Old Mutual is making a push into banking low-income earners in South Africa, setting itself on a collision course with Capitec, the nation’s biggest provider of unsecured loans.
The Johannesburg-based insurer is delving into an industry facing increased competition – not only from new entrants, but also from the government and a rejuvenated African Bank following its emergence from a 2014 collapse.
The ruling African National Congress is seeking to create a state-owned lender, while the Post Office is aiming to use its 2,200 outlets to expand its offerings into a full retail bank.
“The question is, do we partner or do we build it for ourselves?” chief executive Peter Moyo said in an interview in Johannesburg. “We’re actually in the process of thinking about it.”
Old Mutual doesn’t have its own banking license and offers transactional-banking services through a partnership with Bidvest Bank.
Its thrust into banking won’t clash with an agreement the insurer has with Nedbank, Moyo said.
Old Mutual is cutting its stake in the Johannesburg-based lender – which counts mainly middle- to higher-income earners among its clients – to 19.9% by the end of the year.
Not Just Banking
“We’re actually stronger I would say than Nedbank in the lower income segment,” Moyo said. “It’s not just about banking.”
The insurer distributes and sells personal loans, savings products as well as funeral and other insurance cover through brokers, its website and 332 branches around the country.
Its personal loans book increased by 11% to R13.4 billion ($911 million) in the six months through June from a year earlier. Capitec has 826 branches, almost 10 million clients and a R48 billion loan book.
Old Mutual sells to lower-income earners through its Mass and Foundation Cluster, which accounted for about a third of so-called annual premium equivalent life insurance sales in the first half, the CEO said. Sales in the unit jumped 21% in the period as Old Mutual increased the number of advisers.
The 173-year-old insurer is opening as many as 40,000 new bank accounts a month through its partnership with Bidvest’s banking unit, said Clarence Nethengwe, managing director of the Mass and Foundation Cluster.
The money accounts combine savings and the ability to pay at merchants for a monthly fee of R4.50 as well as a mobile-phone app, cellphone banking for people who don’t have smart phones and Internet banking.
Old Mutual joins at least four other companies planning to take on the nation’s five biggest lenders, such as Standard Bank and FirstRand, which together control more than 90% of banking assets. Discovery, the nation’s largest health-insurance administrator, plans to start a service within months.
“We also need to take the fight to them in terms of attacking what is core to them,” Nethengwe said. “Some of those players are very strong in the unsecured-lending space as well as a transactional proposition, so we have to improve and expand our lending as well as transactional capability.”