In an environment where small business enterprises struggle to get loans from banks, Louis du Plessis and his company, Pollen, are pioneering the use of financial technology in South Africa to boost their chances of success. Jaco Leuvennink finds out how it works.
Whenever and wherever the development of small business is discussed, entrepreneurs’ demands for easier access to capital in South Africa inevitably comes to the fore. A newcomer from Stellenbosch is now addressing this age-old problem.
The pioneering newcomer is Pollen, an innovative online business lending company founded by Louis du Plessis and with the financial backing of his brother JP, the CEO of the Anglo African Group, a South African investment company based in Stellenbosch. Pollen is forging ahead in the financial technology (fintech) space to help eliminate lack of finance as the primary inhibitor of economic growth and job creation in the small and medium enterprise (SME) market – a service that South Africa desperately needs.
Pollen has been tailor-made for this country. With Louis’s drive and innovation, coupled with the experience and knowledge of the older JP, Pollen is ready to tackle the serious lack of short-term finance for SMEs. In doing so, it empowers entrepreneurs and is a vital breakthrough for the growth of these businesses.
The two Stellenbosch brothers answered some of Stellenbosch Visio’s questions:
What was the idea behind the founding of Pollen?
Pollen was set up in July 2015, with the backing of the Anglo African Group, to provide simple and quick finance to the SME market. The pricing is simple. The product is simple. The service is fast. If you go onto the website (www.pollenfinance.co.za), you’ll see what it entails. Although it’s really simple, it’s new to the South African market.
Companies that have been in business for at least a year, have a turnover of at least R1 million per annum and have their own business premises or a successful lease history can apply for unsecured, short-term loans from R50 000 to R1,5 million using Pollen’s website. The loans are for a period of six months, with weekly repayments at a fixed rate of 25%. The client knows exactly what he or she will be paying. There are no changes in the interest rate. It doesn’t matter if you are a big client or a small one. If you borrow R100 000, you will pay R25 000 interest, with a total repayment of R125 000 in 26 weekly payments.
What has been the response to Pollen since its inception?
Since July 2015, Pollen has supplied loans of R100 million (65% repeat business) against a projection of R10 million. The response from the market has been overwhelming, just from Google ads and our website.
What makes Pollen different from other business lenders in South Africa?
Pollen is the first company to bring fintech online lending services to the South African market. Fintech is a new way of funding, using a technology platform to provide financial services for SMEs within days and eliminating the fear factor for them.
The interesting thing is that we can’t do direct marketing by distributing fliers. People don’t want to be seen borrowing money. But they can do this privately, online, instead of going into a bank and then waiting for three months – and maybe not even getting the funding. Pollen’s specially tailored technology platform – based on the model used by the successful US fintech company OnDeck – enables it to vet potential lenders and make a decision on their application within three days. Approved loans are paid out within the same timeframe.
Applicants simply go to Pollen’s website, complete an application form and a Pollen consultant will contact them by telephone and run through the whole process with them. The client will also have to provide readily available documents, such as bank statements and general business information available to all business owners. Unlike some lenders, we do not require financial statements, which may not be available. There is enough red tape for SME owners already.
How has fintech developed globally?
Fintech is big business in the US, where it began nearly 10 years ago. SMEs account for 54% of domestic sales and 55% of all jobs in the US, but they are vastly underserved by banks, which are either unwilling to take on the risk of an unsecured loan to a small business or are unable to carry out credit vetting quickly enough. OnDeck has provided more than $4 billion worth of loans to the American SME market since its inception in 2007. Six months ago, OnDeck also entered the Australian market, where it has already established a substantial market share. The market is projected to quickly double in size.
Does fintech funding then take the place of traditional bank loans?
No. Fintech financing is an add-on service for SMEs. It is short-term funding that businesses can access for specific reasons. This funding is available immediately and does not take clients away from banks. Banks created an opportunity for us. It’s not their failing, but they can’t do what we can do. Internationally, banks are starting to partner with fintech companies. OnDeck Australia has partnered with Commonwealth Bank Australia, which passes on applications for extra funding to OnDeck. A recent visit to Australia confirmed that fintech crops up in the media every day. All the banks are catching up.
Isn’t the 25% rate expensive?
