Secret plan behind new South African bank taking on Capitec by Shaun Jacobs

[Nat Quinn]

Old Mutual is set to launch its bank in early 2025, with it set to compete directly in the middle mass-market traditionally dominated by Capitec.

However, the aim of the bank may not be to compete head-on with Capitec as a bank but rather to protect Old Mutual’s existing insurance business from disruption.

To this end, the banking platform would give Old Mutual direct access to clients and enable it to cross-sell its insurance and investment products through its app.

Capitec has stormed into South Africa’s funeral insurance market by offering the product to its 22 million clients through its banking app.

Historically, banks have expanded into insurance as they are well-positioned to cross-sell insurance products through their banking channels and their ability to engage with clients through private banking.

This has worked for many, including Standard Bank with Liberty and now Capitec with its insurance products.

Research from Swiss Re, one of the world’s largest reinsurance companies, shows that Capitec may take up to 36% of all new funeral insurance sales.

This is a significant share that poses a major threat to Old Mutual’s insurance business. If Capitec can replicate this success with other insurance products, it can take a substantial chunk of Old Mutual’s Mass and Foundation Cluster.

Laurium Capital portfolio manager Matthew Pouncett believes that Old Mutual is launching its bank to protect its traditional insurance business and open up new distribution channels.

Pouncett said insurers starting banking operations in South Africa has been a unique trend, and this is set to significantly disrupt the industry.

Old Mutual has made it clear that it is targeting the middle mass market, which is made up of those earning between R5,000 and R80,000 per month.

The insurer is a major player in this segment of insurance through its Mass and Foundation Cluster, whose previous managing director has now been made CEO of OM Bank.

“We are very excited about what we have to offer the market. We think it will be something new and fresh, which will give the core, middle mass market consumer another option,” Old Mutual CEO Iain Williamson told BizNews.

Thus, Pouncett believes Old Mutual’s clear aim in launching a bank is to offer its insurance products directly to consumers in the way Capitec does through its app.

“The market is yet to see what the full offering entails, but many speculate the launch is largely a defensive move aimed at protecting Old Mutual’s lucrative funeral insurance business,” Pouncett said.

Operating a bank will also give Old Mutual vital data on the financial behaviour of its clients, enabling it to offer products better suited to its customer base and personalise offerings.

It can also offer its investment products to consumers through the app, opening up a new distribution channel for its asset management business – one of the largest in South Africa.

Old Mutual CEO, Iain Williamson

Old Mutual is already doing many of these things through its Money Account, which is facilitated by Bidvest Bank.

Williamson revealed during the insurer’s interim results presentation in September last year that, mainly through its bank account, Old Mutual already has a lending book worth R16 billion.

Given its extensive banking operations, he described it as a “no-brainer” for Old Mutual to launch a bank.

“Our unsecured lending book is sitting at R16 billion. We have about 400,000 active transactional account users in our transactional banking solution, which we do under Bidvest,” he said.

Old Mutual also offers a home loan product with SA Home Loans. “We have a lot of the components of banking. We have not brought those things together in one cohesive entity yet.”

Williamson said the bank would be highly digital but also complemented by Old Mutual’s extensive physical branch network.

“We have had a team building the digital infrastructure of the bank for the past two and a half years. That is now all finished.”

“So, we have all the infrastructure required to run and support the bank from a technology perspective, all the call centre technology, and core banking systems.”

“What we need to finish up is to conclude the constitution of the board to oversee the bank and the executive team to run the bank that regulators are comfortable with, given our history as a non-banking financial institution.”

Once that is completed, the bank will be launched alongside a new app that has already been developed. “The intention is for that to be early in the new year,” Williamson said.

Late last year, Old Mutual announced the resignations of Rolf Eichweber, CEO of OM Bank-Build, and Royden Volans, COO of OM Bank-Build, effective 31 July 2024.

Eichweber was replaced by Clarence Nethengwe, who has been with Old Mutual for 15 years and has overseen the expansion of its lending business in South Africa.

This marked the transition away from a ‘bank-build’ phase to a ‘bank run’ phase, with all the systems ready to go for its launch.

 

source:Secret plan behind new South African bank taking on Capitec  – Daily Investor

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