Zero interest. Zero fees. Zero new credit. with Alex Forsyth-Thompson

“Buy now and pay in up to 24 monthly instalments using your existing credit card.​ Zero interest. Zero fees. Zero new credit.” With copy that good, you might not actually need to listen to this week’s episode 😉 But please do, it’s a really good one as we hear first hand from one of South Africa’s most exciting new fintech founders.

Float is all about taking a payment tool that you already know and love, stripping away the cost, to providing cash flow management that enables spend without an unnecessary expansion of unsecured credit.

Float is at home at https://www.float.co.za/

And on social media at https://www.instagram.com/float.co.za/ and at https://www.linkedin.com/company/floatcoza/

Or reach out to Alex directly at https://www.linkedin.com/in/alex-forsyth-thompson-cfa-cfp%C2%AE-6b42a75a/

If you’re interested in Guy Kawasaki’s new book, you can buy it here: https://guykawasaki.com/books/think-remarkable/ (or at any online bookstore)

I'm on LinkedIn and always open to new genuine connections - https://www.linkedin.com/in/brendanlegrange - please do reach out, and follow the show's page, too

Meanwhile, my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is discussed at https://confirmu.com/ and on episode 24 of this show https://www.howtolendmoneytostrangers.show/episodes/episode-24

And finally, I'm also co-creating a new podcast called hAIghtened senses which will look at the intersection between human senses and technology, especially AI-powered technology. You can already start to follow it wherever you're listening to this one - there's only a trailer there at the moment, but we've recorded some of the early episodes and it's going to be a fun ride!

Keep well, Brendan

The full written transcript, with timestamps, is below:

Alex Forsyth Thompson 0:00

You know, I could always have a corporate career and I made sure that I finished the charters and all those sorts of things, but I knew I would end up in entrepreneurship at some point. There was no doubt in my mind about that.

The advent of Float was this whole Buy Now Pay Later craze was exploding. I was very excited about the prospects of this business model, but at the same time, the last thing South African needs is more unsecured credit being piled on top. This isn't Australia, it isn't Sweden, so I did take that to heart.

And looking into the Buy Now Pay Later space I realise that in Latin America, point of sale interest free instalments have been there for ages. In those markets, it's done very much off the back of a credit card. And our view is that credit cards are the best cash flow tools available to consumers, if used correctly, the point of Float is to help people to use it in the best way possible.

Brendan Le Grange 0:56

When I did my MBA back in 2007, it included an overseas trip, I went with a group going to the US to explore the startup scenes in Seattle, Palo Alto and New York. At the midpoint of that adventure, we had the opportunity to meet with Guy Kawasaki, who we had known about from entrepreneurship and innovation lectures. I think the Art of the Start is still somewhere on my bookshelf, but in person, he is even more charismatic. So ever since I've always kept an eye out for his books and his talks and, more recently, his podcast, Remarkable People. You'll find that wherever you're listening to this one, but even better news is that he's just released the Think Remarkable book.

It's a distillation of the lessons learned from his incredible lineup of guests. I've just started listening to it and already, as I was recording this episode, I've had a chance to see some of its lessons play out in real life. Order Guy's book, read it, and then think about Alex's early career in terms of 'developing your passion, not finding it' and in terms of Steve Jobs's Stanford commencement speech, and 'trusting that the dots you put down today will somehow connect in your future'.

Welcome to How to Lend Money to Strangers with Brendan le Grange.

Alex Forsyth-Thompson founder and CEO of Africa's most flexible, frictionless, and financially responsible instalment payment platform: Float, welcome to the show.

Alex Forsyth Thompson 2:39

Thanks for having me, Brendan.

Brendan Le Grange 2:40

It's a pleasure. Alex, it's certainly not uncommon for someone with a Bachelor of Commerce degree, a CFA, and a diploma in financial planning to start a career in the slightly buttoned up world of asset management or wealth management, but even early in your career at Alexander Forbes, there were clear signs that you were going to be doing things a bit differently to most - so let's start there, what did your early career path look like?

