Two new South African banks, OM Bank and Pep Bank, are targeting Capitec’s market with affordable and convenient banking services.
This week, news broke that Pepkor is planning to partner with Investec to open bank branches in South Africa that offer zero-fee services.
Pepkor is a dominant player in South Africa’s discount and value retail sector, serving the lower-to-middle-income consumer segments.
It has numerous prominent retail brands in its stable, including PEP, Ackermans, Dunns, Shoe City, and Tekkie Town.
The new venture, dubbed “Pep Bank”, will use Pepkor’s 6,000-store network to reach millions of lower-income customers.
The profits of the new venture would be split between the retailer and Investec, which focuses on high-net-worth individuals in South Africa.
By opening Pep Bank within its existing stores, the retailer can roll out branches quickly and attract customers who already frequent its discount outlets.
It can also use the substantial data it has collected on customers to tailor financial products for them more effectively.
Pep Bank will compete head-on with Patrice Motsepe’s TymeBank, which has banking kiosks at Pick n Pay, Boxer, and TFG stores.
It will also compete with Capitec, which has been targeting the mid- to low-income market since its launch.
Offering affordable banking services to the traditionally unbanked has been a key factor behind its explosive growth.
Capitec’s flagship product from the beginning was a single, simple, all-in-one transactional and savings account.
This contrasted sharply with the traditional banks’ tiered, complex account structures with hidden fees.
Capitec operates on a low cost-to-income ratio, allowing it to charge lower fees. This affordability was the primary hook for the price-sensitive mass market.
New banks, including TymeBank and now PEP Bank, use the Capitec playbook to launch banking services for the mass market.
OM Bank also after Capitec’s market
OM Bank, which is part of Old Mutual, has unveiled its plans to compete against the country’s biggest banks and take on Capitec in the lower end of the market.
This plan involves leveraging Old Mutual’s existing insurance client base, its Money Account product, and offering a unique combination of insurance and banking services.
Being able to leverage Old Mutual’s Mass and Foundation insurance cluster, which has over seven million clients in South Africa, gives the bank a strong starting position.
The ability to win over customers from other banks is crucial for OM Bank to succeed, with it estimating that it needs 2.8 million clients to be profitable.
It aims to reach this milestone by the 2028 financial year, with the bank running at an annual loss of R1.1 billion to R1.3 billion until then.
OM Bank targets South Africans who earn between R8,000 and R80,000 per month, which means it is in direct competition with Capitec.
Capitec dominates this market segment, serving 25 million clients. However, OM Bank is well-positioned to effectively compete against Capitec.
OM Bank CEO Clarence Nethengwe said that the bank’s banking app generates around 24 times more interactions per client per year compared to alternatives.
This provides immense opportunities for Old Mutual to use the banking app to cross-sell its insurance and investment products to clients.
However, it first has to get these clients, with the bank currently onboarding around 5,000 customers a day.
It informed investors and analysts that it has 140,000 clients, having launched just three months before.
This rapid growth has been driven by converting existing clients from its Money Account offering and Old Mutual Finance to the bank.
OM Bank also has another crucial headstart on other new banks, with Old Mutual Finance’s R15.5 billion loan book and 346 branches incorporated into the bank.
Nethengwe said OM Bank is not focusing on an unfamiliar client base, as it already knows the individuals it is targeting through the insurance business.
This has enabled the bank to build its value proposition around these clients and their needs, giving it an edge over incumbents.
