My first engagement with Richard van Rensburg was in the dot com heyday when he was charged by Datatec and Wooltru to run a business called Affinity Logic. That was ahead of its time, as was now Pick n Pay chairman, then joint CEO Gareth Ackerman’s drive into financial services in 1997 with Go Banking. But this could be third time lucky. Pick n Pay (market cap: R28bn) has teamed up with cell phone giant MTN (market cap: R418bn) to offer a product that could finally spark the banking sector’s biggest nightmare – an attack to their most profitable area of business by outsiders. And this time it’s not just Van Rensburg and the younger Ackerman who’re spearheading the attack. They’re helped by the group’s imported-from-Tesco CEO Richard Brasher, something of an expert in the field after his experience launching Tesco Bank. South Africa’s big banks have proved capable of addressing all previous challenges. This is one that is sure to occupy their minds for some time to come. – AHÂ
ALEC HOGG: Traditional financial services, has been challenged by MTN and Pick n Pay with their new, full service product that has no transaction or subscription fees. Watch out banks. Earlier I spoke to Deputy CEO of Pick n Pay, Richard van Rensburg. Let’s take a look.
RICHARD VAN RENSBURG: I think the world is moving very fast as we grow into the digital age, and I think what we are needing to see in our economy, as we move into that age, is that things like the cost of airtime and the cost of banking are becoming basic commodities to society. It is exciting for a supermarket getting involved in that whole debate.
ALEC HOGG: And it isn’t the first time Pick n Pay has gone into this area. We remember ‘Go-Banking’, I remember talking to your now Chairman, Gareth Ackerman, who said that they would change the face of banking. That didn’t work out so well. Why would this one?
RICHARD VAN RENSBURG: Well, it is important for me to say that Pick n Pay is not going into financial services with this tie up with MTN, like we did with ‘Go-Banking’. I think we’ve learnt the lesson that we’re a retailer. What we are trying to do here is to facilitate better banking for our customers, through partnerships with people who are involved in the banking industry. I don’t think this should be, seen as a foray by Pick ‘n Pay into financial services. What we are rather doing is facilitating something.
ALEC HOGG: So it is more a foray by MTN into financial services, with your facilitation.
RICHARD VAN RENSBURG: Yes, I think so, and I think we’ll see other entrants coming in too. We’ll see the traditional banks also moving into the space. I think what’s novel about what we’ve done with MTN now is that, for the first time in South Africa, in a supermarket, you can open a bank account, and you can do it very cheaply. In addition, that bank account is built on the state of the art mobile platform. It is wireless, it is real-time, it’s card-less and it brings a lot of convenience to customers.
ALEC HOGG: What about deposits and withdrawals, how is that going to work through this platform?
RICHARD VAN RENSBURG: Effectively, with Mobile Money, any Pick n Pay point-of-sale till operates like an ATM does. If you’ve got a Mobile Money account you can deposit money, you can withdraw money, or you can transfer money, at a Pick n Pay point-of-sale. If you want to transact at a normal ATM then for R29 you can buy a Visa Debit Card on the account and then you can transact in the banking system, as per normal, and, obviously, from your mobile phone you can make account payments, deposit your salary, you can set up debit orders, all in a mobile way.
ALEC HOGG: But, again, getting back to Pick n Pay and the history Richard, three decades I’ve been watching this business, and there’s always been something. There’s been a niggle about banking. I remember Raymond Ackerman, the founder, taking on the Bank Cartel, because of Trust Bank, which was his preferred partner. That they were squeezed out of the Cartel because of the relationship they had with Pick n Pay, this seems to be almost like a final step or another step in a direction or a path that has been painted out a long time ago.
RICHARD VAN RENSBURG: Well, Pick n Pay has got a long history of fighting for consumer’s interests, and I think we are all very aware that the cost of banking in South Africa in higher than it should be. We’ve got a very good banking system but it is also a very expensive banking system. I think we want to participate in trying to bring the costs down. As a Company, we pay extremely high fees in banking because of the profile of our customers. We are the largest accepted debit and credit cards in the country, so we have huge fees associated with that and we would really like to see the costs come down.
The banks make more when we sell a tin of baked beans than we do.
