Capitec’s new banking competitor

Old Mutual’s bank, currently called OM Bank, will launch in early 2025 and directly compete with Capitec in the lower-income segments. 

However, while it is the only bank to explicitly state its intention to compete with Capitec, it is not the only new competitor coming from an insurer. 

Other competitors include significant players in the banking space, such as Discovery Bank and TymeBank. 

One thing all these new offerings have in common is that they have been launched by insurers, with Sanlam providing capital for TymeBank through its shareholding in African Rainbow Capital Investments. 

Matthew Pouncett, portfolio manager at Laurium Capital, said this shows that the blurring of the lines between insurance and banking is not one-way traffic. 

Historically, banks have expanded into insurance as they are well-positioned to cross-sell insurance products through their banking channels and their ability to engage with clients through private banking. 

Pouncett said insurers starting banking operations in South Africa has been a unique trend, and this is set to significantly disrupt the industry. 

While Discovery Bank’s entry into the higher end of the market is set to disrupt South Africa’s ‘Big Four’ incumbents—Absa, Standard Bank, Nedbank, and FirstRand—it is unlikely to compete with Capitec. 

Old Mutual’s bank, set to be launched early next year, has made it clear that it is eyeing Capitec’s share of the lower-income market. 

Pouncett explained that this may be due to Old Mutual’s belief that a bank would give it significantly improved distribution channels for its insurance products, particularly funeral policies. 

Thus, the primary function of the bank would be to cross-sell its insurance products to a new client base and ensure it is easier for clients to engage with its products. 

It will also give Old Mutual access to vital transactional data on its clients, enabling it to offer products better suited to its customer base and personalise its offerings. 

Capitec has shown how lucrative this can be, with results from Swiss Re indicating it has a 36% market share of new funeral sales in South Africa. 

“The market is yet to see what the full offering entails, but many speculate the launch is largely a defensive move aimed at protecting Old Mutual’s lucrative funeral insurance business,” Pouncett said. 

The thread throughout all of this – is that local financial institutions are all vying to offer holistic financial services – looking after your money, your belongings, and your life. 

As companies invest in propositions and product rollouts, the client is the net beneficiary as pricing sharpens and innovation improves.

Old Mutual gearing up for battle

Old Mutual has made significant progress in building out its banking offering, with it being integrated into the National Payment System. 

“I am proud of the continued progress in the disciplined execution of our strategy and considered capital allocation,” CEO Iain Williamson said.

“This has translated into the successful completion of industry testing and integration of OM Bank into the National Payment System in line with the Prudential Authority’s section 17 conditions.”

The insurer said in its interim results last month that the South African banking initiative remains a key priority for the company as part of its strategy to create an integrated financial services business. 

The technical and operational progress is ahead of schedule, with successful industry testing and integration into the National Payments System already completed, it said. 

“Pending the remaining Section 17 regulatory conditions unrelated to technical readiness, we anticipate the public launch in Q1 2025.” 

“For the rest of the year, we are focused on meeting the remaining Section 17 conditions and continue refining systems and capabilities to ensure a seamless launch.”

Apart from the delay in launching the bank, Old Mutual also said building out its systems resulted in significantly higher investment. The company allocated R1.3 billion to the bank build for the financial year. 

Major leadership changes have also occurred at the yet-to-be-launched bank, with Clarence Nethengwe, who has been with Old Mutual for 15 years and has overseen the expansion of its lending business in South Africa. 

“The Bank is a crucial part of Old Mutual’s integrated financial services strategy, and Clarence, as the MD of Mass & Foundation, is well-positioned to ensure seamless alignment across the group as we prepare to launch,” Williamson said. 

“The transition from a ‘bank-build’ phase to a ‘bank run’ phase marks an exciting new chapter in our journey.” 

Old Mutual has also launched Old Mutual Connect, a Mobile Virtual Network Operator (MVNO) as it gears up to take on Capitec.