’m happy to answer the second question.
‘I made the decision that if I survived that ordeal, I would leave the country.’
NICOLAAS VAN WYK: Yes, I’m happy, thank you.
ANDRE HUGO: As we were chatting briefly before we started, I originally did my BCom at the University of Cape Town. I then started my articles in Johannesburg and completed my honours part-time. In my second year, I realised that the accounting profession to go to the full CA route, even though I’d passed my honours, was not really going to be what I wanted to do at the end of the day. That was largely because I’d always had a technology bend, when I was 13 or 14 I bought my first computer, I did programming and I sold very simple games to my friends. So I’d always been interested in technology. One of the clients that we were auditing was actually doing the second implementation of SAP R/3 in South Africa, and when I went to the partner in charge of the firm that I was working for, I said to them, look, I won’t be writing the board, but I do have my contract and I will honour my contract to complete my articles. They looked at me and said, well, you’re a bit of a loss leader to us in terms of, we like to get people to do CAs, but given that you understand computers, would you be interested in working with this new implementation of this technology and understanding the controls from an accounting perspective and security and admin perspective on the system, which I did. I spent two years doing that and off the back of that I then moved to Deloitte, where I studied to be a computer certified auditor. I spent about 18 months with Deloitte in South Africa at that point in time, and unfortunately this was the late nineties, I got held up in an armed robbery, they played Russian roulette with us, and I made the decision that if I survived that ordeal, I would leave the country. So within two days, I’d put my CV out into the market and the CV got picked up by a recruiter in Australia. They approached me and through a process of interviews I was fortunate enough to be employed and actually transferred from Deloitte South Africa to Deloitte in Australia to head up their SAP computer audit division, which I did for a period of one year. The reason why it was so short is I’d actually immigrated with my wife to Australia, and I only actually spent 35 days in my first year in Australia. I landed up working in the US, New Zealand, Hong Kong, Taiwan, and I was basically living on an aeroplane. So I made a call that I’d like to be married slightly longer than one year. I then approached the partner in charge and they said, well, you’re definitely valuable to the firm, we don’t want to lose you, would you be interested in moving to our consulting division and moving from Sydney to Brisbane, which I did. Then through a seven-year journey at Deloitte in Brisbane, I did various roles from SAP project management to programme management, to contract and negotiations, to risk, quality control. Finally, in my last three years, I identified a gap in the market, particularly again, in the SAP space, where people were building SAP projects, it was like the height of the SAP boom, and they started to build and then move on to the next project, leaving a wake of clients that weren’t able to support themselves post the implementation. So what I did is I wrote a business case and presented it to the partner in charge of Deloitte consulting in those days, he accepted the business case, they gave me some funding to create Deloitte consulting outsourcing, which was a second level support function for clients that had gone live. So I built that business up over three years and then at the end of my seven-year stint in Australia, we’d been coming back to South Africa on a regular basis, our parents had been coming out and we actually made a call, with our two young boys, to say, well, where would we like to spend the rest of our lives, and my wife and I looked at each other and said, well, actually it’s South Africa. So we moved back to South Africa. Again, I was fortunate to be moved by Deloitte. When I got back to South Africa I rekindled their outsourcing business in South Africa and grew that for a period of two years. But during that journey I identified two opportunities in my supply chain that were shortcomings. So I didn’t have enough graduates coming through the business that could help and scale the business. The second is there was high skills that were leaving from permanent employment to contract, and we were then having to recontract them in, losing margin. So I created two businesses for Deloitte in those spaces, whilst I was running the arts sourcing unit, and the CEO of the consulting unit then came to me and said, well, you’ve obviously got a passion for starting businesses and growing things, would you mind doing that full-time. They then moved me out of line management into what they call Deloitte of Tomorrow, the innovation function. The mandate was to create new businesses for Deloitte that complied with a few things. They weren’t bricks and mortar, so I couldn’t go and create a retail store and they couldn’t compete with audit clients, and ultimately, they had to be attached to a value chain at some point in time within the Deloitte structure. So during that journey we built some auditing businesses. We did some additional consulting