Recent results from Capitec show that a bank can find the middle ground between meeting both customer and shareholder expectations.
Capitec has increased profits by 44% and a R1 000 investment in Capitec a year ago would be worth R2 780 today. At the same time the bank has increased its number of customers by 37% to 2,1-million.
While still small in terms of the big four banks, in a recent independent survey, when asked which bank they might use, 53% of respondents chose Capitec, the highest response for any of the top six banks.
The success behind Capitec is quite simply efficiency. A relatively new bank, only obtaining its banking licence in 2001, it does not have the legacy of a bloated back office. It is technology-driven, allowing for high-volume, low-value activity. All back office work is done through their central hub in Belville, allowing its 3 600 branch staff to be client-facing. On a busy day they process more than 4 000 loans per hour. Through their central hub they have one support person for every four branches, compared with traditional banks where there are more admin than client-interaction staff.
The net result is lower fees. Capitec Bank charges R3,75 for an ATM withdrawal, and only R1 for cash withdrawn at a retailer. Withdrawals from another bank’s ATM cost only R7 — lower than the fees charged by the big four (the bank makes no profit on Saswitch transactions).
Capitec recently introduced SMS notification, which informs customers of their transactions and updates balances. They are also the only bank not to charge a fee for point-of sale-transactions. CEO Riaan Stassen argues that the continuation by other banks in charging for point-of -ale transactions is purely to protect their extensive investment in their ATM infrastructure. “Our view is to keep cash where cash is needed, which between retailer and consumer, not the bank.”
That said, Capitec fees did increase significantly this year, so existing customers may be unhappy. ATM withdrawals saw a 25% price increase and last year you could deposit up to R2 000 cash at a branch for free. That now costs you 75c/R100.
A cost analysis shows that if you manage your banking activity, you could bank for as little as R35 a month, but because the model only provides for “pay as you use”, the more you bank, the more you pay. Customers who have a high number of transactions may find bundled options from one of the big four more cost-effective. However, for customers with low transaction needs, Capitec is far more cost-effective as bundled options effectively have low users cross-subsidising higher users. Certainly on a “pay as you use” basis, Capitec wins hands down compared with other banks’ fees. The one weakness is its lack of ATM infrastructure, which means customers may use non-Capitec ATM’s more frequently, but at R7 the fees are not prohibitive.
‘Great Brand of Tomorrow’
This year Capitec was one of 27 companies identified as a “Great Brand of Tomorrow” by the Credit Suisse Institute. In this survey of great brands, Capitec rubbed shoulders with Tiffany, Amazon, Apple and Mercedes-Benz. This is a major milestone for the bank as it has taken time for Capitec to shake off its image as a micro-lender.
When Capitec opened its doors 10 years ago, it was always Stassen’s vision to become a retail bank challenging the status quo in South Africa. However, he realised that in order to build up critical mass and create a network of 300 branches, the bank would have to start off as a lender rather than a banker. The banking crisis of 2001 soon hit, which saw the demise of Saambou and rattled many of the small banks. Capitec could not afford to risk capital on long-term loans and only offered one-month loans, which by its nature attracts the most desperate borrowers, and established its brand as a micro-lender.
Today Capitec is successfully penetrating the middle-income market as a transactional bank. Although only 15% of its income comes from transaction fees as opposed to lending, this ratio is changing dramatically, increasing by 84% over the last year.
The reality of being a small bank means increased assurance to deposits. Capitec retains all short-term retail deposits as cash on hand so it can pay out immediately to depositors if there was ever a run on the bank. There is a significant opportunity cost in not being able to lend out the money, but it has held the bank in good stead during recent turbulent times. The bank maintains a capital adequacy ratio of 37% and all corporate deposits are fixed term, only allowing Capitec to match the length of its loans to that of its deposits.
While there are complaints that new banks struggle to enter South Africa’s payment system, with accusations that the Payments Association of South Africa (PASA) is a boys’ club run by the big four banks, Andre du Plessis, financial director at Capitec, says that although it took a long time, the bank was treated fairly. “If you don’t have the right technology it is a risk to bring you on to the payment system. People underestimate the complexity of the banking system. It appears as a closed club, but it is necessary,” says du Plessis.
The banking edge
Capitec is taking the banks head-on in the area of service and savings. Because all branch staff are front-office, there is more time to explain products and offer advice to clients. When you speak to clients they all comment on the level of individual service they receive at the bank. While most banking models are pushing people away from branches, Capitec is welcoming branch clients with open arms by having retail working hours from 8am to 5pm. Hours are extended when necessary, especially over month-end when a branch could be open until 7.30pm. “If you are in the branch and people are waiting outside, the manager will keep the branch open,” says Stassen.
And Capitec also pays you to keep your money with them. Unlike the traditional banks that pay 1% or 2% on your current account, Capitec pays 7% on any deposit in your account up to R10 000. Thereafter the rate drops to 5,75%. It also offers savings accounts that you can specify for your own needs. For example, if you are saving for school fees for next year, you can open a fixed-term savings account linked to your transactional account. The rate is fixed for six months, not the amount you deposit. So you can transfer R500 a month, for example, into the account and receive just more than 7% on a six-month deposit.