​Taxi financier Transaction Capital has recorded double-digit growth in its earnings, thanks to growing its market share in the taxi industry, which traditional financial services companies largely shy away from.

Transaction Capital finances and insures minibus taxis.

While traditional short insurers are facing high claims ratios and static market share, Transaction Capital grew its new business written insurance premiums 23% in the year to September, which boosted its headline earnings 18% to R682m.

Transaction Capital’s core operations are SA Taxi, which provides finance and insurance to minibus taxi operators, and Transaction Capital Risk Services, which is involved in debt collection and payment processes, among other things. More than half of the group’s revenue is generated through SA Taxi.

Transaction Capital said that the minibus taxi association Santaco  has acquired a 25% stake in its subsidiary, SA Taxi.

“It is a major strategic shift. For many years, [the taxi industry] felt excluded. They are the dominant participants in public transport in SA and brought themselves up from grassroots with very little financial support. The industry just felt that they don’t participate enough in the value chain,” said Transaction Capital CEO David Hurwitz.

The relationship with Santaco has been cultivated over several years and in the past year the association helped SA Taxi extend its insurance customer base beyond minibus taxis that were financed by the company. By mobilising a broker network, Santaco helped SA Taxi increase its insurance client base 10% in 2018 and grow its insurance brokers to 100.

“But what’s more important for us is that this transaction allows us to align commercial imperative with social imperative. Every time that we buy and sell a car from Toyota, they will participate on the product margin. Every time we insure a car, they will participate and every time we repair a car, they will participate. That alignment of our interests will open up new opportunities.”

Not only has Transaction Capital cracked an unfamiliar environment through SA Taxi, but the company has also found a way to command almost the entire vertical value chain of minibus taxis. Its retail dealership, Taximart, sells new and pre-owned minibus taxis, with turnover of about R800m a year. Most of the retail sales are financed in-house.

SA Taxi’s loans and advances portfolio now has 30,617 vehicles, valued at  R9.4bn.  This enabled SA Taxi to collect net interest income of R979m in the past financial year.

More than 85% of minibus taxis sold are insured by SA Taxi and each insured client has an average two insurance products with the company. The company also owns SA’s largest minibus taxi repair centre and mechanical refurbishment facility.

In March, SA Taxi established its own vehicle parts procurement and distribution business.

“That vertical integration is really our competitive advantage. We don’t run our insurance model the same way as our competitors would. We’ve invested heavily in telematics and in the physical part of insurance through the repair centre. When there is an accident, we bring the taxi to our own facility, we do our own repair work internally and that has reduced the costs of repairs by 20% over the last year,” said Hurwitz.

Through these initiatives, Hurwirtz said SA Taxi is able to keep its credit loss and insurance claims ratios low. The company does not disclose its insurance claims ration but its credit loss ratio for 2018 stood at 3.3%