Who will be the next Capitec?

It comes as no surprise that many businesses, some with no connection to banking, want to be the next Capitec.   

Its story is extraordinary. It started offering retail deposits only in 2008 yet is now the third-largest bank in South Africa by market capitalisation, behind FirstRand, and almost neck and neck with Standard Bank.  

Who wouldn’t want Capitec’s remarkable success, which has brought substantial material rewards to its management and staff?

Under its three CEOs, Michiel le Roux, Riaan Stassen and now Gerrie Fourie, Capitec took on the big four banks by disrupting the traditional banking models, writes former FM staffer TJ Strydom in his book Stalking Giants. It opened branches when others were closing theirs, prioritised personal service over automation and catered for millions of South Africans who were deemed unbankable because they were seen as unprofitable. 

There are several pretenders hoping to disrupt the market.   

Bank launches need marketing and brand support. Bank Zero, in which former FNB boss Michael Jordaan is an anchor shareholder, has had little traction since it became an official bank as part of the national payments system in 2019. Even within its sweet spot of business banking, its market share is negligible. It has opted for a “build it and they will come” strategy. But with limited visibility, few have taken up the challenge.   

Discovery Bank straddles traditional banking and the world of fintech. CEO Hylton Kallner describes the bank as a digital-first institution, with a focus on innovation and efficiency, using advanced technology at scale with a personalised experience. 

“We have no legacy, but unlike fintech companies we operate within a highly regulated framework, just as the incumbent banks do,” says Kallner.  “We have an established brand and offer a full suite of banking products across all income and demographic groups — unlike fintechs, which tend to focus on niche elements.”  

Many were expecting Discovery Bank to compete primarily with Investec at the top end of the market, but Investec — a near neighbour down Rivonia Road — has a mere 100,000 private clients. Discovery Bank’s ambition was always to get to millions of clients.  

Kallner says the bank offers products that appeal to all income groups. The zero-monthly-fee Discovery Account is available to clients with any other Discovery product, right up to its Platinum, Black and Purple cards, with monthly fees starting at R30.   

He says quality clients are found across the income spectrum and can act responsibly given the right education, information and incentives. But in reality it is unlikely that a domestic worker would ever possess an elite Discovery Purple card.  

Then some ageing prizefighters are coming back into the ring: Old Mutual and African Bank.   

Old Mutual, established in 1845, has launched OM Bank as its vehicle to provide integrated financial services to its mass-market clients.   

Then some ageing prizefighters are coming back into the ring: Old Mutual and African Bank

As it’s not classified as a mutual bank, the regulator won’t allow Old Mutual to use the name Old Mutual Bank. But clients will know that it is part of Old Mutual, as it will retain the distinctive anchor logo and the green colour scheme.  

 The CEO-designate is Clarence Nethengwe, who previously ran Old Mutual’s mass and foundation cluster (MFC), formerly known as group schemes. This sells funeral products primarily through worksite marketing in the public and private sector as well as to retail clients.   

The core MFC market consists of public sector workers such as nurses, police officers and teachers. They typically earn R25,000-R30,000 a month and pose a limited risk of bad debt, as the level of retrenchments has been low in the public sector.  

OM Bank will target the increasingly digitally savvy MFC client base and will be a digital-first business, though there will be products and services appropriate to the broader middle class and mass-affluent Old Mutual client base. The group has 6.5-million clients in South Africa alone.  

Old Mutual already has several banking-type activities, including a R16bn unsecured lending book through its Old Mutual Finance operation. It’s no accident that Old Mutual Finance branches are often found in the same shopping centres as African Bank, as they have similar target markets.  

The group has also taken the Old Mutual transactional bank card in-house; it used to be managed by Bidvest Bank. Bidvest itself is out of the banking game after selling this business to Nigeria’s Access Bank. Old Mutual also has a R5bn book of home loans on the Old Mutual Life Assurance Company of South Africa balance sheet. 

In due course, subject to the approval of the Prudential Authority, the intention is to consolidate all these businesses into OM Bank.  

Nethengwe says the cost of building the bank has been tight, at a total R2bn. The build-out of the digital Discovery has been estimated at R8bn-R10bn, including “robust”’ systems and start-up costs. “We accept that the market watches Old Mutual’s capital allocation very closely,” says Nethengwe.   

Byron Jackson-Miller, banking analyst at Foord Asset Management, says the market is right to be sceptical about OM Bank. He says Old Mutual is on the back foot, given the way the Capitec funeral product has eaten Old Mutual’s lunch in that sector.   

He says the banking app will lead to many more eyeballs viewing the Old Mutual suite of products at least. People use their banking apps just about every day, while they might not use the insurance app more than once a month, he argues.   

African Bank, too, has ambitions to disrupt. CEO Kennedy Bungane points out that the first African Bank branch was opened in 1975 in Ga-Rankuwa, near Pretoria.  “We offered a savings account and loans,” he says. “The intention was to promote savings and investment and to provide support for largely unbanked communities, whether households or entrepreneurs. Many restrictions were imposed by the National Party government on how and where we could operate.”  

