Turning a customer obsession into retail credit, with Regan Adams
"Retailers are obsessed about consumers." And it is by leveraging the fruits of this obsession, their understanding, that retail creditors can take on the bigger, more cheaply-funded banks.
RCS is found at https://rcs.co.za/ and they're on LinkedIn, too (plus Facebook and Instagram)
Mobicred, their recently acquired virtual credit provider is at https://mobicred.co.za/
Read more about the BNP Paribas/ RCS rising star tennis academy at https://www.tennissa.co.za/w/play/rising-star-tennis (or click here to read the announcement and at see a snap of Regan's formidable forehand in action)
Forest Whitaker's Peace and Development Initiaitive is an important one, and can be found at https://www.wpdi.org/ (for more on RCS's role with it, click here)
In our chat, you'll hear some place names unfamiliar to the foreign ear, in particular, Piketberg where Regan found himself as a straight-out-of-university engineer. Piketberg is a small town about a hundred miles north of Cape Town, in the wheat farming areas along South Africa's west coast. Home to just 10,000 people, it might not have been the most exciting location for a young man to start his career, but it seems to have embraced active tourism - so if you're looking for some mountain biking within reach of the (ice cold) sea and some exciting wine producers, check out their tourism offerings. Travel a little bit further up the coast and you'll find Lambert's Bay, where I once worked at the Crayfish Festival but there's a whole different story in there 😂
Oh, and while I tease Sam a little for his tennis here, he is remarkably talented when it comes to brand health tracking, so look him up and tell him I sent you if that's something you need.
You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Regards,
Brendan
The full written transcript, with timestamps, is below:
Regan Adams 0:00
Retailers are obsessed about consumers. They're obsessed about the market. They understand their customers to a level that I don't think many other industries do.
Brendan Le Grange 0:14
Sam Davis is an enigma of a sportsman - something of a chain smoking Clark Kent like character from my youth, he was bespectacled and skinny and English pale... and yet suddenly, at a school sports day, he was running the fastest first half of an 800 metre race any of us had ever seen.
Unfortunately, he also possesses the world's least resilient knees, and one of them gave out, leaving him to hop most of the way home.
And it was another one of those knees that put paid to his football career, thanks to a pre-warm-up injury, which left him with tennis. Unfortunately, we'll never know how good he could have got because the only invitation to a big match he ever got, at least to my knowledge was when the bus driver once challenged him to a friendly match.
Luckily for the almost certainly more talented kids up today, RCS has been investing heavily in grassroots tennis in South Africa and in building talent development pipelines. Welcome to How to Lend Money to Strangers with Brendan Le Grange.
Regan Adams, CEO of RCS and former boss of mine, welcome to the show.
I see you've been at RCS for 18 and a half years now, and six and a half of those as CEO, but your career obviously started getting your hands a lot dirtier, in the literal sense.
So tell me what is your actual technical background? And what was your route from there into retail credit?
Regan Adams 1:46
Firstly, Brendan, really great to see you. And it was really fun times when we work together.
And when you talk about dirty, my hands really were dirty, it was the cement business. So I did an undergraduate degree in electrical engineering, actually majoring in light currents so it really electronic engineering and joined PPC cement in 1994, which is quite a significant date, because that's the date when South Africa really became a democracy. So I didn't just finish my degree in that year, I also stepped into a job in a rural area, predominantly Afrikaans, just the year afterwards.
It was fun time, as you can imagine
Brendan Le Grange 2:27
Interesting times indeed, and your career's charted that period of democracy in South Africa, starting in those very early 'open' days when 'open' probably was a little bit of a generous way of describing things, all the way through to now, where you are CEO of RCS.
But you went there through the time that we spent together at Capital One, you know, it's an interesting step from cement to retail credit. So what got you thinking that way? And what got you to move industries into financial services?
Regan Adams 2:58
What you realise quite quickly is that in engineering, they're two broad streams that you can go into: either you're going to go into very technical engineering, let's say geeky engineering, or you're going to more engineering management. And the one thing that I told myself is that I really want to be more in engineering management.
