Profits in fighting cheque fraud
CGS Financial Services, successful as a niche company aimed at guaranteeing cheque payments, had turned its talents to competing in SA’s booming cellphone market.
Started in 1996 as in intermediary vouching for cheques payments, CGS has successfully dealt with the drop-off in cheque payments by finding new sources of income.
Sales director Richard Smuts-Steyn says CGS is now the largest distributor of electronic prepaid airtime in the country and its systems are used by leading retailers such as Edgars, Shoprite, BP Petroleum, Exel Petroleum and HiFiCorp.
CGS has had an annual turnover growth exceeding 100% for the past four years.
“For the past year our turnover reached R240m – growth of 120%. For this coming year we expect turnover of well beyond the R500m mark,” he says.
The company airtime distribution has taken off faster than it could have hoped and, buoyed by its initial success in this market, CGS plans to spread its wings to include the suite of cellular services offered by Vodacom, MTN and Cell-C.
“Due to our new partnership strategy we will be able to present a full spectrum of service-provider offerings to the public, which will make us one of only three players in the market with this range,” he said.
But this does not mean that CGS in abandoning its roots as a cheque guarantee service.
“Although the cellular side is the largest part of our business, the cheque and financial-risk operation is more profitable. We are the only risk-free cheque service in the country. Even with a perceived decline in cheque usage, CGS continues to experience exceptional growth,” he says.
A need to thwart fraud will help to keep CGS’s cheque business in the money. With cheques fraud estimated at about 1bn a year, CGS is underwriting about R120m in cheques.
The company has established a fraud and forensics task team to combat cheque fraud. Since the birth of this task team, the market has reported a 70% drop in the number of fraudulent cheques received. The CGS team have cracked three fraud syndicates and have instigated more than 200 arrests over the past year.
It is a diminishing market, but not to the extent envisaged by the financial sector. Cheques remain a convenient payment mechanism, especially in the business-to-business sector,” says Smuts-Steyn.
He says that CGS is still growing its market share of the cheques processed, despite the drop off in cheque usage.
Smuts- Steyn estimates that the cheque-guarantee market will reach saturation in about four years time, with perhaps a further six years of mayor profitability before this aspect of business has run its course.
By that stage, CGS aims to have entrenched its position as a top SA cellular provider. Smuts-Steyn said that as CGS has matured, it has been able to pick it strengths and is pinning its future profit streams on these specific areas.
“A lot has changed over the past year. Whereas previously we were looking to be master of everything, we now plan to focus on our key strengths of risk management and cell phone technology.” he said.