The 25% rate is accepted globally as consistent with the risk-reward factor for the lender, but it is expensive in comparison with a traditional bank facility. Pollen, however, provides a benefit that a traditional facility cannot offer: access to funds within three days of applying. This is a significant benefit as it enables the business owner to act immediately on a profitable opportunity that might not be available in a few weeks’ time. The majority of SMEs have substantial margins on their products or services. By using the Pollen product correctly to negotiate a discount for cash with a preferred supplier or by servicing an increase in demand (seasonal or organic), business owners can make much more than the once-off interest charge of 25%.
The loan is also short-term and designed to be used for a specific purpose. For example, a coffee shop sees a large increase in traffic. Customers come in and queue. The owner can apply for fintech financing and use it to purchase a new coffee machine. Within days, the business is generating money from that coffee machine.
Another plus is that Pollen is a limited-lifespan, six-month product. Once you have paid back the money after 26 weeks, you don’t have to use the product again if it does not work for your business. There is also a discount for early settlement.
Given the bad press the personal loan sector has stirred up with regard to unsecured lending in recent years, why should clients trust Pollen?
Pollen has the backing of Anglo African Trading, which has been financing SMEs since 1994. With the Anglo African connection, we have quite a bit of experience and background. Pollen is also in the process of registering with the national credit regulator, even though as a business lender we’re not required to do so.
Why is Anglo African backing Pollen’s fintech business model?
Anglo African knew there was a large vacuum in the South African market because banks vastly under service SMEs. There are an estimated one million registered SMEs in the country, 63% of which have Internet connections, giving a total market of 630 000. With an average loan size of R300 000, the potential market is worth about R189 billion. Banking is a traditional system created to service medium to large companies, not small to medium ones, which need to move quickly to take up opportunities straight away. Banks can take a month or two to carry out credit vetting and at the end of that period their answer could still be ‘no’. By then the opportunity might be lost. Fintech companies use technology to carry out credit checks and provide an answer within days.
Does Pollen work for small and medium businesses?
Results speak for themselves. The repeat business rate of 65% is a serious number. The major benefit of Pollen is that it gives SMEs an extra option. There is a saying that ‘it’s easy to make money if you have money’. This hidden option looks differently at business. For instance, a Pollen loan could enable a retailer to expand before December and buy bulk stock for the holiday season. It puts the entrepreneur in a position of power, contributing to what South Africa needs so badly. It enhances his entrepreneurial ability.
It sounds like fintech could be a major factor in boosting South Africa’s economy?
Absolutely! We are confident about South Africa and investing in the country, but we do have problems in terms of getting our gross domestic product (GDP) going. There’s a lot of space in the lending market in South Africa and hopefully, hundreds will join us and stimulate the SME market. SME growth in this country has been slowing over the past three years, just as it has in the US. Yet 50% of South Africa’s GDP comes from the SME sector, which also accounts for 60% of employment. Unemployment is a big issue here, as is GDP growth if the country is to avoid a ratings downgrade. South Africa desperately needs entrepreneurs to boost the economy and create jobs. But they need funding money and that’s where Pollen comes in
The Du Plessis brothers
The business career of JP du Plessis has spanned 30-odd years and is defined by the conceptualisation and development of a number of innovative new business models for the finance sector, with backers such as Rand Merchant Bank and Sanlam. His business motto is: “Always ensure that any deal is equally beneficial to both parties. This will ensure long and prosperous business relationships.” JP and his wife, Elise, live in Stellenbosch and have two daughters and a son.
Born and raised in Stellenbosch, Louis du Plessis attended Paul Roos Gymnasium in Stellenbosch, where he was head boy in 2002. He graduated with a B.Com from Stellenbosch University, stayed in Majuba residence and played rugby for Maties first team from 2004 to 2007. He started his business career by joining his older brother at Anglo African Trading as an accountant for the investment company.
South Africa undoubtedly needs continuous growth, hundreds of thousands of jobs, massive skills development and a lot less reliance on government and big business to fuel economic growth. This is where fintech can start playing a major role. In the US, it is estimated that OnDeck’s first $3 billion in loans to small businesses generated R11 billion in economic impact – that means for every $1 OnDeck lends, the economic output is $3.62 – and more than 74 000 jobs were added to the market. In South Africa, Statistics South Africa estimated that small businesses accounted for 27% of the R2 100 billion turnover in the private sector in the last quarter of 2015. Medium businesses contributed another 9%. More than 60% of jobs are held in the SME sector.
Written by: Jaco Leuvennink