🎧 S2E1 | Nicola Comninos, Chief Risk Officer, The Purple Group Ltd

In this conversation, Nicola talks about Purple's recent positive financial performance, how it incentivises good investment behaviour on its EasyEquities trading platform, and group risk management.

Nicola Comninos, Chief Risk Officer, The Purple Group Ltd

FULL INTERVIEW TRANSCRIPT

Chipo Muwowo: Great to see you, Nicola.

Nicola Comninos: Thanks Chipo! Great to be here with you.

Chipo Muwowo: Fantastic. Now, Nicola, we're going to just start thinking about The Purple Group, so the overall umbrella company. It recently reported some really strong earnings results for the six months to February 2024. Overall group revenue was up 29% and this was reflected in the company's share price, the sort of positive market reaction to the news. Can you just give me a sense of what's been behind the turnaround from last year?

Nicola Comninos: Great, thanks and lovely to have this opportunity to chat and share a bit more about who we are and what we do. So I think just maybe to take a step back and just position us in terms of who we are. We are a company that's been around for over 20 years. So that's Purple Group Limited, previously known as Purple Capital. We're a financial services and technology group. We essentially pride ourselves on being labelled as a fintech startup group. We've got a whole host of legal entities in the group that we've proudly sort of co-started up with others that we've partnered with in the industry.

The flagship business that we can talk about is EasyEquities, who's turning 10 years old this year. Some of the other businesses in the group is like EasyCrypto that's been around for nearly six years. EasyProperties has been around four years or so, and then there's a couple of subsidiaries that have been around from the start of Purple Group like EasyAsset Management and the GT247 business. So yes, there's a whole host of companies in the business so talking about revenue drivers can get quite, you know, you've got to have the context in terms of which legal entity and which economic factors have impacted the most. One of the subsidiaries I haven't mentioned now that is actually a joint venture of a company that we built with NBC is RISE, EasyRetire, which is a business which essentially offers multi-manager services as well as a fund administrator, plays mostly in the institutional space. So pension funds, provident funds, offering them asset management services as well as fund administration services. So that business is now 100 % within our group […] we've bought out our partners on the NBC side, and so that really helped us with the uptick in terms of institutional revenue with the amount of institutional assets from that side.

So if you have to really pin it down to sort of three core drivers for this last six month interim results, we have seen our net asset value of our retail clients, which is the core sort of EasyEquities business where we run the SatrixNow platform, which is through our partnership and one of our major shareholders, Sanlam Investment Holdings. We've got other partnerships with Discovery Bank, Capitec, Telkom, all well-known brands in South Africa, and so those retail assets went up from about 30 to 35 billion [rand]. Some of it market movements, but some of it new assets and new clients. The second construct of it was RISE, which is the multi-manager business that I've just mentioned. We've seen institutional assets, very healthy growth from increasing from 12 billion to 16 billion. So that takes our total asset base from 42.5 to just over 50 billion, about 51 billion [rand]. And obviously we earn a number of different types of fees, some of them fixed fees, some of them asset management fees.

And so the third sort of core driver was actually one of the subsidiaries that I've mentioned, which is EasyCrypto, where we've seen just because of the crypto price, there's been an increase in terms of the asset management fees. So sort of in a nutshell, on the EasyEquities side, we introduced a new fee called a Thrive fee, which is sort of a monthly type platform fee, and that fee has contributed to the revenue line on the EasyEquities side. We've also seen the growth in assets as I've mentioned, then it's the EasyCrypto and the asset management fees that increase there, mainly driven off the back of increased crypto asset prices, and then the RISE business, which is really we've seen an inflow in new clients as well as new assets on the asset management and administration side.

Chipo Muwowo: That's really helpful context, thank you. I just want to focus on EasyEquities and the introduction of Thrive that you mentioned. Can you just give me a sense of what, I guess, the benefit is to users?

Nicola Comninos: Yeah, sure. So I think maybe before I dive into Thrive, it's also good just to get context of our business. So EasyEquities is a business we established 10 years ago in 2014. The whole idea behind EasyEquities is really to democratise investing. So it's making investing easy and accessible to everyone. So we have an online share trading platform, we have an app that is very focused on user experience, making it fun, engaging, unintimidating, not using a whole host of jargons and fancy words. We've kept it extremely low cost. We've got no minimums and we push through a whole lot of educational material to help investors along the journey. So you've mentioned the EasyEquities Academy that is linked to Thrive. So the more courses you complete through EasyEquities Academy, the more points you can build up and then you can get your Thrive fee essentially completely discounted depending on your trading behaviour.

