Leading empowerment investment holding company African Rainbow Capital (ARC) and one of South Africa’s leading alternative asset managers, Ethos Private Equity have jointly announced an investment of R200 million by the Ethos Artificial Intelligence (AI) Fund and co-investors (jointly Ethos AI Fund) in recently launched digital bank TymeBank. The bank is majority owned by ARC.
The transaction is subject to all conditions precedent being met.
In a separate transaction, ARC will invest R100 million into Ethos AI Fund. Existing investors in the Fund include high-net-worth individuals, family offices, as well as institutional investors. The strategic rationale for ARC investing in the Ethos AI Fund is to provide ARC with access to an ecosystem where new technologies in support of the Fourth Industrial Revolution are optimally commercialised.
The investment by the Ethos AI Fund in TymeBank will result in the Fund being an 8% shareholder in the bank. The transaction value was agreed with Ethos management before the bank was formally launched in February 2019. Since TymeBank was launched, more than 400 000 clients have signed up for bank accounts, which should lead to a considerable increase in the enterprise value of the bank. Customer acquisition achievements are significantly ahead of targeted projections and the bank is well on its way to achieve 500 000 clients by July this year.
The current remaining shareholders in TymeBank include ARC, the founders and executive management of TymeBank, and a staff trust.
TymeBank has positioned itself as the leading low-cost transactional bank to the mass market segment. Consumers in this segment are traditionally under-served as well as under-serviced. The bank has an unrivalled low-cost operating platform as a result of its innovative use of technology and its strategic relationship with Pick n Pay and Boxer stores, all geared towards offering customers a compelling banking value proposition. Following the AI Fund investment, TymeBank will also benefit by having access to a pool of knowledge and experience in the use of artificial intelligence.
TymeBank and its controlling shareholder will embark on the next phase of capital raising to facilitate the growth of the bank.
Roger Grobler, the Ethos AI Fund Partner, commented:
“The Ethos AI Fund invests in businesses that will benefit disproportionately from artificial intelligence, primarily in the form of algorithmic decision making. These algorithms typically help organisations make high-frequency decisions that are often not suited to human capabilities due to the computational complexity and breadth of the data used.”
He commented further:
“For the Ethos AI Fund, this investment represents much more than capital. In TymeBank, we see a highly innovative, highly ethical approach to digital banking, which puts South Africans back in control of their money, while promoting inclusive economic growth for the country. Together with ARC and TymeBank management, we believe that by leveraging AI’s algorithmic capabilities, we can enable TymeBank to rapidly scale its business with more appropriate products, at a lower cost and with superior service levels.”
The Ethos AI Fund investment in TymeBank will result in representatives of the Fund joining the board of Tyme Global, the international business of TymeBank where its technology is housed.
Johan van Zyl, co-Chief Executive Officer of ARC, commented:
“As TymeBank’s controlling shareholder we are pleased with how TymeBank management is executing the agreed strategy. The operational results, such as client acquisition rates, achieved thus far have exceeded our expectations. As the majority shareholder in TymeBank, we are required to think ahead and introduce like-minded strategic partners to enable us to achieve success over the longer term.
“Together with these co-investors and partners, we can significantly enhance TymeBank’s products and services to the benefit of its clients. This would be to the benefit of clients. If we achieve this, we are likely to on-board new clients over a sustained period of time and therefore meet the objectives of our business case.”
Coen Jonker, TymeBank co-founder and current chairperson of the TymeBank board, commented:
“We are delighted to have the Ethos AI Fund as a co-investor alongside our majority shareholder ARC. A key strategic pillar of our success is our access to and use of unique technology. This has made TymeBank a significant contender in the market. This investment from the Ethos AI Fund will strengthen our focus on technology and it will likely cement our current leadership position as the lowest cost banking service provider to consumers.”
ARC has as a key strategic focus long-term exposure to a retail bank as it complements its financial services strategy which covers insurance, asset management and specialist financial services.