TymeBank, a digital bank owned by Patrice Motsepe’s African Rainbow Capital, is increasingly encroaching on Capitec’s turf in SA’s fiercely competitive unsecured term lending space.

The new kid on SA’s banking block has clocked up a million customers (but only 420,000 active ones) since its official launch in February 2019, which is in line with African Bank’s 1.09 million customers. It’s well ahead of its branchless banking peers such as Adrian Gore’s Discovery Bank (more than 22,000 customers) and Michael Jordaan’s Bank Zero, which hasn’t officially launched.

TymeBank is now shifting its focus to launching an unsecured lending product — borrowing that is supported only by a customer’s creditworthiness and not assets as collateral — in the first quarter of 2020.

A successful launch of an unsecured lending product will see TymeBank diversify from its core transactional banking services (cash withdrawals and deposits) for mainly lower-income customers and move into a market currently dominated by Capitec.

Capitec is a bank that disrupted SA’s unsecured lending space after it benefited from the collapse of the then African Bank Investments Limited (Abil) in 2014 over soured loans. It also grew by offering banking products to lower-income customers that are excluded by traditional commercial lenders.

But a recently approved debt relief law that seeks to expunge debt for over-indebted consumers has prompted Capitec to reduce its exposure to consumers earning less than R7,500 a month, which now accounted for less than 5% its total loan book of R60.25-billion as at the end of August 2019. This consumer income segment (less than R7,500 a month) makes up 50% of TymeBank’s total customer base.

Capitec has cut its exposure to this income segment over the past two years in anticipation of the National Credit Amendment Act, which was approved by President Cyril Ramaphosa in August. The act gives relief to consumers who have unsecured debt of up to R50,000 and found to be critically indebted by the National Credit Regulator.

But TymeBank CEO Tauriq Keraan is not fazed by the sweeping debt relief changes. Although Keraan is concerned that the act might have unintended and harmful consequences of banks cutting their lending to low-income earners, he sees it as an opportunity for TymeBank to scale up unsecured lending.

“We see an opportunity because it is about how accurately can you predict the repayment behaviour and willingness of customers to repay. But we will go into this market in a slow, controlled and responsible way and continue to create an opportunity for customers to borrow in that sector,” he said.

Keraan has been in the top job at TymeBank for four months and doesn’t fit the mould of a traditional banker — he has a laid-back style comprising a white shirt and blue jeans instead of a dull suit.

Unsecured lending targets

TymeBank wants to have a loan book that is worth about R2-billion by 2022, which represents nearly 1% of SA’s total unsecured lending market worth R225-billion in 2018, according to research by fund manager Differential Capital.

But TymeBank’s co-founder Coen Jonker wants the bank to aim for a loan book that is more than R2-billion. “I don’t think a R2-billion loan book is ambitious enough,” he said.

One of the ways to grow its loan book would be to build scale on its customer numbers. After all, banking is a numbers game. Keraan has set a customer growth target of three million by 2022, a year in which TymeBank will break even. Ian Cruickshanks, a senior economist at the South African Institute of Race Relations, doubts that TymeBank’s rate of customer growth is sustainable as the “entry-level market is finite”.

The partnership with Pick n Pay allows TymeBank to harvest consumer data through the retailer’s Smart Shopper loyalty programme, which has about seven million customers. Keraan said TymeBank could offer Smart Shopper customers its unsecured lending product, which could help it reach the three-million customer target.

In 2020, TymeBank will also launch a bank account product for small businesses and a credit card through its partnership with unsecured lender RCS. BM