First published in the Daily Maverick 168 weekly newspaper.

TymeBank, the digital-only bank indirectly controlled by Patrice Motsepe, restated its plan to make a foray into lending – a market dominated by SA’s five largest banks.

In 2019, it unveiled a daring strategy to launch a swath of consumer lending products, including unsecured term loans, credit cards, and small business funding. It would offer credit to the entry-level and low-income consumer segment, which is dominated by Capitec and African Bank but still underserved by traditional banks.

This would diversify TymeBank from its transactional banking services, the main source of its income – it charges its 2.8 million consumers fees for cash withdrawals and EFT transfers. Unlike its traditional peers, TymeBank has no branches, offering transactional banking services through its black-and-yellow kiosks at Pick n Pay and Boxer Superstore outlets, as well as mobile and online banking platforms.

The stage was set for TymeBank’s entry into SA’s R4.6-trillion lending market, starting with a credit-card product. It roped in unsecured lender RCS as a partner to manage the credit-card offering, piggybacking on its banking licence and well-established balance sheet. The launch was set for the first half of 2020, to be followed later by other debt-type products.

But the official launch was thwarted by the arrival of the Covid-19 pandemic and related lockdown in early 2020.

Bad timing, good timing

The timing couldn’t have been worse. SA’s unemployment crisis has reached record-breaking numbers (7.2 million), consumer discretionary income is in the doldrums because salary cuts have become the norm, and many small and medium-sized businesses have fallen foul of the pandemic.

With most sectors of the economy now opening and market watchers striking an upbeat tone, TymeBank is ready to revive its lending strategy. On Monday, 15 March the bank announced the appointment of David Pfaff, the former executive of clothing retailer Truworths, as its global CFO. The appointment is considered to be something of a coup for TymeBank: a Truworths insider described Pfaff to DM168 as “SA’s credit and lending guru”.

For eight years, Pfaff served in executive capacities (CFO and COO) at Truworths, which included overseeing the retailer’s R6-billion credit book. Truworths generates a majority of its sales from credit (store accounts), making up 68% of its total sales at a group level by December 2020. “If there’s anyone who knows how the credit taps work, it is Pfaff,” said the insider.

TymeBank will now tiptoe into the lending market, and Pfaff will help the bank launch its first credit product in the next few months. TymeBank will launch MoreTyme, which will allow consumers to purchase goods at retailers through a lay-bye-type option. Consumers will be able to purchase goods by paying only 50% of the purchase price upfront and settling the rest over 30 or 60 days without paying interest.

It’s daring, to say the least. Not charging consumers interest for up to 60 days doesn’t seem like a feasible or practical way to grow a credit book or make money. But by 2022 TymeBank wants to have a loan book worth about R2-billion on the strength of a range of credit products, which represents less than 1% of SA’s total lending market.

Credit/loan products are usually profitable for banks because of the spread between the interest they pay depositors and what they charge borrowers (individual consumers and businesses). For instance, the recently published financial results of Absa, Standard Bank, and Nedbank for the year to December 2020 show that more than 35% of their respective revenues were generated from lending activities (revenue generated from interest charges). But the revenue from lending activities has come under renewed pressure because the SA Reserve Bank has cut interest rates by three percentage points in 2020, which brought the prime lending rate to a near 50-year low of 7%.

Lay-byes and interest charges

TymeBank executives were not immediately available to comment about MoreTyme’s fee/interest structure, how MoreTyme will generate income for TymeBank, or how the bank’s credit book will grow.

Karl Gevers, a portfolio manager at Benguela Fund Managers, suspects that TymeBank will largely generate income or grow its loan book if more consumers take longer than 60 days to pay for their goods. This is when interest charges will kick in. The success of MoreTyme will also depend on the number of customers it has and retailers that are willing to partner with TymeBank for the lay-bye option, he said.

The jury is out on whether the timing is now good to launch a credit-type product when more consumers are defaulting on debt payments because of affordability problems induced by the Covid-19 pandemic.

“Now might be opportune to move into credit. Consumer health might improve if the economy improves and jobs start returning to the labour market. Now is the time for TymeBank management to continue growing the business and moving into credit is the next growth step,” said Gevers.

Chris Gilmour, an independent analyst, agreed with Gevers, saying the timing for credit might not be good but TymeBank knows its customers, their spending habits, and affordability. “The bank is small and nimble. It knows its customers far better than most traditional banks. If you know your customer, their needs, how much they earn, and where their spending habits are, then you can tailor credit products and not make massive mistakes in reading the credit cycle.”

In the branchless and bank-only race, TymeBank is the largest in terms of customer numbers. It has 2.8 million customers (active customers numbers are lower), well ahead of Adrian Gore’s Discovery Bank (298,000) and Michael Jordaan’s Bank Zero, which hasn’t even launched. Before TymeBank’s launch in 2018, no new banks had been launched in SA since the early 2000s, allowing Standard Bank, FNB, Nedbank, and Absa, and more recently Capitec, to enjoy a comfy dominance. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.

• Story amended to correct the number of Discovery Bank customers. Apologies for the error.