JOHANNESBURG — South African FinTech ‘InvestSure’ has partnered with local fractional share trading pioneers, EasyEquities, to offer investors and traders on the JSE the opportunity to mitigate their risk. The local team at InvestSure has developed a world-first insurance product which protects buyers of shares from management teams that mislead and deceive shareholders. So, if you invest in another Steinhoff and the share price tanks over 10% because of bad behaviour at the top, you then have the right to claim if you are an InvestSure user. This offering is now also plugged into EasyEquities and is a quick and paperless process. Take a listen to my interview with the team from InvestSure and EasyEquities to find out why they developed this product. – Gareth van Zyl
Gareth: It’s a pleasure to welcome Carly Barnes, the brand manager at EasyEquities as well as Mbulelo Mpofana and Shane Curran who are the co-founders of InvestSure. Guys, from InvestSure’s perspective, can you just tell us exactly what it is? I believe it’s a world first in the insurance and stock market space?
Mbulelo: Yes, it is a world first so, it’s an insurance product. It protects investors who invest in the stock market against losses caused by management, fraud, and dishonesty. So, these include events such as accounting fraud, where directors or managers are misleading you or they breach regulations or laws etc. Recent examples include Steinhoff and what’s happened with the Resilient Group. But the key thing for us is that, as an investor, you don’t have to prove the fraud. As long as the allegations lead to a reaction in the stock market, then that’s what the product covers. So, there’s a trigger point with the product, and we cover losses beyond the first 10%. It’s really an easy way then for investors to protect themselves against management, fraud and dishonesty and we’re hoping that it will really allow people to invest with much more confidence, knowing that this really difficult to asses and managed risk is taken care of by InvestSure.
Gareth: So, did you guys start working on InvestSure before the Steinhoff meltdown happened late last year, or has this been in the pipeline for quite a while?
Shane: Yes, so the idea originated in about late 2016, and then we approached Compass Insurance with it, and they liked the idea and we started working on it at the beginning of 2017 already. It went through a whole product design process, we spoke to asset managers, individual investors, and it went all the way to being approved in Germany. And the biggest question then was: ‘how often does this happen?’ Then pretty much around that time, Steinhoff happened, and then you had, as Mbulelo mentioned, the Resilient Group of companies, EOH, Capitec. So, we’ve just seen quite a pick-up in the number of these events happening recently. So, it’s quite a good time to bring a product like this to market but it wasn’t as a result of these events. This offering makes sense even in normal times because the losses from these kinds of events are normally really large.
So, Shane and Mbulelo, why has nobody done this before?
Mbulelo: So, I speak specifically with regard to insurance. So, insurers typically shy away from anything to do with markets and market risk. That’s because I think the thinking was more around like what you get with derivative products, such as put options, etc. With these options, where there’s a lot of market risk, but we’ve identified a particular risk, which is management, fraud, and dishonesty and that itself is insurable. So, there’s a product in the insurance space called ‘directors and offices’, for example, which responds to similar things but from the company’s perspective so covering legal fees, etc., if they get sued – not the actual people who suffer the losses. So, I think no one had identified the possibility until InvestSure.
Gareth: Guys, can you just outline some of the key risks that your insurance covers, the specific risks?
Shane: Yes, so it’s management, fraud, and dishonesty. In the actual policy wording it’s ‘management misleading and deceiving shareholders’. That’s quite a broad definition so it includes things such as accounting fraud, and management acting in any way where they made out here as if they weren’t acting in that way, and then it comes out that they were.
Mbulelo: Also, a big important one is regulatory and legal breaches so, if you think of MTN and what happened to them in Nigeria. That would be something that’s covered as well.
Shane: Also, the collusion among the construction companies – again, you didn’t know they were doing that. You thought ‘wow, they’re doing so well’ but it turns out they were doing it illegally. So, it’s things like that.
Mbulelo: Yes and another big one is situations regulated by the Competition Commission such as price fixing, within the definition.
Gareth: Okay so, it doesn’t cover pure financial performance issues. So, for example, if you’re company X and you come out with your annual financial results and they’re absolutely terrible. Your revenues are dramatically down, your earnings are down – it doesn’t cover that?
Mbulelo: No, it doesn’t. We specifically focused on this risk (management and fraud) and in our opinion, it’s a really difficult one because people within the company are deceiving you. Whereas when it comes to business performance, a lot of the time there’s more signals and there’s a lot more you can do as an investor to try and mitigate those situations.
Gareth: Just before we get into the partnership with EasyEquities, can you just outline some of the costs as well, and the cost structure? I believe that it’s 56 cents for every R100 invested?
Shane: Correct, and that gives you a year of cover. The product pays out if there is such an event and the share price drops, you are protected from the price at the day before the news – not the price that you actually paid your premium for. So, in the long-run, shares trend upwards and we’re basically saying, we’ll charge you based on the price at the day, but if the price moves upwards you’re covered for that price too.
Mbulelo: Yes, and just to add, at 0.56% so, whatever the value you invest in, we’re charging 0.56% of that.
And is that a monthly fee?
Shane: No, that’s an annual fee.
Gareth: All right, and Carly – so, EasyEquities have now teamed up with InvestSure. Can you explain how the partnership works and why you entered this partnership?
Carly: Well, when we heard about this group of young, exciting South African entrepreneurs and what they were doing we thought they were super innovative and interesting. And as you know, innovation is what fuels us as a business. So, there was that aspect to it from the jump: we loved what they were doing. But then in terms of how that translates for our users and our customers it really made sense as well. A lot of people are really scared to start investing because they’re really worried that they’re going to lose all their money. Now, we’re all about saying that you need to diversify your portfolio. But at the end of the day, no one likes losing money – even if it’s in a diversified portfolio. If you can ensure a part of your portfolio or a share – which you’re really convinced about investing in – then that helps investors with being more confident in terms of taking that first step. And we want all South Africans to be able to have the confidence to invest. The other thing is that insurance is a part of our life now. We insure our cars; we insure our houses, and so it makes sense to be able to bring that into the investment space for our investors. We just want to keep bringing them stuff that helps them build that confidence, grow in their education, and keep investing, and at least start investing.
