CROSSFIN TECHNOLOGY: Crossfin Enters Level 1 in ‘Really Promising’ State

In the second quarter of 2020, the South African economy contracted by 51%. This represented one of the largest shrinkages ever recorded. The national lockdown put in place to curb the spread of coronavirus was the key driver, with household spending slumping by almost 50% while stores and other businesses were forced to close. The environment was similar around the world, but South Africa’s already weak economy was ill prepared for such a drastic contraction.

Many jumped on the news and tried to contextualise to demonstrate that the situation is not as bad as it seems and that the figures must be viewed as part of a wider picture, but most agreed with Statistician-General Risenga Maluleke who descried the development as a severe punch in the gut for the country’s economy.

However, while times are certainly challenging for many, those that have been nimble and prepared effectively are already beginning to see green shoots. Crossfin Technology, a leading African independent fintech group that backs innovative companies focussed on solving specific everyday pain points that are not adequately covered by existing products in the market, has felt the impact of lockdown and has had to make changes within its portfolio. But Chief Operating Officer, Anton Gaylard is positive about the future and tells Enterprise Africa that Crossfin is already seeing an upswing.

HOPE FOR THE BEST

“We were quite fortunate as we took the stance of ‘plan for the worst, hope for the best’,” he says.

“Coming through the Covid experience as the lockdown levels are reduced, all of our businesses are doing better than the worst-case scenario, and some are already back to the budget levels of pre-Covid. Those that were most effected are now back to 80-90% of pre-Covid volumes. It has been a nice bounce back, and we are happy and comfortable with where every one of the businesses are.”

South Africa entered Level 1 lockdown on September 21 and the subsequent freedom restored movement and activity which has helped businesses to rebuild. Although Stats SA suggested that even finance – usually a robust sector, able to weather many storms – did not escape the contraction. “The finance industry, which includes banking, insurance services, real estate and business services, fell by 28.9%,” Stats SA said.

“The businesses in our group that were focussed on serving SMEs have felt the brunt of lockdown, particularly those in the payments and lending side of the business,” admits Gaylard. “The SMEs that they would normally service were either completely shut down or trading way below par.

“Those that service enterprise clients and the financial services sector were able to weather Covid a lot more resiliently than those that service the SME sector, but across the board are trading really well at the moment. Funnily enough, those that trade in the informal market are actually trading ahead of budget. It goes to show that when you have to work, you work regardless – there was always activity going on to feed mouths and pay bills. In the main, we are very happy with how to portfolio has performed in these trying times and there seems to be a lot of activity, interest and opportunity in the different businesses – particularly in the last month. Things are boding really well for the financial year that is coming.”

Moving forward and Crossfin is choosing to be optimistic. The group – made up of Retail Capital, Adumo, Saratoga, Crossgate Holdings and Crossfin Ventures – is emerging from lockdown slowly but in a secure position as it continues to serve clients without interruption. Although the daily activities of the portfolio never ceased, operations behinds the scenes had to change.

“We only started to lift our heads as we came into Level 2 as we started seeing the return of SMEs to trading. 85% of those are now back trading and those that are still closed are waiting for Level 1 to fully materialise. Of course, there will be some fallout, but the glass is either half full or half empty. You have to be cautious in your outlook and we will take the glass is half full view but be cautiously optimistic. We understand that the Covid situation will not be over anytime soon, we are trying to manage the risk and look at the opportunities that present themselves, because there are opportunities,” says Gaylard.

“Most businesses moved to a work from home mode, accept where there was a call centre involved. There it was reduced to rotational teams, and offices have been reduced to a place where people are looking for space, connectivity and quiet times where they can go to work if they want to rather than feeling compelled to go.

“We have been able to work really well remotely,” Gaylard adds. “In fintech, we are used to making the most of technology, we are used to working remotely, and if you look at our business at Crossfin group level, all of the companies are in South Africa with head offices in Cape Town, Johannesburg and Durban so we were invariably operating remotely at some point in time pre-Covid.”

