Ascension Capital
Ascension Capital
EP#7: Investing in Data: The CPB Story
Ascension Capital unpacks their strategic investment in Consumer Profile Bureau, a technology-driven credit bureau revolutionizing data access and financial inclusion in South Africa. The team explains how CPB's innovative approach to data management and identity verification is transforming financial services while tackling the country's R50 billion unclaimed benefits challenge.
• Tech-driven credit bureau providing essential data services to financial institutions
• Management team with deep industry knowledge creating competitive advantage
• Identity verification technology connecting fingerprints to Home Affairs databases
• Helping connect beneficiaries to R50 billion in unclaimed benefits across South Africa
• Social impact through financial inclusion and potentially lower credit costs for consumers
• KYC and anti-money laundering services helping address South Africa's grey-listing challenges
• Co-investment structure requiring careful alignment of investor goals and visions
• Importance of succession planning and managing key person risk in technology businesses
For more information, please visit our website at ascensioncapital.co.za.
For more information or to connect with the team, visit https://www.ascensioncapital.co.za/
Hello everyone. Today we're going to be looking at one of our transactions that we recently implemented, that being our investment into the Consumer Profile Bureau. Today the team will unpack and give a little bit more detail, shed some light onto our investment into this particular transaction. T talk to us about our second asset, consumer Profile Bureau. You know it does fit in quite nicely into our thesis. You know it's very tech driven. There's a lot of innovation there. What are some of the attributes that you personally sort of enjoyed or saw with CPB? And yeah, maybe just take us through the thesis in terms of how we package that and presented that to our investment committee as well.
Tinyiko Semenya:Yeah, consumer Profile Bureau is a bit more abstract than Paul's Muesli. Paul's Muesli, you can touch and feel the Muesli that they make. You can smell the cashew nuts as you're going through the factory. You can see the people who are working on the factory line. Versus consumer Profile Bureau.
Tinyiko Semenya:Cpb is a tech-driven business. It's about data. Data is everything. It's a credit bureau. So South African credit Bureau. And what we like about CPB is the fact that A they have a very strong management team that understands the industry. They know the industry. They know what the data is for, how to access it, who to partner with.
Tinyiko Semenya:So try to put it into an example. So Time Bank, when you open a bank account, you can go and use your fingerprint and that will access all your data in terms of it will ping into Home Affairs, get your ID, it will ping into the latest transactions that you've done. Take your cell phone number and all you have to do is say yes, that's me as a person, and all you have to do is say yes, that's me as a person. So they say, for fintech, the biggest barrier to entry is the fact that, after trying to open an account, you have to go a bank account, to access any kind of account, through just pinging into the different networks and verifying your identity. So that's where the data becomes. Important is they need to understand the full balance sheet of an individual your income, your assets and that's how they are able to identify, give you a credit score and just really bring more information to the financial institution that wants to sell you a product. And it's all data. It's all data and we love that. The management team, they understand what the data is being used for.
Tinyiko Semenya:And other elements that we saw was around pension funds and unclaimed benefits.
Tinyiko Semenya:So in South Africa we've got I think it's more than 50 billion 50 billion in unclaimed benefits in South Africa, where there are individuals who either pass away and there's no way to track their beneficiaries in order for them to access whatever life insurance funeral policy that they might have, and so CPB is able to ping into a village all the way in Venda just by putting next to the school Matebo and that will identify that person.
Tinyiko Semenya:And it's just around getting enough data around that individual that they can actually find individuals in South Africa in locations where it's difficult to put down an address. It's something that's a village, a stand. So we like the unclaimed benefits them being able to just track down members and being able to, you know, access the funding that they have it's theirs, they just can't access it because they can't be identified. So yeah, CPB it's abstract because you can't touch and feel it, but it's data-driven and that technology is powerful in that, like we said, our investment thesis is around meeting or enhancing a human need with the technology underpin, and CPB really speaks to that technology underpin.
Kabelo Moja:Fantastic, yeah, caps co-investments this is one opportunity where we you know we did partner with another investor as well, with another investor as well. Any insights in terms of lessons learned or you know things that you would do differently? You know any sort of key learnings out of that co-investment?
