Two new South African banks target Capitec

Old Mutual’s forthcoming new bank and the existing and popular digital bank TymeBank are both gunning for Capitec’s traditional target market.

OM Bank will target the upper mass market and lower affluent customers, putting it in direct competition with Capitec, which serves a similar target market.

Michiel le Roux founded Capitec in 1997 with a recipe that was largely uncontested until recently. This strategy has seen Capitec recognised as South Africa’s best-performing share since 1994.

Since its launch, the bank has grown from around 25,000 to over 22 million clients. Its shares have grown from R0.55 per share when it listed on the Johannesburg Stock Exchange in 2002 to R2,748.51 today.

Old Mutual hopes to launch OM Bank by the end of 2024. It filed its section 16 application early in the year and received Prudential Authority approval to launch in April.

“We are extremely pleased to have received the regulator’s go-ahead and look forward to shaking up the financial services space with new innovations and solutions,” said Old Mutual CEO Iain Williamson.

“We can confirm that the launch is on track.”

Williamson believes that adding transactional banking capabilities to the company’s portfolio will enable the bank to interact regularly with customers.

The Prudential Authority’s approval came just short of two years after Old Mutual received its banking licence. The company welcomed the news and detailed the next steps in its launch process.

“The next steps will include integration testing and connecting to the National Payments system,” it said.

“Integrating the bank into the payment clearing houses will follow a regulated process under the industry standards.”

Williamson said the value of new business accelerated by 37% in 2023 through its customer-focused approach, which it plans to bolster with OM Bank.

“This robust performance, together with the approval to launch a bank, affirms our progress in building the integrated financial services business of the future,” he said.

Built using 10x Banking’s cloud technology, Old Mutual said its platform enables it to offer personalised, affordable, and flexible services.

Old Mutual also believes that having a bank to accept retail deposits will provide a more affordable source of funding. It hopes that OM Bank will be profitable within three years.

Another bank looking to eat Capitec’s lunch has already established itself and reached profitability.

Patrice Motsepe-backed TymeBank launched in February 2019 and reached its first month of profitability in December 2023.

“We are extremely proud of our achievement, particularly when you consider that globally, less than half of the top 100 digital banks are profitable,” said outgoing TymeBank CEO Coenraad Jonker.

“In fact, a recent study stated that less than 5% of all neobanks worldwide had reached profitability.”

Like OM Bank, TymeBank targets a similar market to Capitec, offering low-cost digital banking.

TymeBank recently announced plans to target South Africa’s middle class through short-term lending products, including personal loans, buy now, pay later offerings, and business loans.

According to TymeBank’s incoming CEO, Karl Westvig, the bank must ensure the product offering is valuable to the mass affluent segment.

He added that they’ve had discussions with partners to help create this value offering, including The Foschini Group (TFG).

Capitec CEO Gerrie Fourie isn’t too concerned about the threats posed by South Africa’s younger banks.

He said international brands like Apple and Facebook were a greater danger and could increase competition in South Africa’s banking space.

“Old Mutual has been a bank for quite a while. They rented a bank license. So, the offer has been exactly the same — they’ve been offering banking services,” he said.

“They are now just getting their own banking license and their own banking system.”

Fourie doesn’t expect much to change with Old Mutual’s offerings. However, brands like Apple are world-renowned and have strong trade names.

“If they come into South Africa with full banking, that’s a strong proposition,” he added.