And when you talk about engineering management, you talk about budgets, plant maintenance, planning, all these kinds of things. And to do that effectively, I decided when I was at PPC in Piketberg, clearly didn't have a lot to do, so I decided I may as well study another degree, and I went into studying a commerce degree. This would give me the commercial financial background. Actually, as a result of that, I also got involved with a business reengineering project at PPC, where PPC were looking at all their plans. SAP and BAAN just started these ERP systems and PPC was busy implementing BAAN across the country.
And that moved me from Piketberg to Johannesburg, working in all these plans, I eventually ending up in PPC Parktown, at the head office. And that's really where, after having done that for a little while, I saw this Capital One advertisement, and it would be great to try and move into a different kind of industry. And yeah, I went for the CapitalOne opportunity.
And the one thing that really struck me in the interview process was they didn't really care about your degree, they didn't really care about what you studied, what they cared about is, you know, was 'were you numerate, were you analytical, were you a problem solver', which I really enjoyed. And what engineering taught me was a way of thinking a way of looking at a problem and analysing it and coming up with solutions. So maybe in the engineering space, it was looking at transistors and all sorts of things. But I thought, well, you can do the same thing with interest rates and products. So let's go and they gave me the opportunity and like I said, it was great. And you ended up working with people that had a bachelor of arts and engineering. In degree a commerce degree, a lawyer's degree when they were kind of similar in thinking which, which made for very interesting space.
CapitalOne, in South Africa, it was a joint venture. So it wasn't its own big business, it was a small part of a big bank and that bank was one of the big four banks in the country, it had at the time, close connections to an insurance arm - so you, as a young executive going up the ranks there would have had an easy opportunity when you got tired of the credit card space to go to any one of a number of jobs, I'm sure, within that group and had a solid comfortable a career in the big corporate, but you decided to go to RCS which obviously a much smaller, more dynamic player.
Brendan Le Grange 5:44
What was the thinking about that move to step out of the big corporate, the big retail banking world and to go to I guess we weren't using the word FinTech in those days, but a non bank lender, and now something much more like we recognise as a fintech?
Regan Adams 5:59
I would say that there were two things. One, it was unique to the job I was in, as you know, and I think one can probably have another podcast about successful JVs, the joint venture between the bank and Capital One, it was quite a fascinating joint venture, because culturally they were very different. You had this big, bureaucratic, corporate in Nedbank and many, many of these young guys that were quite nimble analytical and dynamic and it made for a very interesting marriage.
It was actually I think, in retrospect, a joint venture that was ahead of its time.
So there were definitely dynamics of the joint venture, which I think was challenging. But my decision to go into retail credit was - you used the word dynamic - when you're in a bank, I think you're more probably focused around the products at the bank extend but when you when you go into the retail space, really, retailers are obsessed about consumers, they obsessed about the market, they understand their customers to a level that I don't think many other industries do.
So I wanted to get into retail consumer credit. And of course, relative to where the banks were playing, and still actually today are playing in the kind of the higher income segments, retail credits of the lower to middle income consumers, people that really needed credit to improve their lifestyle.
You know, this is really where the rubber hit the road, it was the store cards, it was middle market, talking here about people that if they didn't have credit, they won't have a fridge, you know, really practical things that could dramatically improve their lifestyle - so I wanted to get more exposure to that retail component.
And of course, my my lending my financial consumer finance background helped me to get into that space.
Brendan Le Grange 7:41
To me, it seems like quite an interesting time in the market. What was that retail lending landscape like? And maybe within RCS, what was your take on the market? And what were you looking to achieve there?
Regan Adams 7:54
I would say that RCS in itself was quite unique, the business that actually came about in that space. Like you rightfully pointed out, what retailers realised was that the consumers that they were serving, weren't getting access to credit, weren't being served by the banks, because the banks did not understand that consumer segment, they didn't know how to differentiate risk. They didn't know how to understand affordability, they just didn't understand them.
