FNB’s R18 billion hidden powerhouse

FNB Connect generated R18.6 billion in total revenue last year, including airtime and data sales for its 958,000 active SIM cards, as well as Lotto and electricity sales revenue over the last financial year.

This was revealed in the annexures to FirstRand’s investor presentation last week, where the company detailed how its various operating divisions performed for the year to the end of June 2024. 

FirstRand is Africa’s most valuable banking group and owns companies such as FNB, RMB, and Wesbank. 

As part of the group’s strategy to reduce its sensitivity to interest rates and core banking activities, it has expanded into asset management and insurance. 

However, a less-talked-about part of this strategy has been the investment in FNB Connect, which houses the bank’s mobile virtual network operator (MVNO). 

From a consumer’s perspective, MVNOs work like regular mobile network operators (MNOs) but don’t have any of their own connectivity infrastructure.

They offer their customers cellular services through roaming agreements with mobile network operators such as MTN or Vodacom. An MVNO is often part of another business — like a grocery retailer, bank, or clothing store.

That business can use some of the assets and resources of its other offerings to draw customers to its MVNO services and vice versa.

FirstRand’s annexures show that FNB Connect is one of the largest MVNOs in South Africa, with 958,000 active SIMs, a 9% increase year over year. 

It also revealed a sharp increase in data use on the company’s network, with 12 million gigabytes used through the financial year—an increase of 31% compared to the previous year. 

Total sales, including lotto tickets, electricity, airtime and data, totalled R18.6 billion, contributing meaningfully to FNB’s performance.

The infographic below shows FNB Connect’s impressive performance for the latest financial year.

MVNO explosion

Most MVNOs in South Africa run on Cell C’s network, as it was the only operator with a platform supporting this capability for several years.

However, the launch of MTN’s MVNO offering in 2020 has enabled new players with attractive packages to launch on the country’s second-biggest network.

This has resulted in an MVNO explosion in recent years, with several companies launching their offerings on MTN’s network – including Melon Mobile, TFG Connect, and Pick n Pay Mobile.

Most significantly, Capitec launched its MVNO unit in 2022, which now boasts over 1 million active SIMs in South Africa. 

Crucially, Capitec Connect is profitable for the bank and contributed R35 million in net income for the six months to the end of February 2024. 

This represents a substantial R42 million year-on-year increase, with Capitec Connect recording a R7 million loss the year before during its first five months of operation.

FNB Connect CEO Sashin Sookroo told MyBroadband earlier this year that it welcomes the growing competition in the MVNO market as it increases the popularity of the offering in comparison to traditional network operators. 

“I think the advent of more MVNOs and more competition has actually got customers thinking about what they are missing out on,” Sookroo said.

“There has actually more uptake on our side [than before other MVNOs launched].”

Sookroo noted that FNB Connect’s fundamental difference from most MVNOs is that many of its clients also bank with FNB, enabling the bank to cross-sell its products. 

Importantly for the bank, it also keeps its ‘front-of-wallet’ for clients. In a world where many individuals have multiple bank accounts, the competition is increasingly about which bank account is used more often and is the primary account. 

As a result, many banks have turned to offering clients more products and services to keep their offerings front of mind. 

MVNO offerings from FNB, Capitec, and Standard Bank are part of this growing competition, with banks aiming to leverage their existing client base to cross-sell different products. 

“One part you can look at is the customer acquisition, but the real litmus test is the retention rate and whether customers are seeing your value proposition,” Sookroo said.

“We value people who transact, we value people who use. We don’t just want a high number of customers. We actually focus a large portion of our strategy on quality.”

Sookroo said that this focus has yielded positive results. “You really see customers taking up and staying with the product.”