Alex Forsyth Thompson 3:06

Ja, I think, Brendan, like most youngsters I just wanting to get a job, or get a foot in, in some way. Forbes was, you know, a great company to start at, a good brand name, great structures, I was super lucky to just get a job I felt at the time.

And the culture in the company was very much about corporate innovation, idea hubs, young leadership forums, all these sorts of things. So, you know, I was one of those overly keen youngsters that was putting in an idea every other week, most of them were absolutely terrible, super naive and scrappy. But one or two got through, went through purchasing processes. And a couple of the execs decided that, you know, the concept was decent enough to sponsor and, you know, that was kind of the start of what I would call my intrapreneurship journey

Brendan Le Grange 3:55

And credit to Alexander Forbes as well, because a lot of organisations will talk the talk, but clearly, they actually walked the walk when you described yourself not just as the head of or the director of but as the co founder of the stokvel project.

Alex Forsyth Thompson 4:10

Like you said, it's admirable of a corporate to stick their hand up and do it.

But all of these big corporates come with what one would call the the antibodies in the organisation, you know, naturally risk averse, lots of red tape. That's why it's just so difficult to innovate in these companies, especially in a very old and traditional industry, like pensions and asset management and insurance.

You have to be young and naive and keen to plough headfirst into that and try it. And that's kind of what I was, it was a fantastic platform to learn and to you know, try something bold and have the support of a balance sheet and all those things. So very grateful for that period.

And it was very much then that I knew, you know, I could always have a corporate career and made sure that I finished the charters and all those sorts of things, but I knew I would end up in entrepreneurship at some point. There's not a doubt in my mind.

Brendan Le Grange 5:01

Yeah, let's talk about that because a really thoughtful route to entrepreneurship. Was that something that you'd wanted right from the start from when you were young? Or was that something you discovered in the early days of your career?

Alex Forsyth Thompson 5:15

I suppose coming out of high school, I was always one of those kids, I couldn't fathom the idea of picking a career when you're 18. Like, it just makes no sense to me. I know, there are kids who know they want to be a doctor or a lawyer but I hadn't the faintest idea and the thought of being boxed in and that's what I am for my life. Still doesn't make sense to me, to be honest.

My dad is an entrepreneur, he has his own business. So, you know, that was definitely one of the influences.

But you know, my philosophy was, I want to get a degree, I want to get a few years of work experience, build a base. And then as I said, it was kind of fortuitous the timing of where Forbes was in its own lifecycle. And where, you know, this whole corporate innovation trend was at, you know, that I arrived at that time.

But I can't say I went in and I had this massive plan. And all these steps mapped out, there's no way there was a little bit of haphazardness to it.

But the opportunities were certainly there. And I guess I was one of those people that took them with both hands. So you know, I left to start the stokvel business within Alex Forbes. And, you know, we partnered with the stokvel association, to roll out unit trusts to stokvels - and those are in South Africa, informal lending clubs, generally considered to be unsophisticated, but not actually the case. And we were trying to give them access to Asset Management vehicles.

But anyway, post that got promoted to the group head of innovation working under the CEO. And he was kind of like, do what you did there, on a company wide level. And my view was, I will never do that, again, inside a company, I will have never tried to build inside a corporate again. But what I am keen to do is look outside and see what's going on in the world of fintech. And, you know, see who's building interesting things, we just need to be very focused on finding problems that we want to solve for. So you're not just trying to pick an idea off the wall, because those are for free.

And I must say, super grateful for the likes of also Derrick Msibi, he was very pivotal on that journey for me. And credit was particularly topical, as well as personal money management. And those were two things we wanted to solve for deeply. You know, a lot of these big asset managers are really great when you got money and you have excess disposable income, not so great when you don't. So that was really what we wanted to solve for. And, you know, we started getting, you know, more into what was going on in the world of FinTech and alternative lending and payments and really just drank the Kool Aid.

