Digital economy to the rescue

Written by Ciaran Ryan. Posted in Journalism

Until now, ‘going digital’ was still a discussion point for many businesses. Now it’s the only reality. From Moneyweb.

In years to come we will evaluate the world as pre- and post- Covid-19, in much the same way our calendars refer to BC and AD. Image: Bloomberg News
In years to come we will evaluate the world as pre- and post- Covid-19, in much the same way our calendars refer to BC and AD. Image: Bloomberg News

Last month Pick n Pay launched an online scheduled delivery service to help quarantined customers get their grocery essentials. Customers can select the products they want delivered routinely, and have them delivered on a set day of the week or month.

Last week it upped the ante, announcing the introduction of its new same-day grocery delivery app. This came shortly before President Cyril Ramaphosa announced that the country’s lockdown was being extended by two weeks – for a total of five weeks.

Read:Pick n Pay launches online scheduled grocery deliveryLockdown: PnP launches same-day grocery delivery

In November last year Shoprite launched a one-hour delivery service called Sixty60. Makro has offered online buying for years. Takealot resumed online selling of essential items at the start of this month, after a brief shutdown in March.

Officially, South Africans do just 1.4% of their buying online according to card company Visa, but that figure is likely exploding during lockdown.

While the real economy could contract 10% for calendar 2020, it is already likely down 40-50% of normal production for this time of year and will require a robust reboot later in the year to salvage the country from an economic wipe-out.Read: SA economy could crater up to 10% this year

That’s not to say that segments of the economy aren’t booming. Content streaming services such as Netflix, anime content provider Funimation, Prime View and Disney+ couldn’t be happier as millions plonk themselves in front of screens to stave off boredom during lockdown.

As Moneyweb previously reported, online conferencing tools such as Microsoft Teams, Zoom, Google Hangouts and Slack are having to scale up to handle a massive increase in new subscribers.

Read: Look who’s winning during lockdown

Global Internet Protocol (IP) traffic, a proxy for data flows, grew from about 100 gigabytes (GB) per day in 1992 to more than 45 000 GB per second in 2017. And the world is only in the early days of the data-driven economy; by 2022 global IP traffic is projected to reach 150 700 GB per second, fuelled by more and more people coming online for the first time and by the expansion of the Internet of Things (IoT). That’s according to the 2019 Digital Economy Report by the United Nations Conference on Trade and Industry.

Events go online

Conferences that were planned for this time of year have been postponed or have gone online. The SA Institute of Business Accountants (Saiba) moved its planned Practice Management Conference online, making it available to its 10 000-plus members scattered across the sub-continent.

Nicolaas van Wyk, CEO of Saiba, says in years to come we will evaluate the world as pre- and post- Covid-19, in much the same way as our calendars refer to BC and AD.

“Everything is digital now. Going digital was only a discussion point for many businesses but now it’s the only reality. A shrinking economy means fewer sales and if we want to maintain profit levels the only thing left is cost cutting. Digital technology empowers you to do this.

“Our whole business environment is undergoing a cataclysmic transformation. As a result, we see clear fault lines appearing.

“As a service organisation we handle hundreds of membership applications each month. These will now all be automated. Support will be provided via video and robots with consultants having to focus on sales.”

Performance will count for more

Van Wyk says many companies will be forced to overhaul their remuneration models, with salaries based on sales rather than hours spent. Companies are going to have to work smarter and harder to attract clients.

The post-Covid environment will drive convergence with a sense of urgency.

“Combining and integrating service sectors will become the norm. As a professional body we will sell memberships, insurance and software,” he says.

Slow-mo services get fastracked

Even government departments are having to embrace digital engagement with urgency. While the South African Revenue Service (Sars) has offered eFiling of tax returns for years, Namibia required source documents for Vat to be hand-delivered to its offices in Windhoek.

Since lockdown, these can now be submitted electronically.

Sars has closed its physical offices and opened electronic channels for virtually all services, including disputes, complaints, account queries and requests for statements of account.