So Thrive is really a program that is wanting to encourage investors to take ownership of their financial future. So to build and protect their own wealth because everything that we are built off in terms of our core purpose statement as EasyEquities, wanting to democratise investing, making it accessible to everyone, it doesn't matter what age you are, what gender you are, where you are in your life or your career, we want you to be able to be open an account and be able to invest in the markets. And the way we were able to unlock that when we established in 2014 was by the establishment of a concept that we have also got royalties on and we specifically [are] the only entity that's able to use that currently in South Africa, which is Fractional Share Rights, FSRs, which means that similar to… it's quite a well -known concept to buy fractional shares in the US market.

We've introduced that concept in South Africa, and so if you want to buy any share listed on the JSE, you have no minimum amount that you'd have to put in. So irrespective of what the share price of a company is, you can put in as little as one rand or five rand or whatever amount you have available. And that means then that every individual won't have anything holding them back to invest. But the way that we achieve that is that at that point in time, we had no platform fees. There was no Thrive fee and that's obviously about 10 years ago. Last year only we've introduced that fee. And if you look at the products and services that we offered sort of 10 years ago versus now, it's a completely different platform.

We started off with about 10,000 clients roughly, about a million rand of assets, we only had about 30 staff across the whole Purple Group. Whereas [as] we look today [in] 2024, we've managed to attract close to a million active clients. We've got over two million registered users on the EasyEquities platform, 35 billion [rand] in terms of assets, and then over 200 staff members that currently looks after the business. And that's for the whole Purple Group, obviously, in context. But the way we've been able to attract those two million registered users, and then obviously just under a million active users, is really because of our user experience being the key thing that drives our innovation on the platform. So making it fun, engaging, unintimidating for investors, and hearing them and getting feedback from them.

Now the Thrive fee is really there to encourage good investment behaviour. So, you don't pay the fee if you deposit more than what you withdraw as an example. There are a few metrics that you can use that gives you discounts on that fee. This month we're running crypto month, so as an example, if you complete all of those EasyEquities academy training courses on crypto, which took me about five or 10 minutes, it's all video based, very easy consumable material, then you get to thrive level 10 and you only have to be at a lower level to be exempt of the fee, so that helps you then with discount brokerage fees as well.

So that's the one element. The other one is if you refer clients, then you can also get discounts on the fee. So it really is to encourage you to have the right investment behaviour. Also, if you invest your full tax -free savings amount, which is in South Africa, you can invest up to 36,000 rand a year in a tax-free savings account, and if you do that max amount, you're then exempt of the fee for the year. So we really just want people to invest in their wealth, not just open the app and sit with it and don't take any action, and so that's really the concept behind that is really a loyalty type program and wanting to influence our investors’ behaviour and we've seen a very positive reaction to it. There were some sceptics of course, clients that historically didn't have to pay a fee, now there's this perception of a fee, but if just deposit a larger amount than what you've withdrawn that month you can easily be exempt of that fee.

And so we've actually seen a large majority of our client base being exempt because they do take advantage of completing training courses, and then we've obviously seen good behaviour off the back of that. Once they've completed the training course, they're a little bit more comfortable to put maybe a small amount of their total portfolio investment into something strange and new like a crypto investment asset. So that's really the thinking behind that platform fee. And in terms of the net number of new clients, we have seen that number increase since we've introduced the fee because we are still the lowest cost platform available in South Africa. So we are still highly competitive in that regard, even with that fee, if you choose not to do the activity to get exempt from it.

Chipo Muwowo: What other notable trends are you noticing just across South African financial services and particularly when it comes to retail investors putting money towards different types of investment?

Nicola Comninos: Yes. So I think it's also good to sort of take a step back and go back into our history and just look at what was really the core critical sort of pivotal turning moment for us.

And so as I mentioned, we were established in 2014, but if you look at our numbers in terms of 2020, 2021, when we had hard lockdown, we had COVID, it was just exponential growth for us. It was a big moment for us in our history where people just realised, a few factors based on the research that we've done and just surveys with our clients, is that they were locked up at home, they had more time on their hands, they had less travel costs, they also just had time to think about their own financial freedom, time to think about things like how do I build and protect my wealth, how do I make sure that I don't just focus on my physical health because we were very much aware of our physical health during COVID but also be focusing more on your sort of financial wealth and health and looking at what you can do to really drive that yourself and let your money work for you instead of you having to work that hard for your money.