ALEC HOGG: Wow, are you going to be able to do that, through this relationship with MTN?
RICHARD VAN RENSBURG: Well, definitely. Our bank fees, if a customer uses a Mobile Money account in our stores are zero, as is the customer’s fees are zero, so we definitely want to support a real time mobile platform because it is much more cost effective for a retailer. Hopefully it will drive the cost of banking down for us. Clearly, this particular product, Mobile Money, is free for a customer, if they’re running their account on a Pick ‘n Pay SIM card, so it is already bringing the costs down for the customers quite significantly.
ALEC HOGG: And if it all works out how much will, you cut you’re bank charges by?
RICHARD VAN RENSBURG: Well, a few years ago, we were paying, approximately, as much in bank fees as we were making in profits.
Those fees will come down now, with the changes in the interchange fees that were made by the Payment Association and the Reserve Bank recently. However, we will see a significant reduction in costs, if the mobile platform is adopted and MTN is the first to market in South Africa, in this space, but I don’t think they will be the last. I think there will be a lot of entrants into this space, which we’d encourage.
ALEC HOGG: So there’s a double incentive for you. You are giving your customers a good deal but you are also saving yourselves money.
RICHARD VAN RENSBURG: Absolutely, and what we’re really doing, as an economy, is using technology to make payments and the banking process more frictionless, which is improving productivity, bringing costs down, it’s a good thing for everybody. Of course, if you are a traditional banker and you’re making a lot of fees out of the current system, it might hurt you a little bit. Adopting this platform is cheaper anyway, so it is probably a good thing for everybody.
ALEC HOGG: A lot has been made of the entrance of your namesake, Richard Brasher, as the CEO or your boss, but this side of the business. Has he been involved in it as well or is it being driven by yourself and Gareth, given that the two of you have a personal interest in this area?
RICHARD VAN RENSBURG: Well, Gareth and I certainly have an interest in doing it but Richard has added enormous value. We must remember that in his days at Tesco he was instrumental in founding Tesco Bank, so he understands this part of the market extremely well and he’s been incredibly helpful in helping us accelerate these programs.
ALEC HOGG: The investment community seems to love Mr. Brasher, the share price of Pick n Pay up 40-odd percent in the last year and, particularly, after your April results. It is quite a high barrier though that the market has now placed on you. Are you likely to be able to deliver on that?
RICHARD VAN RENSBURG: Well, I’m loving working with Richard. He brings an enormous amount of skill and experience to the business and we are benefiting hugely from it. Yes, the market has got very high expectations of us.
I think our PEs is around about 40 (actual: 41.2), which takes me back to the days of the ‘dot com’ boom that a traditional retailer is trading so high.
There are high, expectations on us; we are very pleased with the progress that we’ve made, particularly in fixing our supply-chain, improving our IT systems, our property portfolio is getting better, so we are opening more stores, but we’ve got a big hill to climb, and it is not going to happen overnight. The market is very, very tight, at the moment, with the petrol prices are going up – 29 cents a litre in a few days’ time. The consumer is really struggling, and so it is difficult to show a stellar growth, in a soft market, but we have a lot of internal improvements that we can still bring forward and we are excited about that.
ALEC HOGG: Well, I guess you’re going to have to do that Richard but one final point; there is also a discussion about the holding company, Pikwik, at some point in time that being unbundled or dismantled. What’s the thinking inside the group about that?
RICHARD VAN RENSBURG: Well, I think, having personally worked in a few retailers in South Africa I am finding it incredibly fascinating, working in a retailer that is controlled by a family. They bring an enormous amount of guidance and moral outlook to the company and I, personally, would hate to see the Ackerman family not stay in control of the company. Also 99 percent of all the investors in Pick ‘n Pay bought into the company, when the Pyramid Scheme was in place, so ‘investors beware’; we’ve been like that. I think the value that the family adds, in control, is very good but, clearly the market doesn’t like the structure of the control and I know we are looking quite seriously at how we can improve that and make it more acceptable to the market. I am sure Gareth will engage the market as plans develop, in that space.
GUGULETHU MFUPHI: Well, that was Deputy CEO of Pick ‘n Pay, Richard van Rensburg.
