Publications
Partners
The odds are stacked against new businesses entering industries dominated by a few big players.
This is especially true in a relatively small economy like South Africa, which is littered with failed or struggling start-ups trying to take on mighty dominant players like SAB, Telkom, Vodacom or MTN.
Even more so in banking, where risk-averse customers have historically been reluctant to switch banks, and where a second-tier banking crisis in the early 2000s wiped out what little trust there was in taking one’s hard-earned cash out of one of the big four banks and depositing it in a smaller bank with little or no track record.
Capitec Bank, however, has defied the odds.
In just over 15 years, Capitec has taken big chunks of market share from the “big four” banks − Absa, FNB, Standard Bank and Nedbank.
It does not compete in a number of areas including wealth management, business banking and other value-add services. But 21% of South Africans now use Capitec as their primary bank − from just 7% only four years ago.
Innovative business model
Capitec’s success is based on a technological backbone − which keeps cost increases low and efficiencies and security high − and concepts the big banks struggle with: making banking more accessible, simple and transparent, and servicing customers.
This is sometimes as simple as letting customers and bank consultants share access to the computer screen, or opening branches outside of normal banking hours.
While the big banks are scaling back on branches, Capitec is adding them. It opened 52 in the last year, bringing its number of branches to 720.
It has just released results for the year to February, which show headline earnings jumping 26% to R3.2bn, and its dividend was up similarly to 1055c.
Higher client numbers, particularly salaried clients, and increased activity per client resulted in a 16% year-on-year increase in net transaction fee income to R3bn. The net transaction fee income covered 66% of the group’s operating expenses.
“This year has seen the largest growth in our client numbers since we started the bank,” says CEO Gerrie Fourie.
By year-end, active clients were up just over 1m to 7.3m and primary bank clients (clients who make regular deposits, mainly salaries) increased by 582 000 to 3.3m. Primary clients are now 46% of active clients, up from 44% last year and just 12% in 2007.
In the past year, active client numbers were up 16%, primary banking clients increased 21%, Gauteng clients rose 24% and higher income (R15000 salary and more) clients were up 44%. “So we’re seeing very strong brand acceptance and the trust is there,” Fourie says.
The cost of growth
This growth has come with additional costs. Capitec created over 1000 jobs – bringing employee numbers to 11440 permanent employees at year-end, and added 52 new branches.
The increase in employees and branches contributed to the 14% rise in operating costs to R4.6bn, although the cost-to-income ratio decreased to just under 35%.
The growing branch and ATM network is reflected in a 70% increase in capex to R704m. Yet the cost-to-income ratio, which was 58% in 2008, is in line with its 35% target.
There is an argument that as the bank gets bigger, its costs will fall in line with those of the big banks. Fourie doesn’t agree: “We believe we have a different model – even with increasing our branch networks – because of our efficiencies.”
Capitec focuses on every aspect of its business in order to be as efficient as possible.
When a client comes in, the branch measures how long it takes for them to meet a consultant after they took a ticket − called time to service. On average it takes about seven to eight minutes.
Once a customer sits down, screen change (representing different elements of service) is measured to see if consultants are taking too long or going too fast.
“We predict our volumes per branch per day per hour, so we can do staff planning. We do this to have forecast accuracy, and then the model kicks in,” he explains.
“We do everything in real time. You come in to open an account, you get a card and you walk out and everything works.”
All clients get the same treatment and there is no differentiation on income. They get the same product and fee structures and there are no gold, platinum or black cards.
The Global One account gives customers access to all services, including savings, credit, transacting accounts, as well as the channels supporting them, like apps or cards.
Capitec tries to make sure customers know and understand their monthly fees, including cash withdrawal and balance enquiry charges. It costs a fixed R5.50 to withdraw cash at an ATM, no matter what the sum.
“If we look at our whole banking offering, it is simple and transparent and applicable to 95% of people. That offering is available to everyone − it is a simplistic way that the person in the street understands.
“People are saying: ‘Hell, for the first time I understand my banking. I can plan for it,’” Fourie explains.
He believes Capitec has a unique brand positioning. Its branches look and feel different, many are open outside working hours and an increasing number are going to be open on Sundays. “When we advertise it is straightforward, with short, sharp messaging.”
The backbone to service lies in two areas: The system, which is kept simplistic for the consultants; and motivated staff, who must know what they need to do and can work with clients.
Although Capitec does keep extending its services (credit cards will be rolled out later this year), its offering consists of just a handful of products, which the bank aims to “sell well”.
This is an excerpt from an article that originally appeared in the 21 April 2016 edition of finweek. Buy and download the magazine here.
