New South African bank taking on Capitec has 1 million customers – before it has even launched 

Old Mutual Bank, the insurer’s play to become a full-service financial institution, already has 1 million customers for its transactional banking capability. 

The company revealed this upon announcing the bank’s new CEO, Clarence Nethengwe. In his 15 years at the company, Nethengwe has overseen the insurer’s unsecured lending business and finance division. 

The new bank has completed its bank-build process at a cost of R1.75 billion and received section 17 approval from the Prudential Authority earlier this year. 

This approval enabled the bank to test its systems with selected partner banks before integrating into the National Payments System. 

As part of this transition from building a bank to being fully operational, Old Mutual reshuffled its leadership, with Nethengwe taking over from Rolf Eichweber. 

Nethengwe was part of the bank’s formation as head of the insurer’s finance division and drove the formation of a bank as an opportunity to grow Old Mutual as a full-service financial institution. 

Despite not having a formal bank, Old Mutual has played in the space for some time with its transaction Money Account. 

Currently, this transactional banking account is administered by Bidvest Bank, but this will change before the insurer’s new bank is launched at the end of 2024. 

Old Mutual CEO Iain Williamson said this offering is already a significant contributor to the insurer’s profitability. 

Upon announcing the bank’s new leadership, Old Mutual also revealed just how large its ‘banking’ business already is. 

The insurer has over one million clients using its Money Account, and its unsecured lending business has a book worth R16 billion. Its home loan book totals over R5 billion and is currently housed in a separate subsidiary. 

Nethengwe has overseen the growth of these businesses as head of the insurer’s finance division and is expected to lead the bank’s charge against Capitec. 

While not naming Capitec directly, Old Mutual said it plans to target South Africans earning between R5,000 and R80,000 per month. This is traditionally seen as Capitec’s stomping ground. 

To compete, the insurer said it would leverage the existing 3.1 million low-income South Africans served by its Mass and Foundation insurance cluster. 

This cluster serves low-income and lower-middle-income individuals, who typically earn between R1,000 and R30,000 per month. 

Williamson said the insurer is well aware of how competitive the country’s banking sector is and is going into this venture with its eyes wide open. 

Banking shakeup 

Old Mutual is not the only new bank set to be launched soon in South Africa. Three other banks are in the works, and Bidvest Bank is up for sale. 

South Africa already has 29 registered banks, and some fear the country will become overbanked, which will likely result in industry consolidation. 

South Africa’s financial sector has long been dominated by the country’s ‘Big Four’ banks – Absa, FNB, Nedbank, and Standard Bank. Capitec has been the only real disruptor.

Other banks have targeted specific niches, such as Discovery Bank, which focuses on high-quality clients and individuals within the Discovery ecosystem. 

Many have used technology as the main driver of their disruption, being digital-only banks that are asset-light and flexible compared to traditional incumbents. 

Another expected challenger for Capitec is the government’s Postbank, which is set to become a fully-fledged state-owned bank separate from the Post Office.

President Ramaphosa signed the Postbank Amendment Bill into law in September last year, formally transferring the Postbank’s shareholding from the embattled South African Post Office to the government. 

While Postbank has always offered minor banking services through the Post Office, it was strictly a savings subsidiary, unable to offer transactional accounts, credit, and other banking services.

With the Act now in effect, it can apply for a new banking licence from the Reserve Bank’s Prudential Authority. The Postbank has previously said it will resubmit its Section 16 application for the current financial year, with no set date given for its launch.

Another state-owned bank, the South Africa Innovative Financial Services Cooperative (SAIFSC), has not received any banking licence as yet and will be more akin to a formalised stokvel until it does. 

This bank is set to be run by the Department of Women, Youth, and Persons with Disabilities. 

Perhaps the most likely to disrupt the incumbents is whoever gets their hands on Bidvest Bank, with Bidvest selling its financial services businesses following a portfolio review. 

This bank already has a sizeable customer base, with significant fleet management operations and has been up for sale since July. 

Bidvest’s management team said it plans to find a buyer for the business before the end of 2024.