It’s taken Spark ATM Systems under five years to deploy a nationwide network of ATMs across South Africa, using cutting-edge technology and based on a strong ethos of customer service. Managing director Marc Sternberg talks to Gay Sutton about the innovations behind this success and the plan to capture 50 per cent of the market in the next two years.
The world can move remarkably quickly. And this rapid evolution can perhaps most clearly be seen in the rise of companies catering for the increasing sophistication of lifestyle in one of the world’s fastest growing economic regions: sub-Saharan Africa.
Some six years ago, entrepreneurs Marc Sternberg and Russel Berman founded Spark ATM Systems, with the vision of filling a niche in South Africa’s ATM market. “I suppose by nature we’re both problem solvers, and we had spotted a gap in the market for installed convenience ATMs,” explains managing director Marc Sternberg. At that time, the banks were providing ATMs at their branches and some off-premises at locations such as supermarkets and high street sites. But they could only do this cost-effectively where more than 5,000 transactions would be taking place each month.
With just one independent ATM company operating in the marketplace, the opportunities for improving the model were immense. “Our vision was to fulfil the need for ATMs at smaller locations where between 200 and 5,000 transactions would take place a month. And our market research showed that there are tens of thousands of these types of stores across the country, from small convenience stores to butchers, pharmacies, bars, clubs and hotels.” The challenge was to find ways of bringing down the cost of the ATM service sufficiently to make it cost-effective at these smaller locations. And this is where the problem solving came into its own.
“We looked at each component that made up the capex, as well as the operating cost of the service, and then developed ways to slim it down,” Sternberg says. “We began by looking at the expensive hardware the banks installed, and sourced hardware to do the same job at 10 per cent of the price. Similarly we looked at the communications network the banks used, and came up with a similar GPRS model that achieved the same but again at less than 10 per cent of the price.”
It was, however, in solving the problem of replenishing the ATMs with cash that the partners displayed real innovation, based on a clear understanding of the needs of the small retail outlet. Typically the banks employ armoured vehicles to transport cash securely to the ATMs—a hugely expensive task. Storekeepers, meanwhile, lose profits through charges incurred for depositing their cash takings into the banks. “They may deposit the cash in person periodically, or hold the cash on the premises and pay an armoured van company to collect it for them. We’ve worked out that the average retailer is paying 1.5 per cent of the value of their cash in fees.”
Sternberg’s solution was for the storekeeper to load the ATM with cash from the shop’s takings, circumventing the need for external replenishment. “It’s a five or 10 minute process every day. And whatever is dispensed from the machine is credited directly into the business’s bank account the following day with no fees. It’s a very efficient way to effectively bank money. And from the security perspective, it reduces the quantity of cash stored on the premises overnight as the ATM only ever contains enough cash for a single day’s transactions, therefore making it and the store a far less attractive proposition to the criminal.”
It has been a winning formula. The company is currently installing new ATMs at a rate of 40 to 60 a month, with a record month of 73 installations in December last year.
“When we launched the business our aim was to build a national business in South Africa, starting regionally and growing to cover the market. And we’ve achieved that over the five years we’ve been in business. Today we have close to 1,300 ATMs deployed countrywide,” he continues. “This gives us a 25 per cent share of our target market, and we see that growing to around 40 per cent by 2014. We are also replacing expensive bank ATMs with our own, which will take us to around 50 per cent market share.”
Spark currently employs some 80 staff, 35 of them located at the head office in Cape Town, the rest being sales and technical support staff working from regional centres around the country. The ethos of customer service is something that both Sternberg and Berman are clearly passionate about, and they have placed it at the heart of the company. “It’s something we breathe, eat and sleep, and we’ve implemented it into the business at every touchpoint,” Sternberg says.
“In general, people tend to be very disillusioned with the service they receive from the banks, especially in the self-cashed convenience store market. Our aim is to blow them away with our level of service.” Technicians, for example, are always within four hours of a machine: three hours to reach the site and one hour to return it to service. And this level of service is provided every day of the year. Service calls are never ‘lost in the system’, with staff empowered to carry any customer enquiry to a satisfactory conclusion. Meanwhile, there are dedicated teams managing each phase of customer experience, from initial contact with a prospective store to managing the needs of the established customer. And all of these actions are driven and facilitated by a unique in-house IT system which monitors each stage of the deal and relationship pipeline.
The success of the business, however, has been built on two very important partnerships. When Spark first went into business and was seeking a bank partner through which to channel the transactions, the South African banking sector was undergoing a period of uncertainty and consolidation. The Cape Town-based Capitec Bank, then with some 150 branches nationally, was bucking the trend and enjoying a period of growth.
“We bought into their vision and they bought into ours. Their aim was to only deploy ATMs at their bank branches, and we agreed to fill the gap for them by installing off-premise ATMs wherever they had customers,” Sternberg explains. “It then became a chicken and egg relationship whereby we supplied ATM services to Capitec’s customers across the country and brought new customers to them, enabling them to grow their footprint while we grew ours.”
The second crucial relationship was with the Korean company, Chungho Comnet, which has been manufacturing the ATM hardware to Spark’s specifications and cost from the very beginning, working closely with Spark to customise the product specifically for the African market and to continuously improve its functionality.
Looking to the future, Sternberg believes there is still a big market to tap into in South Africa. Moreover, he sees enormous opportunities to increase revenue generation by introducing other products and services. “At the end of the day the ATM is a digital screen that links into the banking network, and there is almost no limit to what you can sell on the device. We already offer digital advertising, and we’re currently looking at ways of enabling the public to use the ATM for mobile money withdrawals and electricity purchases, to name a few. ”
The company already has customers in Namibia, Nigeria, Tanzania and Uganda, and sees tremendous prospects for taking this highly successful business model and replicating it in the rest of sub-Saharan Africa. “We have been very fortunate in the timing of our business. Africa is becoming a focal point of investment, and comparisons are regularly made with the Asian Tigers of the early 1990s. Many South African companies have been spreading their wings north, and we’re poised as a platform to do the same in our marketplace,” he concludes.