And really during that period our client numbers doubled, tripled, etc. And so really that's built us up to the numbers where we are today in terms of you know the just under a million active clients and over two million registered users. The last couple of years though if I just look back at the economic situation in South Africa and globally, we've had just higher higher interest rates. So with interest rates increasing, we have seen an impact on our clients' investment activity. So they have invested less, the assets that they were able to invest in the market did drop, but we still saw a healthy increase in assets. So even during tough times, clients were able to put through a little bit more of their capital. And so as I've mentioned the numbers a bit earlier, we have still seen growth in the number of assets that they've invested but just not at the same rate of growth that we saw [in] prior years.

And I think the other thing just to mention is that in terms of trends of what clients generally invest in, we obviously do a lot of analysis of the types of shares that they like to invest in, and specifically on the EasyEquities platform, the product construct of an exchange traded fund is very popular. And I think there's a number of reasons for that. It is a collective investment scheme. So essentially investors are able to buy one product one ETF one sort of instrument that's listed on the JSE, one sort of share, and then get exposure to a whole basket of underlying instruments. So it's similar to our fractional share trading concept. And so the EasyEquities platform is one of the The highest platform in South Africa where clients buy ETFs through. And if you just look at the ETF industry how it's really grown, that's certainly one of the things that we've noticed.

And then I think just giving you a sense of, you know, we do a lot of surveys and engaging with our clients to understand what do they want to see from us. And at the start of the journey, having engaged with them, that's why we launched things like EasyProperties. Clients wanted to be able to invest in properties with less of that hassle to have to manage the property themselves. So we've now got 30 properties that we manage on behalf of our clients. We've got net asset value there of about 440 million [rand]. We've got just over 100,000 active clients in that space and that's just having built the business over the last four years.

Similar, EasyCrypto, about six years ago, launched that, have over 100,000 clients there and the net asset value there now is about a billion rand. And so with 34 different crypto assets and four bundles, and those are all things that clients wanted to see.

We also launched new things, so we now have five different currencies on the platform. Obviously, South African rands, but we've also got USD, pound, euro, and Australian [dollar] shares, so clients are able to invest in all five of the different markets using fractional share rights. And we have a business that's operational in five different jurisdictions, predominantly South Africa, but we also have a business in Australia, a company holding company registered in the Philippines where we're working on some opportunities, a business with a licence in Mauritius, and a holding company in Ireland and looking at expanding in other jurisdictions offshore.

Chipo Muwowo: In your role as Chief Risk Officer, you know, by the sounds of it, the company has expanded rapidly over the last few years. What's front and centre of your mind from a risk perspective as you develop in different directions?

Nicola Comninos: Yeah, that's a very good question because I think it's completely different in terms of the world where I come from having worked at the Johannesburg Stock Exchange. Because it's a fintech startup group you've perfectly correctly identified we are an agile, high-speed organisation. So usually innovative, usually dynamic and look at new opportunities and we have to pivot in a very short space of time and be able to move into different spheres and straddle across different legal entities and different products that we offer.

So I think the biggest thing in terms of the risk space that we deal with on a daily basis is actually the risk that we ourselves introduce into our space which is change. We constantly do bring and embrace change. And so it's a bit of a two-edged sword and you've got to really just be open-minded and understand exactly with all of that change that we ourselves introduce into our environment, how do we make sure that we manage that risks associated with that? So making sure we capacitate the teams sufficiently, making sure that we've still got a group culture that adheres with and supports that we can deliver our strategy through our purpose statement. Having some guardrails in place, so that's where the sort of governance structure comes in, but not guardrails to the extent that it stifles innovation. So it's a very, very tricky balance to strike and hugely robust discussions.

And then obviously looking at our control environments. So looking at our key and critical processes, making sure everything is well understood by all of our staff members, but also automated to the extent that you don't have huge dependence on people. So as I mentioned, we started off with sort of 30 people about 10 years ago looking back at the group, and we’re now over 200 people, but we still aren't people heavy because we have about 20 legal entities in the group that all of those over 200 people run with. And so we do focus on enabling processes through technology. That's one of our core focus areas is that we don't throw people at the problem, we look at using and deploying innovative technology so that's why we really associate ourselves obviously as a fintech business.