He says that the key to switching working environments is a change in mindset. If this can be achieved then success in a remote working set up is easy to come by. He even suggests that, in the future, Crossfin could downscale its office presence significantly and operate any shared working space as more of a social space, where people can come together to share ideas, rather than somewhere people are forced to attend between certain hours each week.

18 MONTH SLIDE

The positivity experienced by Crossfin is certainly welcome, but the difficulty of 2020 so far has pushed out the company’s strategy timeline. Pre-Covid, Crossfin had set itself the target of becoming the leading independent fintech provider in Africa by volume and value by 2022.

“We have taken an 18-month slide on that strategy because of the Covid situation but it remains our big, audacious goal.

“We are beyond worst case scenarios that we had planned for. None of the businesses will perform as badly as what we had put down as a worst case scenario and from a shareholder perspective, we have made sure that each of the businesses were supported and well-funded should they have hit a worst case scenario. The fact that they have all outperformed that worst case scenario is really promising,” says Gaylard.

For Crossfin, the realisation that its businesses have come through the challenges reasonably unscathed (so far) is very welcome. During the early stage of lockdown, the board came together to look at what the organisation as a whole could offer to support the country. The government was looking for support in distribution of funding, the public were desperate for money to flow, and businesses were eager for some sort of support. By grouping the service provisions across the Crossfin portfolio, a comprehensive package of support was proposed but ultimately not utilised.

“Certain bits of the portfolio participated in certain elements of relief type solutions but nothing came through in mass from a national or governmental level where we could really put clout behind something to help out, and that was a little disappointing,” admits Gaylard. “They relied on incumbents to deliver what was required and the result was long delays initially. If they had of turned to some new independents that were well positioned and ready to help, we could have done things very quickly. A lot of passion, time and effort was put out to say that we are here to help but it wasn’t taken up in the volumes we would have hoped for.”

ACQUISITION TRAIL

After acquiring card payment acceptance company Sureswipe in 2019 and fintech start-up truID earlier in 2020, Crossfin remains hungry for growth and, after coming out of lockdown successfully, is on the lookout for further acquisition opportunities in the short-term and long-term future.

“There are two transactions underway at the moment,” explains Gaylard. “One material transaction at a Crossfin portfolio level and one at a Ventures level but I cannot talk about those yet. One we started working on before Covid and we put it on hold so that we could understand where things were going, but we have picked it up again now. The other, we started engaging as we entered lockdown and we continued throughout as it is an opportunity we are excited about. They will both be finalised this year.”

In order to achieve its vision of being the leading independent African fintech group, Crossfin is also looking across the continent for opportunity.

“We have been looking at a couple of investments outside of South Africa and we did get quite far down the road with one but Covid has slowed that down. Our strategy for next year will be to make one or two acquisitions outside of South Africa but in Africa. It has always been part of our general strategy. Across the portfolio, we are active in 13 African countries in some shape or form. With the networks that we have here in South Africa, there are so many opportunities that come knocking on our door so it can become hard to lift our heads and look north of the border but it is certainly our intent.”

Of course, before any major progress can be made, advancements must be made globally to eradicate the Covid-19 issue. While South Africa has moved down through lockdown levels, there remains a high number of people testing positive for the virus and this continues to strangle the movement of money within the economy, albeit at a slower rate compared to the first half of the year. However, all at Crossfin can rest assured that the senior management team has been through tough trading conditions before and has experience in navigating the most difficult of environments.

“As a team, the first was the 2000 dotcom crash. The second was the major 2007/08 financial crisis, and now we have this. There have also been a few storms in-between. We have been together in some shape or form through all of those and we have always been very quick to respond,” confirms Gaylard. “We got the portfolio planning and prepping within a week and ensured we had the hatches battened down. It was also a great opportunity to ensure businesses were streamlined and were thought through in terms of processes and efficiency. Then we had to hunker down and support businesses as best as we could until we got into Level 4 and Level 3 so we could plan to come out on the front foot.”

While the stories and figures spark fear regarding the economic picture in South Africa, Crossfin acts as an example and proves that there are still shining lights in the market. Now more than ever, it is important to plan as much as possible while seeking out and taking advantage of opportunities, and that is exactly what Crossfin is doing.