New South African bank taking on Capitec has access to 7 million customers before it has even launched

OM Bank, which plans to take on Capitec in the low-cost banking space, already has access to Old Mutual’s seven million South African clients. 

This is before the bank has even had its public launch, which is set for later this month, with it focusing on converting internal clients before winning over other South Africans. 

Alongside access to the seven million South Africans, OM Bank is leveraging Old Mutual’s existing branch network in the country. 

This network, housed under Old Mutual Finance, which will become part of the bank, has 346 branches and a salesforce of over 2,000. 

Old Mutual estimates that its branches handle over 3.4 million visits a year, with it already being very successful in attracting clients to Old Mutual Connect, the insurer’s Mobile Virtual Network Operator. 

This gives OM Bank the enviable position of having an extensive physical footprint on top of which it has built its digital banking offering.

The bank has not had to invest in developing this physical network as many of its peers have, with it having immediate access to an extensive distribution channel to Old Mutual’s existing clients. 

This mix of physical and digital is one of the bank’s key differentiators, CEO Clarence Nethengwe told analysts at Old Mutual’s recent capital markets day. 

It enables the bank to onboard customers, cross-sell products, and combine its offerings with Old Mutual’s to lock clients into the insurer’s ecosystem. 

One of Old Mutual’s strongest assets is its network of financial advisors, which it has built up over decades of operating in South Africa’s competitive insurance landscape. 

These individuals will be equipped to offer the bank’s services to clients, cross-selling OM Bank to existing insurance and investment customers. 

Crucially, it will also enable the bank to become a platform to cross-sell insurance products in the future, making it a growth engine for Old Mutual’s insurance business. 

While some insurance products are available digitally, many more sophisticated products still require in-person consultations, limiting the bancassurance model of some operators in the market. 

In effect, OM Bank already has the ability to win over these seven million clients before it has even launched, significantly reducing its cost of acquisition and accelerating its growth. 

Reaching profitability

Leveraging this branch network and existing client base is crucial to the bank reaching profitability, with Old Mutual already having invested over R4 billion into it. 

The insurer expects OM Bank to run at a loss of R1.1 billion to R1.3 billion for the next three years, with it breaking even in 2028. 

This will require, by its own estimates, a client base of 2.8 million. The estimate accounts for around 500,000 dormant customers and 700,000 less active clients. 

Strangely, the bank only expects to win over one million existing Old Mutual clients to its offering by then, representing relatively low penetration. 

More clients are expected to come from outside the Old Mutual Group, with OM Bank expected to bring 1.1 million fresh clients to the insurer’s ecosystem. 

On top of this, the bank is assuming that it will successfully convert around 500,000 existing Money Account clients. 

Old Mutual’s Money Account offering is administered by Bidvest Bank, which will cease to operate at the end of 2026. This offering has over 700,000 accounts and R1.5 billion in deposits. 

OM Bank has already converted over 140,000 of these clients to its offering, up from 5,700 in July and 17,000 in August when it conducted a soft launch. 

Currently, it is onboarding 5,000 clients a day, which matches Capitec’s rate of expansion over the past financial year. It will be vital to continue this growth. 

OM Bank is on a collision course with Capitec, as their target markets are almost identical. Nethengwe once again outlined the bank’s plans to dominate the clients targeted by Old Mutual’s Mass and Foundation cluster. 

These clients typically earn between R8,000 and R80,000 per month, a market segment that is Capitec’s bread and butter. 

This competition with Capitec is as much about growing Old Mutual’s presence in banking as it is about protecting its existing business. 

Research from Swiss Re, one of the world’s largest reinsurance companies, shows that Capitec may take up to 36% of all new funeral insurance sales. 

This is a significant share that poses a major threat to Old Mutual’s insurance business. If Capitec can replicate this success with other insurance products, it can take a substantial chunk of Old Mutual’s Mass and Foundation Cluster.

As a result, the launch of OM Bank is a way to compete on equal footing against this threat by using its banking offering to cross-sell Old Mutual’s insurance products to a wider customer base.