So really using technology to help manage that change risk, but also hugely proud in terms of the people we employ. So you often see some companies have this persona that they portray outside to the public market in terms of their company. And if you look at the EasyEquities brand, it's fun, it's engaging, it's dynamic, it's innovative… that's exactly who we are and that's exactly what our culture is within our business. So we also don't use big jargon and all that type of engagement inside of our business. We have open, robust discussions. It's a friendly environment. We have a very flat structure, so it can be quite difficult for individuals that like to work in a hierarchical sort of structure in the traditional corporates.

So myself, as Chief Risk Officer, will be a team member in a squad, a multidisciplinary squad, and you'll have someone that is a specialist from the marketing side or someone that's a specialist from the we call it the platform side which is the IT team, someone from what we call it the serve team which is someone from either finance or operations, and each one of them has an equal voice to me. So we don't have this concept of oh well, hierarchical I've got the C the C-suite title and so I can overrule you, everyone can tell and contribute with their individual knowledge expertise etc and they should and are empowered to make decisions. So it's a decentralised decision-making model as well, which comes with a huge amount of trust, but also being able to have a risk appetite that you are comfortable to fail fast. And because you empower your people, you have to constantly have that open engagement model where all of your people understand exactly strategically the direction you're going in, what our risk appetite is, what our strategy is, etc. So it's a very tight-knit team. Yah, I think just a very open communication style is one of the key things.

And then you'll, just like any other business, we've got risks like cyber risk and fraud and compliance and all those sorts of things. But I think the other one that's a bit more unique is regional and product expansion risk. I mean, those are the things that we deliberately know we want to take more risk on because we've got, as an example, a business in Australia. We understand that is one of the highest regulated entities. We're a licensed entity under ASIC which is quite a difficult regulator to deal with. And then similarly we've got a company that we've established in the Philippines and we are lobbying and engaging with the regulators there. They're probably about 10 years, if you look at the South African regulators versus the Philippines regulators, they're probably where our South African regulators were about 10 years ago. And so that journey, having discussions with them about retail investing is a good thing and why you should allow these types of structures and why people can be brought on the journey with things like EasyEquities Academy and teaching them and empowering them to manage and build and protect their own wealth. So those are some of the main risks that we deal with.

Chipo Muwowo: How much does macro risk feed into your thinking when you're assessing just the general group risk?

Nicola Comninos: Yeah, so macro has been quite an important one. Those we call sort of the systemic risks, which are the ones that are always on the sideline. We've got other type of systemic risks as well, specifically in South Africa, which is things like power supply and now there's some risks on the water supply side as well, so we've got to continuously look at building resilient business models, considering those things. So continuously on the radar. But I think the one thing that we've done, where we've deliberately shifted our business model to make sure that our business is more resilient, and that's why you've seen it come through in the numbers now during quite a tough economic cycle, we aren't out of the woods yet economically, but our results have been able to show positive returns, and that's really been because we split our revenue between two categorisations, non-activity based revenue as well as activity based revenue.

And so the non-activity based revenue is really things that aren't cyclical in nature. They are completely cycle agnostic and it really is things like the Thrive Fee as an example, having that sort of fixed fee. Also an assets under management fee where we've got some of that in the Easy Equities side as well as some of that on the RISE business side and the EasyCrypto. So it depends on which asset classes do well. So obviously also diversifying our risk across the various asset classes. We also have unit trusts on the platform, et cetera. And as I've mentioned, a whole host of different stocks, not just South African stocks, US, pound, euro, Australian, so clients are able to invest in different markets as well, which makes our revenue more robust. But that revenue linked to client activity, which is really buying and selling our shares, linked to our commissions and fees that we earn off that, that revenue hasn't been that robust in the last year. So that's gone up from about 64 million to 71 million [rand], whereas we've seen our non-activities based revenue go up from 58 to 95. So making sure that we've got a healthy balance and split between the two just helps us build a more resilient business.

Chipo Muwowo: Just thinking a bit about real estate, you mentioned your real estate subsidiary. What sub -sector within real estate are you invested in? Is it residential or commercial? Just give us a sense of that.

Nicola Comninos: So at the moment out of those 35 properties, all of them are mainly in the residential space. Some of them student housing, some of them entertainment sector where you've got hotels, etc, and some of them more longer stay accommodation when people are travelling between different regions, then they can book it for longer stay. We have launched our first industrial property. And so that's also based on demand from clients. And we are in discussions with some offshore providers to be able to potentially launch some offshore properties as well, because, you know, we've tried different regions in South Africa. So you'll have something in the Johannesburg region in the Gauteng , then you'll have something in KwaZulu-Natal, in the Durban sort of area and others in Cape Town in the Western Cape region, so we've done that diversification for clients but we've now got interest in the industrial space and so that we are still in the process of launching very soon. So giving opportunity and then also potentially in other markets offshore. So yes that's been the focus there.