businesses, and the largest and most successful at the end of the day was Deloitte digital, which I founded with my staff, and we built that up. Part of that journey, we worked quite a lot in the financial services sector, I was one of the early team as part of TymeBank with MTN. Then after a period, I went to market, I did a brief stint in the market and with DirectAxis, but after realising that I didn’t purely want to focus on that, I actually left and was going to take a year off to have a look around and decide what to do next. But within a period of about four weeks of various coffee chats, because as soon as you put up on sabbatical on LinkedIn, everybody invites you to coffee. I had a number of coffee chats, one of them was with my cousin, he had a business idea, it was something that I was interested in and I had a different lens on it. The two of us said, well, why don’t we fund a developer to build this product for us. We came up with a name called money for jam, and the concept was really simple, it was any job that you could do in under ten minutes on your cell phone, so research, point of interest creation and validation for the mapping companies, testing apps, price checking and so on. So we bootstrapped that company out of our savings, we built the product in 90 days and we launched. Five days after launch, we got approached by Naspers to do an investment round. After negotiations, we accepted a revised offer from them, and we funded that business and built that business over a period of 18 months. At the end of that, we actually exited the business and sold it to a private equity firm in South Africa, who are actually still running that business and it’s still thriving today. Off the back of that I then did some work at eBay in the technology space for them. Then finally I was approached by Virgin Money to give them advice from a strategic advisor level at a board level. That’s where I got involved in Virgin, Money, South Africa, at that stage they had just embarked on a journey to look at digital banking. With my lens I gave them a different view on it, but during the course of the journey, based on the strategic objectives and our strategic objectives, we came to the conclusion last year that we would do a funding round and they were supportive of myself and my CMO doing a management buyout, which we then secured funding through a private equity investor in South Africa, and then exited the Virgin Money business and have launched Spot Money South Africa. So that’s probably a bit of a long-winded version of how I went from accountant to where I am today, but I guess the stepping stones that I learned through accounting from tax, from auditing numbers, from system process controls through to the legal aspects of my undergrad and post-grad degree have actually stood me in good stead for the role that I’m currently fulfilling.
CIARAN RYAN: Wow, fascinating. Nicolaas, have you got a follow up there?
NICOLAAS VAN WYK: Yes, that was an amazing story.
CIARAN RYAN: Andre, just to clarify, when did you come back to South Africa?
ANDRE HUGO: We came back in late 2002 and moved back to Johannesburg. We were planning to be in Johannesburg for three years but we landed up staying in Johannesburg for ten years. During that period when I’d started Deloitte digital, my development team and my creative team was in Cape Town, so I was actually commuting down to Cape Town more than I was spending time in Johannesburg. So I then moved the family back down to Cape Town.
CIARAN RYAN: So after the whole incident with the Russian roulette and the decision to leave the country, you ended up coming back here. It’s quite a harrowing thing, but I can understand your desire to get out as quickly as possible. Just going back to Spot Money, you launched in January, it’s really just a month old. Give us a sense of what the take-up has been like, are you on target?
ANDRE HUGO: We are on target. So deliberately the first month, what we planned is converting users from the old Virgin Money Spot solution across to the new bank solution with Bidvest Mastercard. So we’re on track with the users that we’re converting on that process.We also wanted to make sure that once we had more than the closed loop users on, so we’ve got significantly more users at the moment that the systems and the business processes were robust enough to hold up to volume, which they are. I’m happy to say that from March onwards, we will be starting to scale the business according to plan.
The challenges of decentralised finance
CIARAN RYAN: One question that does come to mind is decentralised finance. I’m sure you’re probably keeping an eye on what’s happening in that space with the whole development of the crypto market and decentralised finance. For those who don’t know what that is, it is quite a new concept where essentially, you’re able to borrow money, you’re able to lend money, you’re able to earn interest, you’re able to buy insurance contracts, all outside of the banking sector, and it is exploding right now. In order to do that, you have to have crypto as collateral. So you can go to platforms like Oasis and Venus, and you can lodge your Bitcoin there and you can borrow against it at very, very low interest rates. My question to you is, is this something that you see happening or you’re going to have to somehow accommodate in the future?
