Interview with Schalk Nolte, CEO of Entersekt
What are some of the pivotal events and developments in South Africa's tech sector that really stand out for you in the last ten to fifteen years?
Ten to fifteen years is a long time in tech. Three years is actually a long time! Ten or fifteen years ago, we go back to the start of mobile and the impact of that. Mobile applications together with cloud hosting have allowed a very big levelling of the playing field. This is a global driver but has strongly impacted South Africa and the Western Cape in particular. Everybody can develop an application. People working out of their garage or a small firm can now compete with the giants of the world because it is really all about consumer choice. I think that allowed us in the Western Cape to compete globally and provide some very interesting things in terms of technology.
The world is flat now?
Yes. You put something in an app store and the entire world sees it. Our competitors are also no longer just next door, they are whoever is playing in your field globally.
To what extent do you think that Cape Town has the depth and concentration of skills to become a true global innovation and technology hub?
It does have that potential but, in terms of the number of people, we feel that there is a bit of a shortage. We are battling to find the right people. Everyone is coming to Cape Town. I am specifically thinking of a number of banks that have implemented innovation centres. Amazon has a big centre here. We have ACI Worldwide. There are a lot of firms hiring developers here and a lot of start-ups too. So, there is that depth, but there is also big demand making supply a bit of a problem at this stage. We are seeing more people from other parts of the country coming and looking at moving here, so there is new supply coming.
What is your view on some of the various initiatives such as the CITI, the Bandwidth Barn, Silicon Cape Initiative and the UCT Samsung Mobile Innovation Development Laboratory? Do you think that these do an adequate job of raising the profile of the Western Cape as a start-up hub and an area for innovation globally?
They all play a role. Stellenbosch actually has its own initiatives. That is something that we are quite passionate about. You also need a couple of other things in the mix, including industry and schools. We have four universities within a 60 or 70km radius. Then you need money, so the VC side and all of those things play together to create an ecosystem that is successful for start-ups. I have seen in the past, two three years ago, the noise starting to become positive and people saying, “Oh, you are in the Western Cape? Cool things are happening there!” There is a buzz and we are hearing that in other sectors too.
Everybody can develop an application. People working out of their garage or a small firm can now compete with the giants of the world because it is really all about consumer choice. I think that allowed us in the Western Cape to compete globally and provide some very interesting things in terms of technology.
What more do you think could be done to increase the level of foreign investment and VC funding to further fuel growth in the tech sector?
We need success stories, and we need to make a big noise around those success stories. Israel has, for the past couple of years, been very hot in terms of technology, but South Africa is strong in Fintech, strong in development, and we have been for a number of years, but it is not a story that a lot of people know. The Amazon cloud, for example, was developed partly in Cape Town, but very few people know that.
Do you think there is a high level of software competency in South Africa?
Definitely. As an example, Stellenbosch University has something called the Media Lab, and there are a number of guys getting head hunted here by the Facebooks and the Googles of the world. We have an advantage in that these guys are on par with, if not better than, a lot of the guys you find in Silicon Valley – but they cost a third of the price. It is something that we should really leverage.
Does the strength of South Africa’s banking sector provide a particular niche for use of ICT related technologies and software?
It does. A couple of years back, we found that South African banks were initially nervous of utilising a start-up. A bank is something that takes a decision over a couple of years, and they want to know that you are going to be around years down the line. For them to implement something that touches their customers, it is a painful process: there are millions of people that have to be educated, there are the call centres, etc. They don’t take decisions lightly. But, through success stories such as ourselves and a number of others (Snapscan, for example), people have realised that ideation can come outside of the banks. Even though they are very strong and very good at what they do, people that grew up in the banking environment very often get stuck in a box in terms of thinking. They have changed, however, and they are really keen to engage with new ideas and technology. They have the strength in the balance sheets to support this.
Mobile has become the de facto means for banking in many parts of Africa. Is banking security reaching a tipping point now?
It definitely is. Africa is very interesting to us. As in any emerging market, there is no Plan B. In the US, you can bank on mobile but still also write a check. In much of Africa, either you do mobile banking or you do not bank! Mobile is something that we see as a very top priority for the CIO, even to the CEO level, at a lot of banks because it is that important. It is the only channel through which they serve their customers, and of course the more they push usage on it, the more security becomes a problem. If people don’t trust a channel, they won’t use it. I have seen a statistic where mobile is a 43rd of the price of servicing a customer compared to sitting in front of them, so it is important to get it right. Mobile is very personal too, so you can do anything through the channel if you get the trust issue resolved.
Was it very hard for you in the beginning to find the venture capital to actually begin to initiate the company?
Oh definitely. We went the Silicon Valley route to try and find funding there a couple of years back. Interestingly enough, people looked at us and said, “That’s an awesome idea, where are you from?” And we said “South Africa”, and they said, “Oh, not interested.” It is as simple as that, and it makes sense from a perspective that there are so many ideas and firms and choices in Silicon Valley for somebody to find something just 400m down the road. For them New York is far away, so why would they fly to Cape Town to look at a firm?
It is changing though. Emerging markets are starting to be exciting and sexy again. We understand how that works and we have seen a couple of big investments over this year specifically into South Africa and into other parts of Africa. So FDI and VC investment is starting to pick up. Success stories are starting to pick up. When we started, it was really tough, it was a difficult environment. We have managed to raise 9 million dollars so far but it is not easy.
Are you looking to raise any more?
We are. We are actually busy looking at a raise now, specifically for growth. Entersekt is profitable. We have got customers on three or four continents depending on how you count them. We have got most of the banks in South Africa, and customers in East Africa, West Africa, Europe, the Middle East, US, etc.
In terms of internet and mobile security, a lot of people are realising that this is a specialist field. You need specialists to build secure solutions because it is not something where you just build it and forget about it. It is an arms race: the bigger bullet, the thicker armour. It means that a number of our customers or potential customers will be taking buy decisions in the next three years, and we need to be in front of them. So we are looking at expansion capital.
Entersekt is now dominant in the South African market so the focus must now be on expansion into North America and Europe. We know that you had a recent deal with Swiss Card. I think that is your first European customer. How is the pipeline looking for this next expansion phase?
There is actually quite a lot that we have signed that we have not announced yet. The unfortunate part for us is that a lot of banks don’t want it known who their security provider is. We have a couple of customers now in the UK market, more in Switzerland, a couple in Germany and in the US too. A lot is happening in the Middle East, in the UAE and Saudi Arabia and around there. We have some customers in Lebanon, and then there is very exciting stuff which we will announce soon. I think we have five out of the top 10 banks in Africa as customers now. Hopefully, we will reach six or seven. The pipeline is very strong. We have more opportunity than we can address at the moment and that is another reason to look for funding. We are growing 100 to 150% year on year in dollar terms, so it is interesting times.
That’s an interesting problem to have!
It is. The nice kind!
What is next for the company?
Expansion: new territories, new products. Six or seven years ago, when we started this, we realised that traditional technology in security – particularly one-time passwords – didn’t work. We realised that mobile was central to everything. It is such a personal device. Your laptop might be in your car or perhaps stolen, but your phone is always in your pocket. We believe that if you can resolve trust issues through security on the device, the impact can be as huge as email was. You should be able to do everything through your mobile device. That is what we want to do with our authentication and security. We are an authentication and security company. We are not changing that, but we can enable new and very innovative – I even want to use the word “cool” – things through this channel. We build a secure channel between a specific user and the bank. What do you want to do with this?
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