Chipo Muwowo: Do other African markets feature in your thinking at all? I know there's a whole conversation around risk in relation to different markets, but how do you relate to other markets within the continent?

Nicola Comninos: So, we do actually have clients that come that trade through an open accounts through a stockbroker in Namibia that are active on our clients. So there's a partnership that we have in that region. As I've mentioned a little bit earlier, we do also have a business registered in Mauritius. It's an investment dealer licensed, a license holder. So there are clients that through that legal entity trade into our GT247 business which is CFD trading. And so, yes, there's definitely a does feature for us. We have been for the last couple of years in partnership and discussions with a broker based in Kenya and we look forward to hopefully launching something in that region. So our core business model is a partnership based structure and also we are very focused on wanting to be regulated and wanting to be licensed. So even the expansion in the Philippines, we have a legal entity on the ground, we've got people on the ground there and looking at a partnership there in that region as well if it were to be an opportunity to launch there. So yeah, so definitely other countries on the continent does feature.

Chipo Muwowo: And just one final question, you've partly answered it with your previous answer, but what's coming next? Are we going to see an EasyBank in the future?

Nicola Comninos: (Laughs) Yeah, look, I mean, ambitiously, banking could be something one day, if you look into the crystal ball, but it's not formally drafted in our strategy at the moment. What we do have in the future, so we focus on three product verticals. The one is the investing vertical, which is very well established, and that's where we've got our businesses like EasyEquities, EasyCrypto, EasyProperties, we've got RISE, we've got EasyETFs, so we've got a whole bunch of offerings in the investment space. You can buy unit trust, you can buy it in various different currencies, ZAR, USD, pounds, euros, Australian dollars, ETFs, whatever it might be. So the investment side we've got well covered.

Now we are going into the new product vertical. So we've got a lending product vertical which is the EasyCredit product that we've recently launched in partnership with Sanlam also from a group entity perspective and then the insurance vertical where we've got EasyProtect Life and so those are life products. So in the last results it's still early days there the life investment product we've only issued about 30 policies for about 20 million [rand] cover but we've seen an uplift in a very key metric for us we track average revenue per user (ARPU) and we've seen that clients that specifically hold the EasyProtect Life product, the ARPU has increased 30% for us. So it's ensuring that clients that are on the platform sees value in other product offerings so that overall we can keep the costs low, but we can earn revenue off the back of that to keep the economics healthy. And so EasyCredit as well, we've got about 209 loans that we've issued so far for just about two and a half million rands, so it's still quite low. But again, for those clients that have taken up loans, we've seen an 18 % increase in the ARPU, which is the average revenue per user for those specifically.

So really wanting to get those products really well embedded, launched, entrenched in the market. And then key focus on other existing products. I mean, some people might not even know we've got an EasyEquities retirement annuity. We've got EasyEquities preservation pension, preservation provident, living annuity, and we've also got an Easy Umbrella Fund. So a lot in the retirement space, and that's probably more for next year. We want to sort of launch a whole focus on EasyRetire. But for the rest of this year, we are in the pipelines of building a brand sort of called EasyTrader, which is really taking the sort of GT247 older business and really blowing sort of new energy into that and a slightly different approach where we've got some clients on the EasyEquities platform, sort of single digits, but roughly about 10% or so that are interested in want to do more active trading type behaviour, and so that's where EasyTrader will come in.

And then also the concept of EasySubscription. So other specific things like AI baskets are coming soon where you can pay for putting together a little basket based on using a large language model and artificial intelligence. And that basket can then direct you on which shares to buy and sell. Because one of the biggest things that clients still struggle with is where do I start? What do I buy? So yeah, lots of exciting things in the pipeline. And those are just some that we are working on. We are still, as I've mentioned a bit earlier, lobbying with the Philippines regulator, having some discussions there around what we can launch in that region and, as I've mentioned, Kenya. But these other ones are sort of more closer, more imminent sort of product offerings. So really looking at those million users that have already subscribed, but they just don't know how to start investing and helping them along that journey.

Chipo Muwowo: Fantastic. Nicola, really fascinating. Sounds like you've got your work cut out over the next few years. That was Nicola Comninos, Chief Risk Officer from the Purple Group based in South Africa. Nicola, thank you very much.

Nicola Comninos: Thanks so much, it was lovely to talk to you.


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