Micro lender, Letshego Holdings Limited, has reported significant progress in its digital adoption. This week, CEO Andrew Okai, who is spearheading the 6-2-5 transformational strategy, presented a digital quotient score of 51 percent up from 25 percent driven by strides in Enterprise Agility.
The group’s digitalisation is the bedrock of the strategy that coincided with Okai’s appointment.
At the outset of 2020, Letshego was barely a percentage or two in terms of digital adoption. By the end of the year, the measure had shot up to 69 percent. The aim is to get to 80 percent in at least in the next two years. As the group reported first half results, it had reached 74 percent.
Letshego’s investment plan for digitalisation was $50 million, relatively about $10 million a year. However, Okai said they have spent far less than the annual $10 million. The way Letshego works on how it implements digitalisation is that they look for what is most modern or the most readily available proven technology. With the third aspect of it, the group looks for great value for money.
Today, with the proliferation of fintechs, there is a lot of good development and good technology available. Okai said Letshego’s partners have been “very committed and very helpful” in identifying these technologies from anywhere in the world, explaining that this is what led to lower investment.
“So we’ve probably spent in the last year about $5 million, compared to the $10 million,” he said in response to a question from this publication, suggesting that this would increase “as we diversify”. Letshego’s initial part of the agenda was focused on developing the platform; now it is about developing the different product sets. As it does that, Okai expects that they will get closer to that $10 million annual budget.
Asked how much value in terms of income the group is realising so far, if there is any, Okai noted that more details will be provided on the income value streams as “we develop”. He added: “For now, as I said, it’s at the base of the platform.” So in essence, anything that is coming through the platform is contributing to profitability of the group, Okai said. Profit after tax rose 28 percent during the reporting period.
Okai believes “very strongly” that in the period of the pandemic, without the digitisation, Letshego would probably have seen a much more significant decline in its business. He attributes a lot of the sustainability in the business to the fact that they have been able to start a digitalisation programme and provide digital access for customers. Letshego’s “LetsGO”, a retail financial services platform is now live in 10 markets.
Global payments report for McKinsey made it clear a strong fundamental trend is shifting away from cash. Chipilaro Katundu, Letshego’s Chief Product Officer, has corroborated this. “Between 40 to 50 percent of our customers that we see today will shift away from cash,” Katundu said. “It’s a big thing because cash was one of those that were never moved in terms of payments. But Africa is amongst the leading ones in terms of this movement.”
The second frontier that is very interesting for Letshego as an opportunity is around the 27 billion payments market that is estimated for Africa. Katundu said payment companies are growing faster than banks. “What Letshego is doing to is create an opportunity to not only do financial services but to also play well on the payment space,” he pointed out.
A key insight into Letshego’s presentation was that there are 20,000 customers already on its platform. About 77 percent of customers using ‘LetsGo mall’ were new. “Now this is exciting for shareholders and management and staff because these are new customers that Letshego was not servicing before,” Katundu said. “Now we just need to give them products for them to monetise.”
The other exciting statistic is around the level of instant completion that the group is seeing, mostly in West Africa. “When we reach levels of 80 percent of registrations, it’s exciting not only for product developers but also for understanding the needs of customers that are underserved in all these markets,” Katundu said.
Through digitalisation, Letshego expects 50 percent improvement of operational efficiencies and envisions almost 70 percent straight through processing. This will then make income better feeding into cost to income ratios envisaged by 2025. “We believe that continuing to accelerate the digital journey, taking it to the next level is what will ensure and assure that our business remains sustainable and has a future deployment of robotic processes,” Okai said.
The first robotic processes deployed generated a great sense of joy for executives because it marked a real fundamental shift to the way the management is thinking about the organisation and the structure of how it operates. Management wants to create a future fit organisation in terms of empowering its people, and embedding enterprise agility remains one of the factors that the CEO believes will continue to drive execution. Okai admitted that this does not come without its challenges as every change process takes time and requires a lot of effort.
Letshego’s view is that everything it does as a group ultimately will do two things: they must have high social impact and deliver value to shareholders. The group believes that the core of that lies in what they do in the digital space. “We want in five years to have more than 3 million enterprise active customers on the ‘LetsGo mall,’” Okai said, “We want for our processes to be 80 percent digitised and we want to be able to deliver more than 20 percent in return of equity (ROE) for our investors,” Okai said.
He explained that when they build the digital mall and increase customer base, they will increase transactional volumes. The transactional volume will increase revenues, either by the increased levels of loans, the increased levels of payments or the increased levels of insurance uptake. All the different products, according to Okai, means that “we are getting an expanded revenue base and revenue streams”.
The second aspect is how Robotic Process Automation (RPA) will help improve productivity. While growing revenues, Okai says costs will be expected to be at a slower pace, meaning the Cost Income Ratio (CIR) will improve. In the first half of 2021, Letshego’s CIR was down two percentage points to 47 percent. Over the next 18 month period (up until year end 2022), the company remains in an investment phase of its digital strategy, which means its interim CIR is likely to increase before it comes back down to longer term targets. The strategy assumes $10 million digital spend for five years. For the group’s 5-year plan, Okai expects to bring CIR to between 40 percent and 45 percent.
All of these are benchmarks for improved profitability. The key thing for Okai would be to look at the return, so that if in the end revenues and profits actually increase, ROE definitely will increase. “The rate of growth of your revenues should be higher than the rate of growth of your equity portion,” he said. “That’s how we’ve calculated the ROE coming to above 20 percent,” Okai said.