So I think actually, the way RCS was started tells you a little bit about that kind of market in that space. RCS was born out of the Foschini Group. And what Foschini historically had is that they ran their own store cards - they still today, they have their Markhams card, the Foschini card, all these cards - and what they thought was, okay, we've got these lending products to shop in our stores, but how do we provide these same customers with an ability to shop outside of our stores with other financial service products like personal loans? Because they weren't getting it.
And the the benefit that they had is that they had underlying spend patterns, behaviour, credit risk understanding of these guys based on the store card business that they had.
So it was really saying, 'okay, how do I serve more of the needs of these customers by introducing something like an RCS card that allows people to spend outside of Foschini stores and cross-sell personal loans into this base?'
So I think at that time to answer your question, a lot of the retailers that were running credit, they knew that there was a lot that they could offer their customers by virtue of the fact that they understood them best. You know, the funny thing, Brendan, is that today, you sitting in a market in South Africa, where store cards are still double the amount of credit cards, other markets like the UK, where you are today and the US, that were big store card markets int he past, but over the time, those were replaced by credit cards. And even if you take Brazil, Brazil was a big store card market, also there are credit cards now. But South Africa seems to have been, you know, one of those markets where the dynamic has remained. You still have upwards of 10 to 15 million in store cards and only about 5 million unique credit cards.
And we talk to customers, it's quite fascinating how they think about these different products - I mean, that's another podcast all to itself.
But back to your question, I think it was an interesting time where retailers realised to move their product, they need to provide people with access to credit, and also seeing the broader financial services opportunity in driving other income to their business, alongside the retail income they were making.
Brendan Le Grange 10:29
What does it feel like to be a non-bank lender in South Africa now 18 years later?
Regan Adams 10:34
You know, back in the day, it was a fax machine, very manual, filling in the application forms predominantly done inside a store, the regulation was quite primitive, people could really almost charge what they wanted to - there's a lot of things that have changed over the years. We're now operating in a market that has a very sophisticated credit regulation, I think it's kind of mirrored the UK Consumer Credit Act, even if you compare South Africa's standard of lending regulation is even more advanced or stricter than some European markets, you know. We've we've got things like affordability calculations, in some markets that's only being rolled out now. South Africa has always had the benefit of having a very strong bureau. And I think there's always been a very strong infrastructure to extend lending, but you're in a market now where, I guess there could still be loan sharks that are out there, but certainly in the formally regulated market, it's, it's a lot tighter control, we've got a cap on pricing, it's very prescriptive on how you can do things, there's been a lot done to protect the consumer.
And of course, as you mentioned, digital has played a massive role.
You know, back in the day, people were just happy to get credit. Now, people are much smarter, they want things like loyalty, they want things like rewards, it's not just about the access to credit, they've got more choice. So certainly the space have become more competitive. The banks are still not there, but certainly a lot more non bank lenders have come onto the scene, people that are able to service customers quicker, faster, more efficiently than the banks.
And of course, if you look, now you've got products like buy now pay later that attracts specific segments of customers.
So I would say that, you know, product structures have evolved over time, the way you extend credit to people through channels, through the distribution of the regulation, you know, there's been massive changes in the industry. And you know, sometimes you think, have more people but access to credit, I'm not so sure, because I think the lending regulations have been mostly focused on curbing reckless lending. And in doing so may have actually pushed some people to the more informal kind of lending areas where you don't have to give a bank statement or a pay slip, or go through affordability calculations, and so on.
Brendan Le Grange 13:11
Let's look a little bit at RCS in terms of the products you're offering, as you said, your roots are in that retail space. But what does the credit product suite look like?
Regan Adams 13:19
We are predominantly in the unsecured lending space. So products are predominantly cards and loans, and predominantly cards by virtue of the fact that we are not a bank that's got a current account, we almost see the card as a gateway product. And then when somebody comes through as a card product, you know, we can then cross sell other products to them, whether it be personal loans, whether it be credit cards for specific segments, whether it be insurance products. So our stronghold is in retail.