Service companies such as law firms, accountants and consultants have been subjected to a crash course in remote delivery and digitalisation.

Banks too are having to accelerate the roll-out of their digital platforms as reports abound of customers seeking loan repayment holidays being unable to speak to a banking consultant. This opens the door for online competitors and fintechs with more flexible lending arrangements that typically offered by banks.

Hands being forced

A Gartner survey of 192 chief financial officers and finance executives in small organisations suggests 54% of them plan to slow payment to vendors to preserve cash in the coming weeks. Larger organisations are already drawing down on existing credit lines, while smaller organisations are twice as likely as large organisations to withhold rent for April and May.

Another Gartner study shows three-quarters of companies surveyed plan to shift some employees to remote working permanently as part of cost-cutting.

Expect to see more office rental space going for bargain prices in the coming months, while real estate prices take a tumble.

Fintech companies offering short-term financing to cash-strapped businesses are being slammed with online enquiries for help.

Responsiveness a growing advantage

The advantage some of these companies offer over traditional banking is a fully automated application process with a turnaround time of 90 minutes or less. For that the company applying needs QuickBooks Online or a similar accounting package, or if that’s not possible the company’s bank statements, which allow the fintech to plug into its financials and make a rapid risk assessment.

Bridgement CEO Daniel Goldberg says the speed with which applications are assessed and money transferred to borrowers contrasts with the typical banking process, where reams of documents are required, often resulting in delays of weeks or even months before loan applications are accepted or rejected.

“Especially in these times, businesses need quick turnaround times and a simple application process. They are struggling to meet their month-end payroll, and are having to stretch their creditors.

“They cannot wait weeks to find out if their application has been successful or not.”

Bridgement’s average loan size is R500 000, either through revolving credit facilities or advances of up to R5 million available through its invoice discounting scheme.

A week ago, Business Partners went live with its portal accepting applications for R25 000 grants and interest-free loans for 12 months (whereafter loans are charged at prime lending rates) but shut it down after a few days after being 2.8 times oversubscribed.

Surprisingly, only 60% of the R100 million set aside for grants had been taken up, probably because of the need for sole proprietors to be tax-compliant.

Compliance versus educated prescience

Bridgement and other fintechs are less concerned about tax compliance or the so-called commercial solvency test being imposed on applicants for small business funding at Business Partners and other official providers of assistance to small businesses. Goldberg explains that solvency can easily be misinterpreted: many companies get through brief periods of insolvency as a result of seasonal trading patterns. Such tests do not mean it is unable to repay its bills.

Another fintech riding the digital wave during lockdown is Merchant Capital, which has an online application process and an approval process that is usually completed in hours. Founder and CEO Dov Girnun says the company has seen a spike in enquiries for short-term funding as a result of the lockdown.

“We’re not lending recklessly, and our focus right now is on essential businesses.

“For example, we are trying to support essential businesses with working capital to ensure they have sufficient stock on their shelves to match the demand. Supporting non-essential businesses such as a restaurant that is shut down because of the lockdown is more difficult.”

Merchant Capital’s loan repayment model also makes it attractive for businesses that might have short-term cash flow problems, particularly for retailers: it takes a small percentage of every card or electronic purchase until the loan is settled, which makes it less painful for business owners who are experiencing lower turnover due to the Covid-19 pandemic.

Once 70% of the loan has been repaid, the borrower qualifies for a new loan on the same terms or better. Four out of five borrowers come back for second or third loans as their business expansion requires, says Girnun.

It’s naive to imagine the world will return to normal once the Covid-19 crisis has passed.

Virtually every aspect of our working lives will have changed. Bills will be delayed and some may never be paid as potentially thousands of businesses go bust. Workers will be nervous about their jobs and union power will surely be weakened. Confronted with this emergency, however, companies can now attack costs in a way that was inconceivable just two months ago, through enhanced use of technology.

As some doors close, others are opening – and they are increasingly likely to be online.

Most common payment methods of online shoppers in South Africa as at January 2020

Source: Stats SA

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.