Brendan Le Grange 7:46

And from there, you moved through venture consulting to the ultimate fruition of all of this at the end of 2020. You found it float, big shopping, small payments, what is Float and having spent a career building up to this point, what was that reality like on day one, when you're standing there with the keys to your new business in your hand, and it's actually a reality?

Alex Forsyth Thompson 8:09

Just to rewind a little bit, this whole BNPL craze was exploding. I hadn't seen anything like it: interest free credit didn't really make sense to me and was very excited about the prospects of this business model. But at the same time, a lot of the people I spoke to in banking and lending were just like, the last thing South African needs is just more unsecured credit being piled on top. This isn't Australia, isn't Sweden where Klarna is from.

So I did take that to heart and looking into the BNPL space realised that in countries like Brazil, Mexico being two significant examples, point of sale interest free instalments have been there for ages offered by most retailers. Yes, it's now become tech enabled. But in those markets, it's done very much off the back of a credit card. And the bank is the key issuer of their credit, they understand the consumer and what they're earning. And the thesis was that the South African use case was far more similar to those markets, developing markets, high interest rates, very disparate levels of income. In some places, you'd argue over indebtedness of the middle class, as opposed to a massive need for financial inclusion, which is the narrative.

Yeah, and I just thought that that product would fit so well here, we just have to find a way to technically adapted and created here.

So I left Forbes, the venture consulting, worked with a bunch of accelerators, and then did some VC advisory work, which was also really cool, helped me to pay the bills, but all that time, I'd left with the idea to fund this business and I was trying to fundraise speaking to potential investors and the consulting was really buying me the time and the means to raise the money I needed to start this business.

And fast forward to the end of 2020, you know, raised the money and we started building.

Brendan Le Grange 9:59

Yeah, and it would have been COVID yours as well. So not the easiest time to be out there networking and looking for looking for funders and partners for Yeah, what is a crazy idea to see if you start at the position we were in, in South Africa with high interest rates with a high risk? And to look at that and to say, well, what if we took away the cost aspect is a fundamentally different way of looking at the industry. And I imagine there would have been a lot of those investors having to think very carefully about it.

Alex Forsyth Thompson 10:28

Look, I think that there were - and maybe still are - massive reservations about the BNPL model, and whether it can work in high interest rate markets and those sort of things.

But the Float model itself, that's a fundamentally different proposition, because you're not doing consumer lending, you've got a technology cash flow tool for credit cards. So it is a fundamentally different proposition.

To dive a bit deeper into that the premise of, of BNPL is that there are better ways to lend credit cards that are outdated, you know, these compound interest earning facilities are very outdated, the consumer shouldn't have to pay. So BNPL sort of issue a little line of credit at the point of sale with quite light checks for small amounts and offers short periods to repay, and drive higher repeat usage, our thesis at Float and our mission is quite different.

Our view is that credit cards are the best cash flow tools available to consumers, if used correctly.

Yeah, I don't think it's necessarily fair to just say they're evil. And these horrible instruments, they're awesome. Like, if you know how to use a credit card properly, and you understand it, and use it to your advantage, it can make a massive difference to your cash flow and help you get all the things you need or want that you otherwise couldn't have. And the point of Float is to help people to use it in the best way possible. And to drive as much traffic onto the credit card as possible without putting people into a hole.

Brendan Le Grange 11:53

Seeing all the benefits of the front end - that is why I don't know how many hundreds of millions of credit cards there are around the world, but it is a very good tool to use. We've always been scared of how expensive the debt is, and often have inflexible depending on the market you're in. Yeah, I think that's what's really interesting with your your model. And I want to talk about it in a bit of depth. But first, just for those listening outside, if we could set the scene a bit.

Alex Forsyth Thompson 12:18

The main stay of ecommerce shopping is the credit card in terms of credit options, you know, many of the credit card holders, online and digitally native customers, you also have your credit facilities that you can sign up for online there are akin to your store accounts, those can be very expensive, they've got your initiation fees, your monthly admin fees, and then your compound interest of north of 20%. So you know, generally those are for people that don't have other facilities.