So we would look at the retailer that we want to serve and understand what is the best type of card product for that particular retailer because we do a lot of white labelling of the product. So we have co-branded cards where the RCS brand is co-branded with a retailer brand, and then we have a private label cards with just the retailer branded, those are typically in environments where the scale of the retail itself sufficient to be able to make the economics work. Whereas in a co-branded kind of portfolio space, you need the acceptance in the wider RCS network for the economics to work. And that's why it's co-branded.
And then we've got our general purpose card, which is the RCS card I mentioned before, which is almost like a credit card, but it's I would say limited utility credit card. It's like a super store card - you can't withdraw cash from it, but it's used in close to 30,000 retail environments where you can shop.
And then, like I mentioned, we've got the lending products now, where we've evolved, I would say in the last five to ten years is that we don't just serve retailers anymore, you know, we we are deploying or lending products into insurance, for example, we do Sanlam's creditcard, we do personal loans into the Telesure Holdings database, we partner with Tyme Bank, and we do their creditcard.
Where there's a need to be financed, and there's a customer database there, you know, we are able to deploy a relevant and suitable financing products.
So it's an area that we will continue to expand in, because, you know, you can finance things like solar energy, and all those kinds of things. So we kind of want to play in that space. So that's the one thing that we are serving in terms of partnerships.
And the other thing is, I would say, in the last few years, it's COVID has accelerated ecommerce in South Africa - as elsewhere. And we've acquired last year a company called Mobicred that specialises in virtual credit and online credit. And they integrated into all the major online payment gateways, you know, locally, the likes of RCS is found at https://rcs.co.za/ and they're on LinkedIn, too (plus Facebook and Instagram)
Mobicred, their recently acquired virtual credit provider is at https://mobicred.co.za/
Read more about the BNP Paribas/ RCS rising star tennis academy at https://www.tennissa.co.za/w/play/rising-star-tennis (or click here to read the announcement and at see a snap of Regan's formidable forehand in action)
Forest Whitaker's Peace and Development Initiaitive is an important one, and can be found at https://www.wpdi.org/ (for more on RCS's role with it, click here)
In our chat, you'll hear some place names unfamiliar to the foreign ear, in particular, Piketberg where Regan found himself as a straight-out-of-university engineer. Piketberg is a small town about a hundred miles north of Cape Town, in the wheat farming areas along South Africa's west coast. Home to just 10,000 people, it might not have been the most exciting location for a young man to start his career, but it seems to have embraced active tourism - so if you're looking for some mountain biking within reach of the (ice cold) sea and some exciting wine producers, check out their tourism offerings. Travel a little bit further up the coast and you'll find Lambert's Bay, where I once worked at the Crayfish Festival but there's a whole different story in there 😂
Oh, and while I tease Sam a little for his tennis here, he is remarkably talented when it comes to brand health tracking, so look him up and tell him I sent you if that's something you need.
, Superbalist and so on. So ecommerce, digital commerce, mobile commerce, which you can, you can say it's kind of more slanted towards the younger generation, really, you know where you are.
Now, as you've got this economy, where you've got younger segments of customers, they want to consume credit through the mobile online, digitally, but the stronghold of credit is still that older customer of 35 plus, that want to have a plastic in their hand, they want to come into a store. So it's about how you deploy the right product for that right segment, and allowing them to consume it in a manner that they want to.
Brendan Le Grange 16:27
Now we spoke a bit about access to credit, and you're serving that part of the market that was previously left behind. In the old days, when we did that people were made to put up with difficult processes, because they didn't have many other choices. Whereas now I see you're able to get cash into your customers accounts within 24 hours. So you are able to do both, right, you're able to serve parts of the market that others can't, but to give them that same level of fast turnaround that any customer would expect today.
What's your philosophy around that on how you provide access to credit to customers, but how you also provide service to your customers?