African Bank is something of a tarnished brand, having gone into curatorship in the 1990s and again in 2014. Perhaps if it had played its cards right, we would now be asking who the next African Bank would be. 

It was the market leader in unsecured loans into the mass market in 2007 (when it did not take retail deposits, so, strictly speaking, it was not a bank).  The then CEO, Leon Kirkinis, had ambitions for the bank. He was a creative thinker who made his name working on special projects for UAL, a merchant bank owned by Nedbank. 

He expanded African Bank Investments Ltd (Abil) to offer credit. But he lost the plot when Abil acquired the Ellerine Holdings furniture chain for a large premium. It seemed logical at the time, as Ellerine was a quasi-bank, selling furniture almost entirely on credit.  

Under Bungane, who might well have been CEO of Absa today if he hadn’t left it in 2014, African Bank aims to put its wheeler-dealer past behind it.  

His predecessor at African Bank, Basani Maluleke, took the bank back to its original goal to be a “bank for the people, serving the people”, with personal, business and commercial banking services.   

Bungane’s roots are in the more rarefied world of investment banking and private equity. He left Absa after a much-publicised disagreement with its then CEO, Maria Ramos. He would be a strong candidate to run Absa even now, but he has a different though equally important challenge at African Bank.  

Under his initiative the bank has introduced the Excelerate25 programme to ensure, in his words, that the bank will become “obsessed about serving the underserved and underserviced entrepreneurs and the middle and bottom of the pyramid of our customer segments”.

Bungane is confident that the damage done to the African Bank brand during the freewheeling microlending days is being overcome. He says the brand equity has been independently verified to have increased from almost zero in 2014 to R1.5bn today. But the bank still has to offer a healthy rate (12.8%) to attract fixed deposits.   

African Bank is on track to list on the JSE in 2027 and Bungane says the Public Investment Corp will stay on as a long-term shareholder.  

African Bank is streets ahead of Capitec when it comes to empowerment credentials. It has created the iKamva Lethu scheme through which staff own 10% of the bank. “We have also started a process to allocate further equity ownership to management and to black entrepreneurs and black women groupings,” says Bungane. 

African Bank is on track to list on the JSE in 2027 and Bungane says the Public Investment Corporation will stay on as a long-term shareholder.

The bank’s products are tailored to the South African market — the MyWorld account operates on a “shared banking” model, which allows the extended family of the client access to that account. This is not to be confused with the Discovery shared-value model, which is all about gaining rewards. “From our research and discussions with customers, we learnt that South Africans wanted a banking system that would make their daily lives easier,” says Bungane.   

He says MyWorld offers up to six accounts, competitive interest rates on any positive balance and, for some clients, South Africa’s lowest banking fees. He also calls the Audacious Rewards loyalty programme a game-changer. It rewards customers for banking with African Bank, with points that can be redeemed for cash, electricity or data.   

Jackson-Miller is sceptical about the value of rewards programmes, which have made only a marginal difference to their promoters, with the exception of Discovery Vitality and FNB eBucks.  

Later in 2025, African Bank will launch its business transactional account to support SMMEs. “Our overall business and commercial offering will address many of the challenges that have frustrated business owners in the past,” Bungane promises.   

With his background in corporate banking, it’s no surprise that Bungane has been diverted from the relatively mundane task of running a retail bank to involvement in a string of acquisitions African Bank has made. They have included two niche banks — Grindrod Bank and Ubank, as well as some of Sasfin Bank’s business units.   

There will probably not be another success in South Africa like Capitec soon, in banking or any other sector

With the capital equipment and commercial property finance units of Sasfin, African Bank now has a more holistic mid-market (Bungane calls it middle-of-the-pyramid) business banking option “designed to stimulate business growth and remove the tedious administrative burden that hinders so many business operators”.  

Sarah-Jane Alexander, co-manager of the Coronation Equity Fund, says that when it comes to listing day in 2027, it will be important to see how effective African Bank has been at leveraging its alliances, which now make up a substantial part of its earnings.     

Its partners include the fintech Lesaka Technologies, which serves the underbanked market, and African Bank provides the banking backbone to MTN Money. It also uses Shoprite extensively for when its clients need cash — much as TymeBank uses Pick n Pay and Boxer.   

The most serious contender for the title of being the next Capitec looks likely to be TymeBank; it was built for the digital age. Nubank, which is Brazil’s Capitec, has invested $150m in TymeBank, pushing its assessed value up to $1.5bn. Its model is entirely digital.   

The technology was not available for a mass-market branchless bank when Capitec first opened its doors in 2001, though in the elite market, Investec has offered branchless private banking since 1990.   

Unlike the highly parochial Capitec, which has negligible earnings overseas, TymeBank is a multinational business. So far, its largest market outside South Africa is the Philippines. TymeBank South Africa CEO Karl Westvig says the Southeast Asian nation has a similar demographic to that of South Africa and is at a similar stage of development. “We learn lessons from both markets, and also from Indonesia, where we have a smaller operation right now.”  