ANDRE HUGO: I think we are definitely going to have to accommodate it in the future. I think it’s going to still take a while for it to become mainstream. I think the challenge that it faces is how do you explain it in a very simple way to your mass market? I think until that’s done, I don’t think it’s going to scale to the extent that we believe. There are definitely niche segments that are using it, and why I say that is the previous version of Spot Money we actually built on blockchain. So what we did is we created a token and that token represented R1. We actually facilitated all purchase and sale via that blockchain network, private permission, blockchain network that we’d created. The reason why we shifted away from it to the banked solution that we have today is scalability, and scalability beyond the South African market. So if you look at crypto assets, crypto currencies, and blockchain, they’re all governed by different rules and there’s different country nuances on those rules. So if we wanted, for example, to launch in Canada, we’d have to go for e-money license. Whereas, if we went to Australia, there would be a different licensing structure that we would need to operate under. What we’ve gone and done is rather said, well, what is actually universally accepted, Mastercard, Visa, Maestro, they’re all universally accepted. Create those and then build on the bank layer, but then create the value-added services that consumers want on top of that, like the ability to purchase crypto, sell crypto, trade or store value in smart contracts. That’s all possible potentially on our roadmap, as we unpack and look at the market demand.
CIARAN RYAN: I guess one of the obvious markets there would be remittances when you’re talking about Africa. I think there’s a statistic out that a lot of African countries rely so much on these remittances from expatriates, people from Zimbabwe sending money back home every month and to Mozambique, and to all these other countries. The figure I saw recently is the cost of those remittances accounts for 5% of the GDP. Now, of course, with crypto you’ve already got companies like Paxful that are doing this at under 1%. So it’s a market begging to be attacked and ripped up. I’m sure this is something that you’ve been looking at, the whole remittances market?
ANDRE HUGO: It’s on our radar and we’ve got various discussions going on in the remittance space. I think you’re right, anywhere where there’s a mass mark-up on the cost of a transaction is right for disruption. The challenge is the incumbents in that space have got such a strong hold on it, as well as we are most probably one of the heavier regulated countries in the world around foreign currency movement. Those are, I guess, challenges that any entrant or participant needs to navigate because you don’t want to run foul of the Reserve Bank.
CIARAN RYAN: Okay, Nicolaas, did you have any more questions there? I’ve got one or two quick ones for Andre.
Innovations in the lending market
NICOLAAS VAN WYK: I’m just browsing the Spot website, it looks quite intuitive and friendly,
unlike most of the current bank websites. But I see that you’re in personal loans, so you would utilise the app and you would access to that. We are considering, and I’ve seen some stuff in happening in the States about when you use an accounting software like QuickBooks you can apply for loans based on your cashflow within your software. So you don’t physically do an application, your cashflow is the surety. I think they call it QuickBooks Capital. Now that to me is a wonderful innovation. I know the pain of getting personal loans, especially for SMEs, how do you see the SME business loan market develop in SA?
ANDRE HUGO: If you look at the economy at the moment, one of the areas that would actually drive growth is the SMEs. So I think the challenge to them is obviously funding, in order for them to get funding, there are very few traditional players that offer that funding at reasonable rates. If they go to alternative funders, the rates obviously increase as the risk increases. So I think there’s a definite market there. What we have definitely seen and are seeing for start-ups is Lulalend and a few others are entering into the space. What they’re doing is they’re actually facilitating the loan, as you said, off the back of the cashflow of the business, but then what they’re doing, which I think is quite great, is they’re actually having the loan repaid on every single transaction. So if you’re a coffee shop and you have a loan for, I don’t know, R25 000, R50,000, the loan is actually paid as a percentage of every swipe that happens through your till point. I think that’s a great way from a cashflow management perspective and accounting perspective to drive lending in the market because A. the lender gets the money, from a merchant perspective, you can actually manage your cashflow and it varies based on your actual turnover as to how much you’re repaying, which doesn’t then impact your recovery and your business continuity. So I think there’s some very innovative ways of pricing and collections that are going to be coming into the space.
