- Players: Mark Dowson and Jason Sive
- Company: First Health Finance
- Est: 2008
- Visit: www.fhf.co.za
In countries like the US, the UK and Australia, the concept of patient finance is successful and hugely popular with people who want to finance the procedures they require at a monthly cost they can afford.
Given that more than 23 million cosmetic surgical and non-surgical procedures were performed worldwide in 2013, according to statistics released by the International Society of Aesthetic Plastic Surgery, it’s a highly lucrative market to target.
South African entrepreneur Jason Sive thought so too – he spotted a gap in the market for specialist finance to pay the costs of procedures such as breast augmentation, rhinoplasty and liposuction after spending a year working for a specialist finance company in Australia, where he came across patient finance for procedures not covered by medical aid – anything viewed as elective or non-essential surgery.
On his return to South Africa, he rejoined the Transunion Group for three years before meeting up with Mark Dowson, an ex-banker, and the two decided to open a niche finance company focused on a few key areas: Cosmetic and reconstructive surgery, fertility treatment, dental procedures, corrective eye surgery, and a few others. Sive brought consumer finance and risk experience to the table, while Dowson added sales and marketing expertise, as well as a strong financial background.
It was a fantastic idea, but then the recession hit. The team’s focus on educating the market, fine-tuning customer service and being willing to adapt to fluctuating market conditions not only got the company through that tough time, but has also resulted in an exceptionally healthy business that today processes more than R170 million worth of applications for finance every year.
We asked him how he did it.
Why start a finance company?
People often asked us that. It’s true, our competitors were large and well financed, but the consumer lending space was very broad, we focused on a ‘niche play’. When we launched First Health Finance (FHF), we pioneered a new industry in South Africa.
This was a unique type of medical finance. Being first to market with a patient finance product meant that we could build strong relationships with medical practices, and be nimble and ingenious where big financiers could not be.
We were determined to improve on the existing consumer lending solutions by introducing an innovative product while taking advantage of a growing global demand for elective procedures. We service a niche market that continues to expand.
How did you finance the business?
In a start-up finance company, your stock in trade is your cash. You have to ensure the business is adequately capitalised to carry itself into the second phase of the funding process.
Our initial funding was provided by myself, Mark and four other private investors. That capital carried us initially, after which we secured finance from banks and hedge funds, once we had proven our business model.
You launched the business in 2008, as the recession took hold. How did you survive?
The global financial crisis was a terrible time for any business, let alone a start-up. Lenders were being battered. A few years before, an on-lender would have been able to raise funds against an existing debtors’ book, which would have been seen as an asset. By 2008, things had changed radically and that funding mechanism was no longer available.
People thought we were crazy to launch a consumer finance business at the start of a recession. But we had the advantage of starting with a clean slate, with no non-performing loans. We kept the business in holding mode for about two years while the market recovered, we recalculated our projected performance, managed shareholders expectations, and by years three and four, we were in a stronger position.
What were some of the early business challenges?
Our first task was to educate doctors about our product. We initially faced some scepticism. Doctors were concerned about exposing their patients to credit.
Before we hired a single employee we spent three months on the road, visiting medical practices, and understanding all the concerns that practices may have. We had to convince them that by helping their patients afford the treatment they wanted; they would increase their bottom line
In addition, FHF mitigates risk by paying the doctors directly, which they prefer. It was important that practices provided patients with all payment options, including a finance one.
As a result, we now have a database of more than 2 000 practices covering many types of procedures. Growing that database was critical to our success. We provide practices with a simple-to-implement service that allows patients to spread the cost of a treatment/procedure over time.
It was critical to get the doctors and practice staff on board because they provide the patients with an introduction to our services and add credibility to our business. It’s like a car dealership recommending Wesbank.
By 2010, the company had R130 million in applications, 30% up from 2009. How did you get this right?
Companies often claim that excellent customer service is their top priority, but for us it’s non-negotiable. Our customers are given access to finance for procedures that can be life-changing.
Vanity plays a role, of course, but looking good can often lead to feeling great psychologically. And the reality is that elective procedures are no longer the preserve of the wealthy; we live in an era where it has become very popular.
We’re well positioned to take advantage of that and meet people’s need to feel better about themselves. So in terms of ‘getting it right’, I believe it was a combination of improving our product, further educating the market, and growing with the increased demand. Mark and the entire sales team really understand the market we play in, and have done a great job.
A personalised and caring service is critical in this industry. Procedures such as IVF fertility treatment and breast augmentations are very intimate and people would rather not explain to a bank why they need to borrow money. Not only do our patients apply discreetly online, but the consultants are also trained to deal with patients in these situations and make them feel completely comfortable.
At first, we didn’t recognise that we’re really an extension of the practice, because the patient is referred to us. So our processes have to be absolutely streamlined to take this into account. The patient does not see us as separate from the practice; instead they view us as part of the value chain. We use certain communication tools, such as email ‘get well’ cards to let them know we are thinking about them. That personal touch differentiates us from just another consumer lender.
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How do you remain competitive when there are so many finance options available to consumers?
The banking industry is bureaucratic and highly regulated. The changes in banking regulations have had a positive impact on our business, as banks have modified their product offering over time.
Today, finance applications take a long time to process, and many are turned down. We are more flexible with our customers because we analyse risk slightly differently, and although sometimes we may not match certain banks on the cost of credit, we beat them on the personal service front. Our payment plans are designed to be conservative and affordable in line with the patient’s disposable income.
The business was unique when we launched it, but now we have one or two smaller competitors. However, the relationships we have developed with practice managers, doctors and receptionists are not easily replicated.
We’ve also kept the business small and nimble with a team of just 16. For workflow and systems, we outsource to the experts and focus on what we do best in-house.
How has the current economic climate impacted the business?
The unsecured lending crisis and irresponsible collections practices have not been good for us, as all consumer lenders have been painted with same brush. However, we are not a micro lender, and our aim is to educate our target market that certain types of credit are healthy.
Local consumers, for example, believe that buying clothes on credit is okay and many people are happy to pay over 24 months for items they will wear for only six. Surely financing a life changing procedure is much ‘healthier’?
What about bad debt?
We do our best to manage risk, and while we have had a few defaulters, our bad debt numbers are lower than those of other consumer lending players, mainly because of the lower risk profile of our customers who borrow money to finance a specific procedure. Credit cards are our biggest competitor in this space.
We have developed our own internal score cards to assess client applications to ensure we do not allow irresponsible lending.
Taking advantage of an evolving industry
We started off thinking we would be completely reliant on the support of medical practices, and that doctors’ buy-in was essential.
Over the last five years, as technology has progressed and the concept of self-service has become a consumer trend, people are doing their own research online and seeking out service providers.
That has worked in our favour and it highlights how important it is to have a great online presence, as well as the back-office system to deal with customer requests. A larger percentage of clients now find us online first, and then approach the doctors we recommend, instead of the other way round.
It also helps that South African medical practices have not had a significant web presence to date, but that too is changing as the medical profession begins to understand the value of an online presence.
Another interesting trend is the transformation of medical practices, from just ‘a practice’, into a business. Doctors see our product as a tool to help increase turnover.
Over the past year we have used the systematic growth of FHF to launch our second, allied business, First Asset Finance, which provides finance to medical practices buying expensive equipment. We think it’s a very exciting space right now, and a great extension to FHF.
Related: 4 Steps to Being Market Focused