Gareth: Carly, it’s an interesting partnership because EasyEquities is a pioneer in terms of fractional share investing in SA, and InvestSure is also involved in a world-first here. So, it looks like quite a good match between the two of you.
Carly: (Absolutely, I’ll take pioneer! I’ll get a sash that says, ‘Ms Pioneer’ over here, if you like! ) We’re happy to wear that hat, put it that way, and we’re incredibly proud and excited by anything in that space. We’re fascinated and energised by all the things that are happening in the FinTech space, and this particular innovation was a seamlessly fit into our core business motivation.
Gareth: How do the mechanics work – perhaps this is a question for all of you? If I’m already using EasyEquities or I’m about to use it, is there a lot of paperwork involved? How long does the application take for the insurance? Is it a seamless process between the two of you?
Carly: There are two things that I love. I love that I can insure my existing shares in under 20 seconds – we actually did it the other day. I have some Naspers shares and I added insurance to those shares within, honestly, 20 seconds it was done. So, it’s really quick and it’s really easy, and it fits in seamlessly into the whole process that we have. The second thing I absolutely love is there’s no paperwork involved man! And I’m just so happy about that because for me there is just nothing worse than sourcing the document, scanning, and sending. There’s none of that. It’s all instant and it happens within your account in EasyEquities, so that’s my favourite part about it.
Shane: I think the key takeaway from all the users and all the feedback we received is that it’s very seamless and fits right in there. Like Carly said, there’s no paperwork – whether it’s buying or claiming, you just do what you would normally do on the platform. If you want to add insurance, I think it’s about 3 clicks to get insurance with your share purchase and to claim, you just sell your shares. There’s no admin and you don’t have to go out of your way, and that’s also a key thing when you’re using the product. It’s just seamless.
Carly: And there’s an immediacy to it if you can get insured literally that quickly. And the claims process, I don’t know if you guys want to chat about that, but it’s also really quick.
Gareth: Yes, maybe we can talk about that, just in terms of how that works. So, let’s say that I’ve invested in a company that completely tanks after a management scandal. When can I claim and how long does it take for that claim to be processed?
Mbulelo: We, as InvestSure are always monitoring the news for these sorts of events. We public news board, and you can have a look on nb.investsure.info and we put on there all the sort of events that we pick up that fit the definition of the policy. Once an event is listed, we then send notifications on Friday and Monday. So when Glencore and Capitec, for instance, were accused of fraud and accounting fraud respectively – we put that on the news board and Tweeted about it. We then track the share price reaction to that and if it breaches 10%, we then send all of our clients’ emails telling them that they have the right to claim. They can then go onto EasyEquities and sell their shares within 30 days of that period. It’s literally as easy as going onto your EasyEquities account, and you’ll see there’s a red umbrella around that share – and when you sell your share it will tell you what your claim would be and that’s paid to you pretty much instantly. There’s no admin and to be fair to clients, we work on monitoring it on our side. But if you do feel that something fits the definition of the policy and we haven’t put it on the news board, you can send us an email and we’ll evaluate it against the policy in a similar way that you claim now. But in the vast majority of cases, it’s really going to be seamless. As InvestSure, we aren’t remunerated based on the claims performance – we’re really in the middle here. And we’ll be trying as much as possible to be fair and equitable between the clients and the insurer.
Gareth: Mbulelo, I think you’ve raised a very interesting point there as well, the whole Viceroy and Capitec situation. Obviously, you’ve got the short-sellers who are out there, with a certain intention to gain out of shorting a stock. So, how would you approach those types of situations, especially as Capitec has come out and strongly denied a lot of their claims?
Mbulelo: Yes, so again, a really important concept here is that as an investor, you don’t need to prove the allegation, or the allegation doesn’t have to be proven for as long as you suffered the loss as a result of the allegation. With short-sellers, we’re looking at the market and how they digest that information and whether they believe it or not, and that’s shown through how the stock reacts. The first time Viceroy made the allegations, I think Capitec’s share price lost over 25% at that stage, and it was probably off the back of fears around it being so close to Steinhoff. But with the latest Viceroy report, I think Capitec closed that day up. So as an investor, if you’ve lost money and you sell out of that share we’ll cover you, regardless.
Gareth: Right, and just as the last question, probably for all of you guys, how do you see this partnership panning out over the next 2-3 years?
Carly: I’m really excited from an EasyEquities’ point of view. I’m excited that lots of people pick up the offering on our platform and that it continues to gain momentum. I’ve got no doubt that it will. We’re already seeing a lot of people that have already started using it and we’ve only really been live for a couple of days, so that’s exciting and promising to me. Also, we’re excited to be able to give our investors that continued safety net and to help them build and grow as investors in their own journey and seeing how that works out for them, even if one of these events happen. They can then have the confidence to stay in the market and not get freaked out and abandon investing as a whole.
Mbulelo: Yes, and from InvestSure’s side, I’d say the same. We’re also, really excited to join EasyEquities in their growth. Like you said, they are pioneers in what they do, and it’s great to be partnered alongside them and to be able to learn and develop with them.
Great, thank you so much for taking the time to chat with me today guys.
Carly: Absolute pleasure, any time.
Shane: Thanks Gareth.
Mbulelo: Thanks Gareth.