And then you've got the we would call regular BNPL. And there's a handful of players that have emerged from around 2018 onwards, three, four players doing the regular BNPL model, you know, get to checkout, sign up for an account, put in your ID number, do a quick check on you. And then you given three or four instalments to pay a generally average of six weeks, with all of these players, whether it's through instalments for the average, just kind of six weeks, and it's for your everyday purchases, R1,000 to R2,000 somewhere they're super popular instruments, especially with you know, the Gen Z's younger, younger type of audiences or people, again, that don't have access to credit, quite easy to get ahold of.

And I think it is a great model.

But if you miss a payment, you get whacked with the late fees, the penalty fees, I suppose the positive of that model is that you've got the privilege of paying interest free. And if you behave well, you do pay interest free. If you don't, who you abuse the system, you know, you get hit with a stick. And if you look at that on an APR basis, those late penalty fees are significant.

Brendan Le Grange 13:55

Yeah, in the end, it's necessary. And I do think like when you look at risk based pricing, when you're charging upfront, and somebody pays the same rate all the way through even though they fully pay the loan, because you thought they were risky at the start. Yeah, that's more unfair, then when you give everybody free upfront, and the people that missed the payment bear the costs. There's still a bad history of how late fees have been used in the past, but someone's got to pay the money. And I think that that at least is better. But yeah, I totally agree. Let's talk about how Float's doing that because I see card linked, no extra credit, no applications, no credit checks. So I'm assuming it utilises the existing credit limit in some way but you also allow up to 24 months interest free which is not very credit card like at all. So how do you actually make this work? What is happening when somebody uses Float to pay off a large purchase?

Alex Forsyth Thompson 14:54

To give the elevator pitch, Float lets shoppers split their purchase into, as you said, up to 24 interest free instalments using any Visa, MasterCard, credit card, the merchant configures float to suit their business and the merchant will decide how many instalments on offer. And that has commercial implications between them and us. Most merchants offer four to six months, that's kind of the sweet spot that we see. The product is particularly useful for big ticket purchases. So not intended to replace everyday credit card swipes, the average order value we have is around R10 grand, so more meaningful purchases, that guys would struggle to settle on the credit card, and would probably either not have made the purchase, or really kick the can on the purchase.

So that's the value proposition to the retailer and to the shopper.

And, because there's always a catch, the customer has to have the credit available on the card. So at the time of the purchase, we will make sure that the full purchase can be authorised on the card and that throughout the purchase the outstanding balances available on the card. And we deduct in instalments from the card, almost like an interest free budget facility in South Africa. You know, it's an instalment comes with a lot of interest in the flood case, that is no interest. And it just buys you time to sit on your credit card in monthly instalments.

Brendan Le Grange 16:15

So in South Africa, traditionally, there was where we call the budget facility in store, you could decide to use their portion of your card limit three, six or 12 months, I think with the options that it came at credit card interest rates.

So the well loved product and a feature used often but at great expense. But then bigger purchases paid over a manageable period of time. And at no cost. You know, it's a best case scenario, when we talk about consumer credit, with the added aspect here that you're not adding on to their exposure, you're not creating this new line of credit on the outside of the system that could get further in debt or over in data consumer, it's within this world, which is regulated and affordability checked, you're just using up a portion of that, I can see why it's really appealing to consumers.

What's also really interesting for me is the role that the merchants play with this because I started my career in in credit cards. And we did have a team that looked after merchant acquisitions, but it may just be my own bias. And maybe it's a reflection of me being too narrow minded at the time. But I don't remember merchant acquisition ever really been much of a conversation strategically. We were all about the consumer. How do we get more credit cards out there? How do we get better consumers? How do we make more margin and you are a merchant facing business as a tech, it's the merchant, you're helping out the merchant, you're negotiating with the merchant? That's your core channel. And you've seen a lot of success in terms of signing on brands. So yeah, yeah, talk to me a little bit about that, like what that means practically, in how you establish your business, but also how the consumer interacts with Float.