Kabelo Senoelo:how much time do you have? Yeah, I think it's, you know it's. It has its advantages and disadvantages. I think in terms of you know advantages, I'd say you at least, sharing what we refer to as risk with someone else, but I think you know the way you share that risk is quite important in that you know you can have majority versus minority stakes that you take up, and I think you know the one lesson that we've learned out of that is you know, I think it's important to have equal shared risk, if I can put it that way. I mean, um, for example, with paul's musely, we've got an equal share with the founder, or almost an equal share, um, so no one party actually controls the investment. Um, I think the one lesson that we we've learned quite heavily is is having the ability to actually influence decisions, um, even as a smaller shareholder. But I think you know we can talk about minority protections and the likes, but those are almost become like a legal sort of exercise in terms of decision making at a point in time. But there's also the call it, the nature of how minority versus majority shareholders behave, which is a big element in all of this. So the one lesson that I think we took out of it is, you know, we almost want to be part of the process at initial stage and control the investment process with our fellow shareholder, and that ensures alignment from the beginning so that all decisions that are made, you know, we essentially ensures alignment from the beginning, so that all decisions that are made, you know, we essentially are there from the beginning. Um, and then I think the the big, the other big thing is just in relation to understanding, you know, your fellow shareholders goals and visions.
Kabelo Senoelo:Um, you know, I think you can have differing sort of investment horizons, if I can put it that way. For example, we are limited fund life, we need to exit at some point and I think it could be a bit difficult if we invest alongside, let's say, an investment hold call, which is much more long term and is not driven particularly by returns but driven particularly by, let's say, dividends. So that could hamper our returns, specifically in the sense that maybe we want to invest, reinvest dividends into the business for further growth. Our fellow shareholder might say, you know, we actually just want to get dividends out, because for us this is a purely cash generative business and and that's how we see it it will grow at the same rate that it's got. It's grown historically. We want to look at it growing. You know much more than that and that could hamper our growth strategy, our growth story as well.
Kabelo Senoelo:Um, so I've touched on the advantages and disadvantages, but I think it's u, yo kno yo a almost have to assess each case on its own merits but, most importantly, also doing DD on your fellow core shareholder, if I can put it that way. It almost becomes another layer of DD in addition to the management team and fits a lot into culture. And you know goals and visions in terms of where the business could be going.
Kabelo Moja:T had mentioned earlier on. You know goals and visions in terms of where the business could be going T had mentioned earlier on. I mean this is quite an abstract tech-driven business. So I think from an ESG perspective, you know there's very little touch factor to it. You know, from a carbon footprint perspective. I'm going to take you back to the due diligence on CPB specifically. I mean, you know one of the key themes I remember was just around the cybersecurity risk as well. But do you recall I mean just your experiences in terms of interacting with CPB, you know, leading up to the transaction and even post-implementation?
Naairah Motala:Maybe just some thoughts around what that has looked like from your perspective, so, so from my perspective, I think it's all about access to data and also sourcing alternative data sources, because I think we've got a very large unbanked market in South Africa. So the ability to rate potential consumers or give consumers access to financial products, it's a completely different market. So I think that's where the value comes in in CPB. That's where the value comes in in CPB. And, touching on ESG, yes, there's not such a big environmental impact, but the social impact is quite huge when you think of it from themes of financial inclusion and even potentially lowering the cost of credit to consumers, because the more accurately you can rate potential consumers, it actually prices risk appropriately and that will result in a lowered credit cost to consumers.
Naairah Motala:Yeah, and it's giving unbanked consumers or consumers that wouldn't necessarily have access to financial products that access. And then Tiniko mentioned the unclaimed benefits, which is another amazing initiative the role that they have in terms of anti-money laundering. So South Africa has been graylisted, so there's extreme enhanced scrutiny when it comes to FICA anti-money laundering regulations and requirements required by companies. So another element of CPP's business is the KYC services. So that actually is a step towards enhancing and addressing those risks that are very prevalent and you know, hopefully will assist in moving South Africa out of the grey listing.
Kabelo Moja:I mean, has the re been a tangible uptick performance wise? Just given the gray listing issue, I'll just open it up. I don't know if anyone wants to take that, but you know, there is a certain period of time I think that we have as a country to sort of mitigate and demonstrate that we've mitigating. You know the perception around, you know not having, you know, robust structures from a kyc perspective, and I'd like to think I mean CPB definitely plays a role and has an impact in that space, um, um, but I mean just tangible performance-wise numbers. I mean, has there been an uptick that we've seen? Yeah, kev, yeah, no definitely there has been.