Regan Adams 17:05
I think one of the big things that have evolved is the customer experience. I mean, as you know, in the last 10 years, the buzzwords of UX and CX and customer journey, and all these things, these are all terms that have come to the fore. And I think you know, back in the day, power set with a provider that is deciding whether they want to give you something or not, I think now there's a lot more power sitting with the customer and the consumer.
People want to engage with people that give them the best experience that give them an efficient experience that makes it easy for them is still subject to the regulation, the affordability checks, the models, etc.
But digital technology has played a massive role in enabling faster turnaround times, really using tech to make it easier for customers - you know, on a digital onboarding system now you can put a product in somebody's hands in 10 minutes using, you know, API's to the bureaus to fraud tools, you can get their bank statements, uploaded, OCR their technology, do an affordability calculation through robotics, calculate all of this and that's end of the story, you know.
So I think digital technology has really transformed the industry in terms of how you lend, how you make it easier also for people to service their accounts, on products you've got mobile apps is a lot of stuff you can do through the mobile apps. And so I would say digital technology has made it really easy for people. And that doesn't matter on whether you're talking about a low middle high income segment. I mean, everybody's benefiting from these from these advances in technology.
You spoke earlier about access to credit, and like you rightfully say, in the past, access meant you pay more and you'll get access.
You know, the one one advancement, which I think is is one that is still evolving is the use of data and alternative data sources. If you think about the bureau, you've got this 'credit unaware' population, this 'thin file' population, and how do you understand these guys better now you've got data sources that you can use, you know, whether it is bank statements, they can go into models, event, some crazy things around using social media and credit decisioning and so on. I mean, we've built a model, using bank statement information for somebody that does not have bureau record, you're able to more effectively assess credit risk, and those are the dynamics that increase the pool of customers that come in to fold and then get access to credit.
Brendan Le Grange 19:34
But Reagan is not just grassroots access to credit opportunities that you're working on, you're also very much involved in grassroots access to tennis opportunities for young South Africans. What is the RCS Rising Star Tennis initiative?
Regan Adams 19:47
Thank you for asking about that because it's a very different topic, but it's a very important one. You know, there's the 'what we do' but there's also the 'why we do it'. And don't tell my shareholders, but I don't get excited about making more money; the thing that excites me is using the more money that we make, to positively impact the lives of people.
And the context that we find ourselves in South Africa where you've got youth unemployment rate, that's, that's kind of in the 50% range. We have a role to play. And I've got a little bit of a saying that says that "South Africa must be a better place, because RCS is in it".
We invest a lot in the communities in which we operate, we have a focus on youth and programmes, like the Rising Star tennis initiatives that really takes tennis to primary schools, secondary schools, also wheelchair tennis, is to grow and develop these youth in other skill sets. Sport is a great tool through which people can have a myriad of skills and characteristic traits that they can develop. So our shareholder, BNP Paribas, is very much involved in tennis that you can see in the likes of Roland Garros, and so on. So it was just a natural thing for us to also get involved in South Africa to develop grassroots tennis.
And the thing that I'm proud of is that we now have close to 50% of tennis participants coming from previously disadvantaged schools, and these guys are not just participating, some of them are really doing very well.
And it just shows you that talent is everywhere, and opportunity is not.
And what we try to do is create those opportunities, so that we can unlock some of the talent that is sitting there. So that's, that's a specific youth programme, or youth initiative, but they also others, we involved in the Whitaker Peace and Development initiative, you may know that in the cape flats in particular gang violence is is shocking. And so we involved with Forest Whitaker and his foundation in training peace ambassadors that come from these Cape Flats environments that go and broker a peace with with gangs and so on.
It's startling to think that Cape Town is the most violent city in the world outside of South America. You'd never have thought that, but it's only because of this concentrated and gang related violence that's in the Cape Flats.
Brendan Le Grange 21:57
It's great to hear that, well, with you guys but also that globally, big names are looking at these issues and finding ways to try and change that paradigm. And obviously, gang violence in particular is a difficult one where it's, you know, kids are kind of born into it almost, you know, it's part of growing up. So you really, I guess have to get them very early to try and find other paths.
