For decades, South Africa’s banking sector was dominated by the “big four” — Standard Bank, First National Bank, Absa and Nedbank. That all changed in 2000 when Capitec disrupted the market by targeting the middle- to low-income consumer with a low-cost banking model.

Since then, there has been a flurry of entrants in the banking sector with financial services giant Old Mutual being the most recent to throw its hat into the ring.

Group chief executive officer Iain Williamson revealed last week that the company had received the go-ahead for its application for a banking licence.

He said the move was a natural progression of Old Mutual’s core strategy and would help provide customers with an enhanced transactional banking capability.

Old Mutual’s lending and transactional solutions include a money market account and an unsecured lending product.

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“These solutions are offered mainly to our mass and foundation cluster customer base and the unsecured lending solution is already a strong contributor to group profitability. The current transactional solution is delivered through a commercial arrangement with a third-party bank,” Williamson said.

Williamson said a bank within the Old Mutual ecosystem would enable it to accept retail deposits, providing a cheaper source of funding.

Old Mutual has allocated R1.75-billion to build “transactional capability” and will use cloud-based technology to deliver “cost effective, flexible and scalable solutions”. 

Costs of R830-million have been incurred in this financial year. Old Mutual hopes to launch its banking offering in the second half of 2024, pending regulatory approvals.

Williamson said the bank is expected to break even in three years: “As the capability matures post breakeven, the return is expected to be significantly above the target return of 4% in excess of the cost of equity.”

Retailer ruffles feathers

Although it may seem that the market is crowded, a large portion of South Africa’s 60 million people remains unbanked. The Oxford Business Group has estimated that 23.5% of the people in the country are out of the system.

Even retailer Shoprite has entered the banking space, with the launch of a money market bank account on a Grindrod bank licence earlier this year.

Shoprite chief executive Pieter Engelbrecht says there has been “some fuss” about Shoprite’s account being fully transactional — that is, money can be EFTd in and out. Customers can EFT their salaries into the account as well as pay third parties. All transactions within the Shoprite environment are free.

“We’ve picked up just over two million customers using the money market account in under a year and will be giving this initiative more attention now. There’s definitely scope for a low-cost banking product,” Engelbrecht says.

Sector disruptor

Ten years after launching in 2000, Capitec had more than 10 million customers and 800 branches. Although the bank first made a name for itself in the same space as African Bank, with personal loans rather than asset-backed finance, prudent financial management has ensured that it did not walk the same path as African Bank.

For the six months to August, Capitec reported a 17% growth in headline earnings to R4.7-billion off a base of 19 million active clients.

Capitec chief executive Gerrie Fourie said the company’s underlying resilience and the quality of its earnings were demonstrated by the fact that its compound annual growth rate over the past five financial years had held steady at 17%, despite the impact of the Covid-19 pandemic, civil unrest and the KwaZulu-Natal floods.

Operating profit before tax and credit impairments grew by 24% to R8.8-billion.

Digital pivot

FNB was one of the first traditional banks to make a swift pivot towards the digital era and launched its banking app back in 2011. It has consistently been rated first or second in the best digital bank in South Africa category of the SITEisfaction survey since the measure was introduced in 2012.

But it is clear that Capitec is now the biggest player in the market by sheer number of customers, which stands at 19 million. For the year to June 2022, FNB reported almost 11 million active customers and a 23% increase in profit before tax to R28.4-billion.

Standard Bank was South Africa’s second bank to launch a banking app in June 2012, followed by Nedbank a month later. Absa only brought its banking app to the table in 2013.

Rapid influx

Although Capitec was viewed as the new kid on the block for many years, there has been a rapid influx of new players in the past five years, especially from the fintech space.

These banks are light on bricks and mortar, heavy on convenience and have made the big banks sit up and take notice.

TymeBank is recognised as one of the world’s fastest-growing digital banks. Since launching in 2019, it has garnered a client base of more than five million customers.

In August this year, TymeBank cemented its business banking offering with its acquisition of fintech SME funder Retail Capital for an undisclosed amount. It also launched a free financial tool platform for businesses. TymeBank already has more than 100,000 business banking clients.

The year 2019 was busy for the banking sector and included the launch of Discovery Bank with start-up costs of more than R10-billion.

Chief executive Hylton Kallner reported in June this year that the bank was gaining about 750 new clients a day. He said it was well on its way to attaining its goal of between 600,000 to 700,000 customers by 2024. Discovery Bank has more than 450,000 customers who have more than one million accounts between them.

Down to zero

Former FNB chief executive Michael Jordaan is one of the co-founders and the chair of Bank Zero, which was under development for three years before launching to the market fully in October 2021.

One of the key features of Bank Zero is that the zero fees and innovative functionality are the same for consumers and businesses.

Lemon and Lime, a coffee shop in Pringle Bay, says it has been saving R1,000 a month since it moved to Bank Zero. BM/DM