FNB is quietly building a microlending goldmine in South Africa’s hidden R750 billion economy

FNB is quietly revolutionising lending to small businesses in South Africa, with it utilising its data on card transactions to provide financing. 

This comes amid intensifying competition in South Africa’s business banking landscape, where FNB is the established dominant player. 

South Africa’s oldest bank faces renewed competition from its old foes in Nedbank and Standard Bank, as well as newcomers that range from fintechs through to the Capitec juggernaut. 

Nedbank has poached former FNB Business Banking CEO Andiswa Bata and snapped up iKhokha to bolster its offering. It has also created a dedicated mid-tier commercial banking unit. 

Another established competitor, Standard Bank, has spent time revamping its offering and cleaning up its lending book as it makes a renewed push into the small business segment. 

FNB and Standard Bank have long been the two major players in the business banking space, with the Big Blue dominating among larger commercial clients and FNB winning in the small business segment. 

Capitec is a new competitor, having recently launched its business banking offering and has gained strong traction. 

Part of the newcomer competition is a host of fintechs, including Yoco, that provide point-of-sale systems and accounting software to small businesses. 

FNB has looked to assert its strong position in this space by revamping its fee structures and overhauling its Speedpoint offering. 

The bank is specifically focusing on small business owners and spaza shops with these changes, reducing its fees and making them simpler. 

Its Speedpoint revamp has baked in software that enables merchants to fully integrate their sales and stock systems. 

This makes the payment terminal, alongside a counter monitor, a complete point-of-sale system that enables a business owner to track their sales performance and stock levels. 

These changes are coupled with making the payment terminal a one-stop shop for almost any digital transaction for individuals. 

Using the new Speedpoint terminals, spaza shop owners can sell airtime, vouchers, and electricity while receiving ordinary payments on a single device. 

While this offering is similar to what some fintechs provide, settlement is significantly quicker, often overnight, which enables much more effective cashflow management. 

Microlending boom

One notable advantage traditional banks have over fintechs is that they can offer a full suite of financial services to clients. 

While fintechs can create point-of-sale systems and accounting software, they lack other services, including insurance and lending. 

FNB and others can bundle this together with their devices and accounts, offering customers a one-stop shop for their needs. 

An area where FNB has excelled is the rollout of its Cash Advance offering, which is making lending simpler and easier to access for small businesses. 

The bank explained that traditional lending models often rely on financial statements, complex applications, and fixed repayment structures. 

These are challenging for a small business to navigate and, with regard to statements and applications, often prevent these businesses from accessing funding. 

FNB has looked to circumvent these traditional processes by using the card transaction data of its clients to provide it with data to analyse lending risk. 

As businesses accept card payments, all their trading activity becomes visible to the bank and provides insight into trading behaviour, settlement timing, and cash flow patterns. 

This enables the bank to grant funding on the back of actual trading activity rather than paperwork. 

Through FNB Cash Advance, eligible merchants can access working capital based on their transaction history processed through SpeedPoint devices. 

Repayments are structured as a portion of daily card sales, aligning repayment with trading activity rather than fixed monthly debit orders.

These advances focus on relatively small sums of money, with FNB saying that 65% of its Cash Advance payouts have been under R100,000. 

Nearly a third of these payouts have gone to businesses with an annual turnover of less than R1 million. 

FNB has noted particularly strong growth within South Africa’s informal economy, which has the potential to be highly lucrative.