Reagan, if we sort of stick on that for a bit just to wrap up. Obviously, it's not, you know, the easiest time to lend anymore interest rates are higher than they were risk is higher than it was what is your thinking as you look forward at the next year or two?
Regan Adams 22:35
I mean, it's all good points that you raise, you know, but the interesting thing about COVID is that actually the credit industry - certainly in South Africa, I don't know about elsewhere - there were some people that left the system, you know, because they just couldn't continue to pay. And these people were written off. So you actually are in a situation where post COVID, you probably looked at a better and more resilient customer, because it's a customer that survived a very difficult period of time where people, you know, portions of their income taken away, and so on a relative basis more resilient, because the others have kind of left the system. And certainly if I look at our cost of risk performance, even coming out of COVID, 2021, last year, it's been quite solid.
Obviously a lot of lenders in 2020, had massive challenges with cost of risk. If you look at the banks that the bad debts doubled, provisions were sky high, but a lot of profit is now being driven through a lowering of these these costs on your income statement. So actually, what we're seeing is that customers are a bit more astute. People are managing their spend more effectively, not just frivolously spending, there's been some deleveraging people paying down their facilities. So actually, if I look at the state of the consumer spending, the ones that we're looking at, you know, I'm not seeing massive stress.
Now, obviously, we've had significant increases in interest rates. I mean, South Africa, just as the rest of the world and in Europe is going up. But you know, South Africa's always had high inflation. Europe's dealing with there was negative inflation and zero inflation, so 2% or 3% or I mean, 6% or 7%, I mean, this is massive, all of a sudden, you need to adjust salaries, you need to pay suppliers more and so on. But we've been an environment where we've been operating between 3% and 6%.
Now, yes, it's a little bit about north of six. But you know, it's not something to the extent where it's something that people cannot deal with interest rates have gone up, but it's kind of in line with what it was in 2019.
I'm not saying that we not being impacted, certainly are seeing pockets of distress. But you know, the other thing about it is that you are in a economy where you've got a higher income segment that's more interest rate sensitive, and you've got a middle to low income segment that is more inflation rate sensitive, you know, so with interest rates going up is really people that have exposure to bonds to vehicles. And if you look at the percentage of people that own their own vehicle, or will own vehicle finance and own mortgages, you know, that's the minority of people in this country. So it's more an inflation rate kind of impact that people feel.
So that's just kind of macro speaking. But in terms of the future, we can see that retailers are investing in the online infrastructure, e commerce, everyone is really making massive investments in South Africa, as you know, you've got Takealot, a lot of the big retailers are catching up now and seeing the benefit of things going in there. And we are supporting a lot of these big retailers in the ecommerce ambitions, digital commerce ambitions.
And then we've got, you know, like I mentioned earlier on, 'how do we finance other needs, that may not be the historic ones'? So financing fibre installations, financing solar installations, with our loadshedding, financing inverters?
There are opportunities everywhere.
And so we've got opportunity to deploy our product into more different kinds of environments with different partners, to different customer segments and to deploy different products like in the virtual credit, a bit in the ecommerce space, buy now pay later and so on.
Brendan Le Grange 26:15
Regan, thank you so much for your time, if people want to learn more about RCS, learn more about the products you're doing or various initiatives you're doing in the community, where's a good place for them to go to learn more about the company and kind of follow its story?
Regan Adams 26:30
Thanks. Yes, I mean, you can check out our website, which is www.rcs.co.za And then we are quite active on LinkedIn, as you remarked before, and then our Instagram and Facebook pages. I think that's that's also the way people can see everything that we're doing.
Brendan Le Grange 26:46
Regan again, thank you so much for your time, and great seeing you after all these years. And yeah, long overdue as to the Cape. So when I'm down there next , which shouldn't be too long, I'll definitely look you up.
Regan Adams 26:58
I look forward to that. Thank you, brother. Thank you for having me on the show as well. I really appreciate that. Thank you.
Brendan Le Grange 27:02
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.