Alex Forsyth Thompson 17:55

Yeah, the reason why the merchant is the primary customer is because when something's interest free, someone's got to be paying for it, right?

So the fee has to be negotiated and agreed with the merchant. And for merchants to agree to fee, they've got to see some benefit, they've got to know that the foot traffic will come to the store because they're offering this option or people will be more likely to buy or they'll load their baskets, you know, accelerate purchases, they might have done piecemeal.

Now only way you could possibly get around that is plugging into some other network where a fee has already been agreed with the merchant. And you working off the top of that South Africa doesn't really a thing. I know there's some interesting businesses doing it in the UK. But building that merchant network is, is critical.

Second to that, your relationship with the merchant and that value contribution to the merchant once demonstrated is super important, because they are your biggest marketer. They are showing you next to the item placing your checkout, you know showing you on a landing page on their site because it helps them to drive conversions. And conversations you often have with the merchants or is this not just going to cannibalise my existing card sales.

And I mean, it would be very hard to argue zero cannibalization. But we've done a couple of case studies, there was almost no evidence of it, you know, normal credit card volumes remained and the same sort of proportion. But what you found was people who were hesitating, or maybe would have used another method, or going through with it, or choosing it because they're going to make that big ticket purchase. And if that value proposition doesn't hold true, the whole model doesn't really have a right to exist. Yeah.

Brendan Le Grange 19:40

If someone holding the mirror up to the credit card industry itself, who have had the opportunity for years to look at that budget facility, at the risk of repeating myself, yeah, so in South Africa, you had your credit card, your credit limit was assigned to you. In the old days it was split in half. There can vary but but the idea was that you could have your normal transactions you pay in full every month. But we know, once a year, there's a big expense you want to pay down over a period.

So you could choose 3/ 6/ 12 months to do so but at a huge expense, and that product was around when I started 20 years ago, and their product is still pretty much the same. Now today, and there's a lot of cool tech, obviously happening in the background to make it work. I don't want to belittle that side of things. And obviously a lot of negotiating the little I know about merchant acquisition is that they used to complain a lot because we were an American Express portfolio about even the smallest increase in in commission rate. Yeah, yeah. But you've obviously been able to communicate that value add better and also add value to the consumer better. Yeah, and some of that the move I guess, to ecommerce but you're not only ecommerce I see it's in store, or even post store purchases that consumers can use this for.

Alex Forsyth Thompson 21:01

Yeah, exactly.

So primarily online, you know, that's the easiest starting point easiest to integrate, you know, most smooth customer journey you can get. We are now in store hundreds of locations via primarily QR code at the point of sale, and also have a payment link version of the product. So a lot of merchants stick us on an invoice. It might even be a QR code on the invoice.

But the use casees span industry. So retail was the initial starting points, but the end of the day we find any anything that is a big ticket, credit card swipe, that's kind of where Float comes in, you know, that could be furnishing your living room, could be buying sports equipment, it could be the co-payment on a hospital bill, you know that nasty thing you get whacked with, when you come out of your procedure, it could be the repair on a car, could be travel.

We see our job, yes, being responsible and helping to split the payments and helping merchants increase sales, but all of our traffic goes under the credit card, all of it. Whereas most BNPLs it's at 90% debit card, it's actively trying to displace the credit card. So you know, our longer term vision is to be the infrastructure and the player that brings the banks into the this BNPL game. So we're really excited about that future and working with the banks more deeply embedded the fluid technology stack into the into the payment system. We think that's a super exciting prospect.

Brendan Le Grange 22:32

You know, when we look at why did it used to be so expensive, one of the arguments would have been, well, it's a risky clientele, or it's a risky segment. That's why we charge 20% 30% 40% 50% APR, you're charging zero APR and obviously you're earning revenue from the merchant to cover the risk.

