Capitec under siege

Capitec has seen a meteoric rise in South Africa’s banking landscape. Its success has attracted many new competitors following Capitec’s playbook to get a slice of the pie.

Michiel le Roux founded Capitec in 1997. In March 2001, it was spun off from financial services company PSG Group and listed on the JSE in February 2002. 

South Africa’s big four banks, Absa, FNB, Standard Bank, and Nedbank, dominated the sector for decades. New entrants struggled to break through and make their mark.

However, Capitec shook up the local financial landscape by understanding what traditional banks lacked – accessibility, affordability, and a focus on the customer experience.

South Africans were accustomed to high fees, complex products, and limited banking hours. Capitec challenged the status quo with a refreshing approach. 

Their branches opened earlier and closed later, offering more convenience. They prioritised transparency with clear, low fees, making banking easier on the pocket.

The bank’s secret weapon was technology. Capitec embraced the digital age early, offering a user-friendly app and online platform.

This resonated with a tech-savvy generation and those priced out of traditional banking’s physical infrastructure.

Capitec didn’t stop there. It cultivated a client-centric culture, ensuring efficient and helpful customer service. This focus on building trust and positive interactions helped them succeed.

The bank’s large customer base shows that South Africans love Capitec. It is the largest bank in the country by customers.

Interestingly, in addition to gaining traction in the unbanked market, Capitec also achieved something special – convincing people to switch between banks.

South Africans are notoriously hesitant to switch banks because of the tedious process of moving to a new bank.

However, Capitec has had remarkable success in convincing clients to switch to them because of the simplicity and transparency of its products and pricing.

The enhanced levels of transparency with no hidden costs convinced many South Africans who were unhappy with their bank to try Capitec

Timing was also important. The bank entered the market during South Africa’s economic boom, coinciding with an expansion of social grants. This provided a fertile ground for their brand of accessible and affordable banking.

Capitec’s success story is remarkable. Its founders identified a gap in the market, offered a compelling solution, and prioritised customer experience at every touchpoint. 

Today, Capitec is the largest bank in South Africa in terms of customers and the country’s best-performing share since the advent of democracy.

Competition heating up

The bank’s meteoric rise has also opened the door for many new banks to challenge the Big Four and come after Capitec’s target market.

Over the past few years, several new banks have opened in South Africa, many of them targeting the same lower-income consumers who fueled Capitec’s success.

TymeBank and Bank Zero are the best examples, offering low, transparent cost structures. TymeBank has been particularly successful and has become one of the fastest-growing digital banks in Africa.

The digital bank started in South Africa in 2019 and now controls 10% of the primary bank market share in Africa’s most developed economy.

It has even become the first digital bank in Africa to break even and reach profitability. 

Old Mutual announced plans to open a bank, OM Bank, targeting South Africa’s upper mass market and lower affluent consumers. 

It is targeting customers earning between R5,000 and R80,000 per month. This is Capitec’s stomping ground. 

South Africa’s Big Four and other traditional banks have also not taken Capitec’s dominance lying down.

Over the past decade, many of the country’s top banks have launched bank accounts aimed at lower-income earners that are more accessible and come with lower bank fees.

For example, Standard Bank’s MyMo Bank account has a monthly fee of R6.95 and requires no minimum salary.

FNB has also launched simplified accounts targeted at the lower end of the South African market.

For example, the FNB Easy PAYU account is marketed as South Africa’s most affordable bank account.

With new entrants and more innovative products by the day, competition in South Africa’s banking industry has heated up significantly over the past few years.

However, Capitec is confident that its value proposition and service levels will ensure their clients stay loyal.

Capitec’s battle plan

Capitec CEO Gerrie Fourie has said he is not concerned about increased competition and is confident that the bank can extend its 30-year rally.

He said Capitec wants to use its retail banking strategy to grow its business banking and insurance units. It will also seek to woo small businesses in the informal sector.

“If I look at South Africa, we’re not going to get unemployment down and get the economy growing via the government and private sector,” he said. “It’s the entrepreneurs that we need to support.”

“I’m excited in what is lying ahead in the business banking space,” Fourie said. Capitec is still building the unit, and “we are busy just making certain we can handle the capacity”, he said.

Fourie also told Daily Investor that Capitec has built a compelling offer over the past few years, and they are not too concerned about local competitors targeting the same markets as them.

However, he said he is much more worried about your international players with strong brands than local players.

“We always watch them, and we’re always careful, but the brand positioning of international players – I am watching that space more,” he said.

“But we are working the whole time to make sure our client needs are satisfied. And we’re delivering what the client wants.”

Fourie said many international players could disrupt South Africa’s banking space, and he identified Apple and Facebook as two potential competitors.

“Apple is an unbelievable, strong trade name. And if they come into South Africa with full banking, that’s a strong proposition,” he said. 

However, he said that, ultimately, the player who understands the client’s needs the best and delivers on them will win.