Capitec’s plan to disrupt business banking

Capitec plans to disrupt South Africa’s business banking landscape by targeting smaller businesses and using the same playbook it used to disrupt retail banking over 20 years ago.

Capitec Business launched in 2023, aimed at small and medium-sized enterprises (SMEs) and a strong focus on businesses in South Africa’s emerging market.

At Capitec’s recent Business and Finance Media Day, the bank revealed that there are an estimated 2.6 million formal SMEs in South Africa.

These SMEs are responsible for 60% of employment in South Africa and contribute 34% of the country’s GDP.

In addition, there are over 3 million emerging businesses in townships and rural areas across the country. The emerging market is estimated to be worth R750 billion per year.

It’s among these businesses that Capitec saw the opportunity to disrupt South Africa’s business banking landscape.

It found that current business banking products are overly complex, expensive and not designed to suit the needs of SMEs, similar to the retail banking landscape prior to Capitec’s launch in 2001.

Capitec’s answer to this problem is a “simple and transparent banking solution that is relationship-based and scalable through technology.”

This is based on Capitec’s founding fundamentals – simplicity, affordability, accessibility and personal service.

Capitec’s business banking offers include merchant commerce, rental finance, payment service and forex options.

What makes its service unique is that it is a single solution – similar to its retail banking offering – as businesses only need to open one account, which gives them access to all the other offerings.

Businesses can also open an account and get this access online, with no need to go into a branch.

The bank explained that while this is convenient for tech-savvy customers, it is difficult to implement only a fully digital option in South Africa, where many people still lack access to quality internet.

Therefore, the bank also has a network of business-specific branches across the country for customers who need in-person assistance and a “relationship suite” with 130 bankers for scaled support.

Affordability is also one of Capitec’s priorities for this offering. The bank said in its Annual General Meeting that it offers the same fees for business banking as it does for personal banking.

This makes Capitec’s offering 63% less than its average competitor.

Capitec’s Business Banking Executive Karl Kumbier said this is made possible through the efficiencies created by economies of scale.

As more customers use the service, the bank becomes increasingly capital-efficient, as it does not have to keep investing cash to grow the company. 

In effect, after investing to provide the business banking platform, Capitec can handle a growing customer base without having to pour more capital into servicing clients. 

Therefore, Capitec can take the “short-term pain” of offering very cheap services to attract more customers, creating a critical mass of clients. This should lead to “long-term gains” for the bank.

This mindset is also why Capitec offers a point-of-sale device to businesses that it claims is cheaper and takes lower commission fees than its competitors. The price comparison for these devices can be seen below:

While Capitec has achieved incredible success in disrupting South Africa’s retail banking landscape, it faces far more challenges in trying to do the same for business banking.

When Capitec first launched in 2001, South Africa’s banking landscape was dominated by four large players.

Capitec was able to disrupt this market by focusing on underserved and unbanked clients and offering them accessible and affordable banking services.

This strategy worked well, as Capitec now has the largest client base in the country, and other banks followed its playbook and now offer low-cost accounts to clients.

While South Africa still has four large, dominant banks – Standard Bank, Nedbank, FirstRand and Absa – the market has significantly changed, with new players and new markets to enter.

For example, FinTech companies Yoco and iKhokha do not offer banking services but dominate payment services for South Africa’s informal sector and micro-enterprises – the space Capitec is looking to enter. 

In addition, many of South Africa’s big banks have already geared their business banking offers towards SMEs, and several are looking to penetrate the informal economy.

Therefore, Capitec’s road to disrupting the business banking sector is a lot more steep.

However, the bank backs itself to make this a success, and has already shown promising growth.

CEO Gerrie Fourie said there are currently between one to two million businesses out there, and Capitec Business currently services around 80,000 active clients, which shows the potential for growth.