But in terms of the reality of the risk, you've been doing this for a while now, what are you seeing in terms of how consumers manage this sort of BNPL? Is it being responsibly paid back? Or do you see consumers treating it differently or misunderstanding the product

Alex Forsyth Thompson 23:03

For us, you know, because this is existing credit, and we tapping into that credit facility, it is extremely, extremely low. It is not like normal unsecured lending at all. So we don't charge late fees or penalty fees or anything like that the consumer will never ever pay float more than the purchase price. Obviously, the onus is on them to settle their card bill. Right. We've helped them to break it up into instalments and both in the time to settle their card bill each month.

If they never end up settling it, eventually their bank is going to end up charging them. It's just bought them quite a lot of time. So our risk levels are very low.

The main things we needed to subsidise in our charge to the merchants is the cost of processing the transaction, you've got your your normal card processing fees, and for credit cards, those are a lot more expensive, as you'd know. And secondly, if the merchant chooses that option, we using our balance sheet to fund the transaction. So we settling that merchant. And if you funding a six month instalment plan that can become hefty.

www.float.co.za is one easy place for people to go to see what you've been doing a bit closer and to learn a bit more. But you guys also put out a lot of really high quality content on the social media in terms of telling your story, but also in terms of the numbers you share. So if anybody does want to follow the flow story does want to see what you're doing and watch as you grow. Where should they be going online to do that and to stay in touch?

Yeah. So for the business audience and potential merchants that sort of thing. LinkedIn is a great place go follow our page there. Float, you'll see the bright ruby floating balloon. Obviously I'm on LinkedIn, so please connect with me if you want. And then our Instagram page is a little bit more fun consumer focus, but you'll see all kinds of deals and our merchants and that sort of thing. And coming up soon will be a blog that we're launching on our, on our website as well. So go subscribe there if you're keen to follow more.

And we've got a very exciting funding announcement, which we'll be releasing in the next week or two, with one of one of SA's big banks, which is super exciting. And that first step towards that envision that I was talking about. So please follow along and engage with us.

Brendan Le Grange 25:27

Yeah, well, I'll put links to those in the show notes as well. And to that story, because it will be out before we are but looking forward to see what you can do and how that sort of changes the landscape.

Alex, Float was recognised as one of the top five startups in South Africa in the Visa Everywhere Initiative but I've also seen your name on all sorts of things on LinkedIn in various different people's formal and informal lists of startups to watch on the continent, which must be a good feeling.

But I also get the sense that you're not done yet. And in particular, as I looked at sort of the copy on your page and the web page, where are you looking to take float in the future? What is your focus for for the near term,

Alex Forsyth Thompson 26:09

we are pretty level headed team, small lean team and trying to build a profitable business at home in our backyard, first and foremost. So that is the focus number one is getting South Africa, right. I think a lot of people underestimate the type of business and size of business you can actually build on this market.

The TAM isn't what it is in the US or the UK, I agree that you can build a business with good margins, you can be a bigger fish in a small pond, and make a significant impact. Yeah. And that's very much what we intend to do. Next up, could be some, some markets that neighbouring could be some even further north, who cards interestingly, are super nascent on the continent. So I think there is tonnes of upside there, maybe markets where it might leapfrog and go to some sort of wallet based credit solution.

But I know that the card networks, part of their mission is to get card adoption increasing in Africa. We think tools like this will definitely help to do that. So you're on the roadmap for us. But I think we'll we'll tackle that once we've got through step one.

Brendan Le Grange 27:17

Awesome to hear. And thanks for coming on to talk about that, you know, around the world, the BNPL models, the ones that survived are being tweaked and adjusted. We know it's a segment that works for consumers. It hasn't always been done right. And that rushed to meet the VC growth targets. But now it is settling. And I think there's good lessons for people to take and maybe adjust their own course for the good of everyone in the ecosystem.

Alex Forsyth Thompson 27:44

Yeah, for sure. Thanks for having me, Brendan. And thank

Brendan Le Grange 27:47

And thank you all for listening.

Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.

This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.

Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.