Kabelo Senoelo:So if we look at just a breakdown in the revenue lines, we do see quite a huge increase in the KYC, anti-money laundering sort of revenue lines that's. I mean it's almost grown grown to over 200 percent essentially, u. And if you think about it, so since the gray listing, the number of accountable institutions have obviously increased, so, which means that you get a lot more inquiries from parties that were not previously accountable. So I mean, you know parties like estate agents, for example, need to do um fee cut, fee cut checking and on potential buyers, right, because those are ways of people you know doing money laundering. Um, and I I do think that going forward we will still see that revenue line growing quite a bit versus your traditional credit inquiries and the like. So definitely there has been an improve, well, and a big increase in that in that revenue line.
Kabelo Moja:Yeah okay, from my perspective, I think one thing that's u sort of come out of the investment into CPB is just u and T, you had spoken a little bit about it just u, the succession conversation you know with um, you know upskilling talent, in-house um, and and just making sure you know we have the capability to um, you know, allow for that next layer of of management to sort of step in and step up. How important is succession, but just the importance of thinking around succession, you know right from the outset.
Tinyiko Semenya:Succession planning is so important, and what we're realizing is a lot of the great businesses that you invest in have founders who've been part of that business for 20-plus years, and so they have a way of doing things and the succession planning below them. You need to ensure that there's a strong management team that can also, you know, finally be in their seat and, more importantly, that thinks differently, because sometimes the same way of doing things is not necessarily the right way of doing things, and we're here to get the business to another level, and so you are going to need a CEO who can think differently. And I think the tough thing is identifying that individual. Who's the next person who's going to succeed the founder or the CEO, particularly if that CEO has been there for plus 20 years and it's really around spending time with the management team. So, you know, we try to understand the management team in terms of what motivates them, how do they relate with the other employees as well, because that's very important, because once they step into that role, then they need to be the leader. Do they have the right leadership skills to be able to lead the business to the next level? And it's a tough thing to identify from the onset. You know the outset. You honestly need to spend time with the management team, but what we have learned is that you need to make that decision quickly because the more things stay the same, the more things brew in terms of people and their expectations. And in order to manage expectations, you need to be very clear around what the next succession plan is going to look like and what developing whichever individual that you identify for that succession plan to start doing in order to get into that seat.
Tinyiko Semenya:So I think a critical thing for me in terms of learning is the succession plan needs to be clear even before we enter as shareholders, so that we know who we're going to put into that seat of CEO. And we've actually looked around the market. We know the right person because that conversation needs to happen very quickly. It's the whole thing around. That's why there's a library of CEOs and culture and talent acquisition and stuff, and they all talk about hire quickly. You know and make sure you have the right person, and I think that's key for us. From a CPB perspective, we're looking at the current management team because there's something about being within a technology business and just having that institutional knowledge. It's very difficult to bring someone externally, and so we have to look internally for CPB While there is scope to bring in someone externally, it's very important that the institutional knowledge remains in the business.
Kabelo Senoelo:I just want to add to T's point around succession.
Kabelo Senoelo:I think beyond succession itself, there's also managing key man risk as well, right, which is quite a key thing from a call it investment risk perspective, because you might have that one or two individuals that have, you know, um, very deep institutional knowledge. But I think it's important to always look at essentially ensuring that that institutional knowledge is shared with other people in the business. Um, I mean, I don't know if any of us have experiences I've certainly not experienced it but if you lose that one key person in a business, it can be quite catastrophic for that business. Either from you know, managing client relationships, having institutional knowledge around operational matters, being potentially the only leader in the company that can take initiatives. So succession planning becomes important even from that element of just managing that key man risk, and I think it's something that we always assess initially at investment stage.
Kabelo Senoelo:And I think to T's point around ensuring that that expectation is also managed before it's, ensuring that those individuals that have that key man risk understand that they're the key man and that we need to mitigate that risk, because people might also look at it differently, you know like, oh, I'm being replaced, so you know which might I'm you know I'm being replaced, so you know which might create a different kind of perception. Um, but it's for the. It's for the benefit of themselves as well, to ensure that they're not carrying a lot of work. Or you know a lot of initiatives, u, that are not shared with everyone else, because it also benefits them even from an exit perspective. Any investor coming in would look at that and that could potentially be a risk that could result in us essentially selling at a lower price, because we've identified key man risk as a big risk.
Kabelo Moja:Yeah, yeah, yeah, right. So we've gotten some nice insights and I think, on that note, we'd like to just thank the entire Ascension team for all your inputs really valuable and I'd like to thank everyone who has subscribed and is listening to this podcast as well. Please do stay tuned for more episodes, and we will certainly be having some more interactive sessions. For more information, please feel free to reach out to us on our website, ascensioncapitalcoza. Thank you, everyone.