It’s amazing how often the news on the JSE follows a theme. In the past week, it was all about banking, with the banks generally struggling to achieve net interest income growth in an environment of slowly decreasing rates and low demand for credit from retail borrowers. Core banking operations are not doing well, but results were boosted by varying degrees of growth in non-interest revenue and improving credit loss ratios.
Of the five large banking groups, the one you’ve wanted to own this year is — you guessed it — Capitec, with the share price up 14% year to date. Next is Standard Bank with a 2.5% increase, followed by FirstRand, which is slightly in the red as the market continues to weigh the risks in the UK motor finance industry. Absa is 6.5% lower and Nedbank is really suffering with the most concentrated exposure to South Africa among the traditional large names, down 14%. If there are any Capitec bears left out there, you have to look hard to find them.
In and among those updates, Capital Appreciation released financial results and Lesaka Technologies announced the acquisition of Bank Zero. The divergence in share price performance this year is stark, with Capital Appreciation having lived up to its name with a 15% increase, while Lesaka is languishing 22% lower year to date. The word “fintech” tends to have broad application these days, but most would accept that the payments business in Capital Appreciation and the entire operation at Lesaka fall under that umbrella. There are interesting things to learn from both recent updates.
Capital Appreciation is a tale of two segments. The software division has been a drag recently and suffered a 7.6% decrease in growth in the year ended March 2025. Our focus here is on fintech, though, so this segment won’t get another mention. The important thing to remember is that if you do want to invest in Capital Appreciation, just be aware that you aren’t getting pure-play exposure to fintech.
The payments business is where all the excitement lies in the group, and it is more than making up for the software segment
Thankfully, the payments business is where all the excitement lies in the group, and it is more than making up for the software segment, with the company enjoying strong secular trends around adoption of card payments vs cash in South Africa. By African market standards, South Africa has a high frequency rate in card payments, and the value of those payments is growing ahead of inflation every year.
And of course, it’s not just cards that are relevant here — the trend of contactless payments means any near-field communication-enabled mobile device can become a secure point-of-sale (POS) terminal. Capital Appreciation’s Halo Dot offering is in the pilot phase for various applications, ranging from the gaming industry to faster checkout solutions at Pick n Pay Clothing. Another interesting initiative is LayUp, which is showing encouraging growth across multiple sectors.
It’s good to see Capital Appreciation innovating with new products, but it’s the terminal estate (the installed base of POS card machines) that is doing the best work here. Terminal sales increased 41.1% and transaction-related income increased 18.6%, roughly in line with the growth in the number of devices in the terminal estate. The tills just keep on ringing (or in this case, the machines just keep on beeping), with annuity revenue contributing 55.3% of total revenue in this segment. With the segment growing earnings before interest, tax, depreciation and amortisation by 23.3% thanks to a 340 basis point expansion in margin, the market likes this story.
As for Lesaka, it has work to do. The platform needs to scale significantly to be economically viable, which is exactly why the Bank Zero deal is so interesting. Though it values Bank Zero at a meaty R1.1bn, it is paying R1bn of that through issuing shares in itself. This is a big show of faith by Michael Jordaan and the rest of the Bank Zero team in the Lesaka platform, especially as those shares are subject to lock-ups of between 18 and 36 months.
Aside from a substantial injection of equity value into the Lesaka group, this also introduces a banking licence into the mix of merchant, consumer and enterprise solutions. This gives Lesaka deposit-taking and lending opportunities, leading to a far more competitive cost of funding for the group.
There’s a lucrative pie to fight over in the fintech space. Capitec has shown the power of disruption in banking. Just how much can Capital Appreciation and Lesaka achieve in the next wave of fintech product adoption?
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