In South Africa, TymeBank has kiosks to recruit new clients in every Pick n Pay and Boxer store. There are “brand ambassadors” to facilitate the process — it is simple for citizens and residents with an ID number — but the ambassadors are not branch staff in the traditional sense and cannot give advice to clients.  

Westvig says TymeBank has issued 10.5-million cards, at the lowest acquisition cost almost anywhere in the world — about $4 or $5 per client, or R70-R80. “This is one-fifth of Capitec’s acquisition costs, and the big four banks onboard clients at a cost 10 times higher than ours.”   

He adds: “The bank is priced to make sense for Sassa grant holders to become clients, which might not be true of Discovery Bank, for example.” He also argues that the bank’s savings products are competitive — such as GoalSave, which gives a 6% interest rate, with withdrawals possible on demand. The rate increases to 10% for three-month deposits.  

Westvig argues, along with Momentum’s Jeanette Marais (see box), that an open banking regime will make “owning” the client much less relevant, and that this will level the playing field for TymeBank. “If we follow the EU standard, banks will be required to share, with client consent, both positive and negative information with their competitors.”   

Jackson-Miller says nobody knows how Sanlam, which is a shareholder in TymeBank through African Rainbow Capital, will leverage this relationship — perhaps not even Sanlam CEO Paul Hanratty himself. But Hanratty has indicated that, because of its shareholding, it makes sense to work with TymeBank. The distribution relationship with Capitec, which Hanratty hoped would be long term, ended abruptly last year.

But there will probably not be another success in South Africa like Capitec soon, in banking or any other sector. Discovery Bank itself has been a remarkable success story across financial services, but it is priced to compete not with Capitec but with FNB and Standard Bank.  

No doubt Discovery Bank can beat the big four on price — but that is a small part of the value proposition. Still, Kallner says that over the past two years the majority of clients joining the bank have been new to the group and do not have any other Discovery products.  

African Bank under Bungane looks set to become a strong midsized bank with all the right moving parts. People will be attracted to the business for its BEE credentials, but it has yet to convince the market that it has a compelling suite of products.    

TymeBank is the one with the most blue sky, particularly when it takes its place in the Sanlam ecosystem.  

Why Momentum doesn’t want a bank

The Momentum Group, the FM’s pick as the insurance share to watch in 2025, stands out as the only major life office which has no desire either to build a bank, in the mould of Old Mutual and Discovery, or even propose to set up a “most favoured nation” relationship with a bank, as Sanlam is doing with TymeBank.

Momentum CEO Jeanette Marais says the group has “a strong awareness of our core identity. We are primarily an insurance and investments company. We want to be the best at our core offering, with the best products, advice and service.

“That’s our identity and we are proud of it. We want to remain focused and not divert our attention, time and capital towards banking, which is ancillary to who we are and not at the core of our business.”

Marais says a critical consideration for Momentum is its strict and specific capital deployment strategy, focusing only on acquisitions and business expansion initiatives that align with group strategy.

“We are positive that there is much growth available in our current market,” says Marais. Momentum Wealth has a significant, though by no means dominant, market share of the independent financial adviser (IFA) market.

She points out that banks are notoriously poor at financial advice. It’s common cause that bank brokers in the big four rarely have the expertise of IFAs or tied insurance agents. And she says it’s rare for people to change their primary bank — and there is little benefit in being a client’s secondary banking account.

Marais points out that the transactional banking environment is highly competitive and likely to get more so, with the extension of capabilities into the fintech space — of which TymeBank is the outstanding example so far.

And she argues that for insurers, transactional banking itself is not the primary driver of returns but rather a way to drive clients from the lending space (secured and unsecured) into other broader spaces such as investments and bancassurance (which refers to embedded life products sold in tandem with unsecured loans, vehicle finance and home loans).

The future implementation of open banking, following on from rules in the UK and EU, will reduce the intelligence benefits of holding transactional relationships.

Marais adds that it’s far easier for traditional banks to add simpler insurance and savings products to their existing distribution infrastructure than it is for traditional insurers and asset managers to develop a competitive full-service banking capability — which in South Africa almost certainly means offering risky unsecured lending as part of the mix.

Access to day-to-day transactional data from a bank account is considered to be an advantage to insurers. But she argues that the exponential growth of external data sources from nontraditional segments such as retailers and telecoms operators means that being able to access and leverage this data can make up for not having a direct transactional relationship with the client.

The future implementation of open banking, following on from rules in the UK and EU, will reduce the intelligence benefits of holding transactional relationships.

Under the open banking regimes adopted in the UK and EU, with the client’s permission third-party banks and other financial institutions can access a client’s full banking information. This means that banks no longer “own” the client in the way they did in the past. Data is no longer a competitive advantage. Local banks — particularly those that see client data as a competitive advantage, such as Discovery — are fighting the adoption of an open banking regime in South Africa.