CIARAN RYAN: Yes, we’ve already spoken to Merchant Capital that are doing exactly that thing. So instead of having a term loan or a fixed loan that you’ve got to make every month, what they do is every time a card is swiped and you’re banking money, they’ll take a small percentage of that, which of course is working out to be very successful. I think there’s a few others that have started in South Africa doing the same. Clearly this whole fintech space is exploding, there’s just so much innovation happening around it. One of the things that we’ve noticed here at CFO Talks as well, just talking about Merchant Capital, when you go to a bank you’ve got to take box loads of documents and they assess you from a credit perspective. It’s just not really working for the small business sector. So what they’re doing is you can basically apply for a loan there in ten minutes. By the way, also in the decentralised finance space it’s the same thing, there’s no application, you’re borrowing from people who you don’t know, they don’t even know your name. There’s a huge amount of disruption happening. Would you agree with that, Andre, in the space, in the fintech space?
ANDRE HUGO: Definitely, I think at the end of the day you’re going to land up with the regulators on the one side, you’re going to have the license holders on the other, and you’re going to have a range of fintechs in between that are servicing customer needs. The fintechs, I honestly believe, at the moment are able to adapt to those customer needs far quicker than the incumbents because they’re actually building the technology from the ground up for mobile or digital versus the spaghetti of the legacy infrastructure that has been deployed over ten to 50 years within the banking world. So I think there’s going to definitely be change coming.
CIARAN RYAN: Okay, here’s a question I ask everybody who comes on CFO Talks, what books would you recommend? Something that really tickled you.
ANDRE HUGO: At the moment I am reading two books, the one is Sapiens: A Brief History of Humankind by Yuval Noah Harari. The other book is No Rules Rules: Netflix and the Culture of Reinvention by Erin Meyer and Reed Hastings. I’m reading them simultaneously, they’ve both got different messages, the one I’m really particularly enjoying and ploughing through is definitely the Netflix one around no rules.
CIARAN RYAN: What’s your takeaway from that? What’s the, the big disruption that they introduced? Well, I guess it’s fairly obvious, there’s no more Blockbusters in the world anymore, except for the GameStop guys…
ANDRE HUGO: So the takeaway so far that I’ve got from the book, I’m about halfway through it, is it’s not necessarily the business model disruption that made them successful, it’s actually the way they ran the business from a business culture perspective. They gave their staff the freedom and accountability to perform their roles the way they needed to perform their roles, and they were outcomes focused. I think too often organisations start by saying, somebody did something wrong, so they put a process in place to stop that. Sooner or later you actually land up having so many processes and red tapes and meetings upon meetings to govern the business. Whereas if you actually look at it and say, okay, from a trust, performance and management perspective, let’s empower our staff, and hire great staff to deliver against it, and obviously keep an eye on it, but if we if we do that and treat them like adults, we will actually be better off. That is actually what my takeaway so far is what led to the success of Netflix.
CIARAN RYAN: Fascinating and just on that point, I’m reminded of something, Claus Daun, who was one of the founders of Steinhoff, before it sank in a mess, but I remember reading something that when he called a meeting, he would call a meeting in a room and there’d be no chairs, and the meeting would be over in ten minutes and there’d be no coffee or water or anything like that. That proved to be hugely productive for the company, just little things like that, do away with time-wasting exercise. A lot of meetings are a waste of time. I’m sure you would agree?
ANDRE HUGO: I definitely agree, I actually saw something along a similar vein to that, they said, how about you hold your meeting and everybody assumed the gym plank position, and I guarantee you, the meetings will all be over in three minutes.
CIARAN RYAN: [Laughing] Indeed. Nicolaas, is there anything final you want to say there or ask?
NICOLAAS VAN WYK: So there’s still life left in the South African economy, and all these CFOs who are now available should maybe start looking at the SME environment and start sharing their skills. So I found the interview quite interesting, especially at the technology level because it does reduce costs for everybody, which is very important. So I’m quite happy to have spoken with Spot and Andre.
CIARAN RYAN: Yes, indeed, Andre, thanks very much for coming on, a wonderful story, wonderful innovation. I think we really want to stay in touch with you and get you back on a little bit later so we can see how things are going in the course of the year. It is a start-up business, I’m sure it’s a nervous time for everybody but I think you’re launching at exactly the right time. This is something that can be of benefit to accountants and to small businesses. I think you’re going to be exposing a whole new front in the banking market. I’m excited for you and I really want to see you succeed.
ANDRE HUGO: Thank you very much. Thanks for having me on the show.
CIARAN RYAN: Thank you. That was Andre Hugo, who is the CEO of Spot Money.