Hi there,

Our Linkedin community is growing faster than the list of mayors of Gauteng metros– up 35% just this week! If you’re a part of it, thank you. If not, come see what all the fuss is about. PS: While you’re there, check out our next Open Conversation about scaling globally with Stephen from OfferZen.

In this Open Letter:

• About the money: The SVB collapse & SA’s new real-time payment system.

• ChatGPT-4, replacing CEOs with AI & goodbye Naspers Foundry.

• In case you missed it: 5 Startup insights from Founders Den.

• Team & culture sorted: How Ollie's mental health platform works.

• Funding VS Bootstrapping: New in How would you build it?

TRENDING NOW

Getting the money up to speed

SA welcomed a brand new interbank instant payment mechanism called PayShap this week, a real-time payment system that allows you to pay cross-bank and mobile to mobile.

After launching a pilot project between the 4 biggest banks in SA, it will be rolled out to other banks in 6 months' time. Here are some interesting PayShap features and insights:

• Pioneered by BankServ

• One objective is to drive financial inclusion and possibly eliminate cash

• Can pay to a mobile number (using your unique PayShap ID)

• Money instantly available cross-bank

A similar project in Brazil called Pix launched in 2020 and already bolsters 132 million registered users, roughly 62% of the population. And only 3 years in, it’s already the second most used e-commerce payment method.

From a pricing perspective, there isn’t much consistency at the moment in terms of how much banks charge for a PayShap transaction – prices range from free to R45(!!) from Absa.

Now it's still only a pilot project, but it's disappointing to see a price tag of R7.50 and upward. R7.50 for an R20 transaction is simply not viable. But free transactions under R100? Now that’s shap payment.

What will this do?

Among the many things that excite us about this, there are 2 things that this will definitely do:

• Increase the velocity of money – more economic activity, more taxable events, better for all of us. It is estimated that 25% of the GDP happens in the informal economy and being able to tax these transactions will generate billions in tax revenue.

• Massive new markets to service if you are in the B2C space. Many startups are only able to receive payments from credit card holders and once APIs open up (which they should), increased addressable markets will improve substantially.

Whilst PayShap makes money transfers fast and cheap between different banks, with limits of R3500 in place, we doubt it will cause bank runs. But it just might give us frictionless transactions that will power the next era of economic growth.

IN SHORT

A CEO with $0 that works 24/7: Should we replace CEOs with AI? This company in China did it and it's beating the market.

Well, you can’t watch TV when the power’s never on, or at least that’s what DSTV is arguing amidst incoming poor results. DSTV shares drop 14% in a day after announcing a warning on reduced earnings.

In an effort to align its global investment strategy, Nasper Foundry is closing its SA operations. After investing R700m of the planned R1.4b, where are these startups now?

What big 4? With more than 20 million customers, roughly one in every three South Africans bank with Capitec.

GPT-4 is here: Get it to build browser-based games, turn hand-drawn wireframes into designed websites and more.

Up in flames! Your Gizzu portable power station model could be part of a recall due to combustion during charging.

GLOBAL TRENDS WITH LOCAL IMPACT

The fastest bank run yet

Silicon Valley Bank’s 48-hour collapse has sent shockwaves through the financial world, with bank stocks taking a dive and fears mounting that a similar fate awaits other banks. In case you missed it, the TLDR of what went down is as follows:

• Silicon Valley Bank (SVB)’s deposits tripled in 4 years from 2019-2023.

• They had to park the money somewhere to be able to pay the interest they promised depositors while customers’ appetite for loans was substantially lower than their deposits than deposits. Meaning they had to find another place to create interest.

• And one of the safest instruments to achieve this is US government bonds. However, they made the mistake of using short-term deposits to buy long-term assets.

• When people started to withdraw money, they had to sell their long-term assets at a loss to cover deposits.

• This loss caused havoc on the balance sheet and created fear everywhere, sparking VCs to advise their portfolio companies to move money.

• And they did. 48 hours later the bank was closed to prevent further damage. A bank run.

