Capitec has no mercy for fintech startups

“If you’re running a margin business, you don’t have a business,” says a cocksure Chris Zietsman, Capitec’s head of payments, paraphrasing a legendary Jeff Bezos quote. He comes from SnapScan, so he knows a thing or two about how some local fintechs operate.

Capitec is now not only the largest bank in the land, but also the fastest growing mobile network operator — if only a virtual one — a hardware manufacturer, a payments provider and a mobile cybersecurity administrator. Oh, and they probably have the most advanced online fraud investigative crack team.

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The term that comes to mind is “Sherlocking” — a word usually reserved for one of the big tech companies obliterating an entire tech ecosystem by delivering it as a feature in its products. Like when the iPhone gained a journal app.

Is Capitec just a big tech company now?

Elementary, my dear Watson

The evidence was laid bare by Wim de Bruyn, the bank’s CIO, who dropped a casual bombshell about their development philosophy.

“A lot of this is enabled because we build most of our own systems,” he said, almost shrugging off the massive implication. “Our ability to innovate is because we own it and we can build and react quickly.”

For the South African tech ecosystem, this is a terrifying statement. The traditional exit strategy for a local fintech startup — build a cool tool, get traction and sell it to a big bank (or get incubated by a big bank and they fold you into their service offering) — seems to be evaporating in Stellenbosch. Capitec isn’t shopping; they’re building.

Take the physical hardware in their branches. Usually, a bank would issue a tender for a queue management system, and a local vendor would supply proprietary kiosks costing tens of thousands of rand. Instead, Capitec’s team went down to the component level.

Blessing Mgaga, the executive for branch and client experience, revealed they are custom-building their own media and queuing hardware using Raspberry Pis.

“This strategy has transformed the total cost of ownership of the hardware at that touch point in the branch by over 50%,” Mgaga explained. It’s a brilliant cost-saving move for the bank, but a door slammed in the face of hardware vendors. They are even prototyping Internet of Things devices to monitor CO₂ levels and power consumption in branches. Again, built in-house.

Payments as a feature, not a product

That Sherlocking is most aggressive in the payments space. Zietsman was blunt: “Payments is not a product, it’s a feature. The product is financial services that we package around them.”

This philosophy is dangerous for the swarm of payment gateways and aggregators in South Africa. Capitec’s merchant services have exploded from 30,000 to 95,000 merchants in a single year. They are aiming to break the 100,000 mark this month.

By treating payments as a loss leader (or at least a low-margin utility) to sell other financial services, they can undercut startups that need those margins to survive.

They announced they are building “variable recurring payments” (VRP) specifically for Netflix. If you want to pay with Capitec Pay monthly, it will just work, like a card, without monthly reauthorisation. They’ve also gone live with Shein (fully compliant, they assure us), smoothing out the friction for international e-commerce.

By the time a third-party startup figures out how to optimise recurring payments for streaming services, Capitec has likely already built a bespoke Application Programming Interface for the vendor directly.

The walled garden of security

Where the friendly bank mask slips to reveal the big tech predator is in how they handle data and security. They aren’t just buying off-the-shelf fraud detection; they are building “fusion intelligence” units and utilising graph databases to map syndicates in real time.

“No fraud, no money laundering takes place in isolation,” said Nicholas Harris, the head of financial crime. By visualising these relationships internally, they’ve prevented R300-million in fraud this year alone.

But here is the kicker for the identity verification startups: Capitec is turning its app into the ultimate ID. They announced “feature lock”, allowing the bank to granularly disable parts of the app; intentional friction designed to stop social engineering scams.

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If a client is about to make a payment to a known scammer, the system intervenes. De Bruyn said that 140,000 clients had backed out of payments after being served these contextual warnings.

And soon, you won’t even need the Department of Home Affairs for your Smart ID — or at least, you won't need their staff. Capitec is rolling out Department of Home Affairs Smart ID functionality to their self-service terminals. Mgaga claims they are seeing test applications completed in under five minutes without assistance.

What this means for you

For the consumer, this means cheaper fees and slicker tech. For the startup founder pitching a new queue management system or payment gateway? It might be a good time to pivot.

The ecosystem impact

Graham Lee, the CEO, summed up the ethos in his opening address: “Innovation without purpose is just wheel spinning.”

That purpose here is clear: simplicity and affordability for the client. But the side effect is a consolidation of power. Capitec is effectively creating a super-app ecosystem where they control the hardware, the software, the payment rails, and the security layer.

They are throwing a bone to the open banking crowd. Zietsman mentioned they are enabling secure data sharing through Application Programming Interfaces, allowing vetted third parties to prompt clients for data.

“This is really open banking,” he said. But make no mistake, it is open banking on Capitec’s terms, through Capitec’s gates.

For the South African tech entrepreneur, the lesson from this Innovation Exchange is simple: don’t build a business on a feature that Capitec can build in a sprint. Don’t build a margin business that Capitec can offer as a free utility.

Capitec is starting to prepare for global expansion, looking “five to 10 years in advance”, according to Lee. If they take this vertical integration model abroad, they’ll be disrupting the very idea of what a bank needs to buy from the outside world. DM