• As of today, the FIDC has promised to “make whole” everyone (the FED will make ‘additional money available’), and they promised not to use taxpayer money to do so. This got us thinking…can’t we get the FIDC to do this magic trick with Eskom, please? Anyhow…

A run on the bank

It has been some time since we saw one of these in traditional banks, however, if you have spent any time in DeFi the last two years, you would be very familiar with this term. After Mark Cuban gave Iron Finance a shoutout, its token price went intergalactic only for a run on the bank to happen a few days later. Depositors weren’t able to withdraw due to network congestion of note, bringing the Polygon network to a standstill. A similar situation happened with Terra Luna only a few months later, wiping out $60bn in value in a matter of days.

But whether in crypto or traditional banking, the principle is the same. When too many depositors try to withdraw their money at the same time, a ‘bank’ could find itself in a position where it’s not liquid enough to pay out the money. And when this happens, panic sets in and even more people try to withdraw, compounding the problem.

Now in the pre-internet banking era, pictures of people queueing at banks and ATMs hit the front pages of newspapers for weeks.

And if the bank and central banks could calm the storm in time, well… they could avoid the run or at least the damage it caused. But not so in the era of digital banking.

What is phenomenal about the SVB bank run is the pace at which money was withdrawn. For ten hours on Thursday, customers withdrew a total of $42 billion. That's ±$1 million per second for 10 hours straight. This compared to the Washington Mutual Bank run of 2008, which saw $16.7bn withdrawn over 10 days mostly through manual withdrawals, just shows how much more devastating a bank run can be in the era of digital banking.

Interestingly back home, the last South African bank failure happened in 2002, when R1 billion ($55 mil in today’s terms) was withdrawn from Saambou Bank accounts over a period of 2 days, causing the SA Reserve Bank to step in and pause withdrawals.

It’s pretty clear that digital banking increases the risk of a run on the bank. The world has changed, and this needs to be factored into the future of banking.

WATCH THIS SPACE

Networks, Eco-systems & Bootstrapping

5 Insights from this year’s Founders Den at Specno

Rewatch the whole thing on Specno’s Linkedin Event.

1. As a startup founder, it’s vital to build not only local but also international networks. The sheer concentration of startups in somewhere like Silicon Valley pales in comparison, so having that experience to tap into can be priceless. Reach out, connect, ask for advice and stay connected.
   

2. It’s vital to support and enable each other. SA startups are not competing against each other (for business, funding etc.) but building an ecosystem. The more investors see a larger number of successful startups originating from here, the more funding will become available for everyone. Let’s keep cheering each other on towards success!
   

3. There’s an art to knowing when to bootstrap and when to raise capital. A) lack of capital can become a restraint when you start too late, or B) getting VC funding can limit the freedom necessary to really build something. If, for example, you raise and then you need to pivot 3 months into something that falls outside of the VC’s original brief to their Limited Partner (LP), it puts them in a tough place because it shows they didn’t do their due diligence. So consider carefully before going the funding route.

4. One solution to bootstrapping is to make select corporates aware of what you’re building and approach them for funding in exchange for services you offer, related to “on the side”, (and, from OfferZen’s Philip Joubert’s experience, it’s possible even without having to give up equity). In essence, partner with corporates to make progress. But a word of caution, though partnering with a corporate early on can be very lucrative and add a lot of weight and legitimacy to your business, it’s important to keep sight of your goals and not get distracted by such a bigger more established partner.

5. OfferZen specifically chose a business model that generated cash early on, instead of a model that perhaps suited the business better in the long run, but would have cost too much to get there.

A TEAM THING

How does Ollie mental health work?

For the month of March, we have partnered with Ollie to offer our readers one month of unlimited mental health credits. Mental health credits shared between teams. Check out this video to see how Ollie works.

Keen to give it a try? One month, unlimited credits for our readers.

Fill out this form and the team from Ollie will be in touch.

THE THREAD

This week in How would you build it?

To get funding or not to get funding…there are benefits and drawbacks to each. What would you do for your startup? In this week’s How would you build it?

ONE LAST THING

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