Old Mutual launching new bank in South Africa in 2024
Financial services group Old Mutual says that it has received approval from the South African Reserve Bank’s Prudential Authority to apply for a banking licence, with plans to launch its own bank in 2024.
In a voluntary business update on Tuesday (22 November), the group said that it had received Section 13 approval from the PA to proceed with the application for a banking license.
“The establishment of an entity in the group with a banking licence is a natural progression of our core strategy, helping us to sustain our customers’ prosperity through an enhanced transactional banking capability,” it said.
The group already has existing lending and transactional solutions – an unsecured lending product and the Old Mutual Money Account – with the latter handled through a partnership with Bidvest Bank.
“The current transactional solution is delivered through a commercial arrangement with a third-party bank. While this commercial arrangement has allowed us to gain experience in transactional
banking services, a divergence of aspiration requires us to reassess our future arrangement to deliver on our customer needs,” it said.
Old Mutual said that the unsecured lending solution, in particular, is already a strong contributor to group profitability.
“The establishment of a bank within the group will allow us to hold the primary relationship with our customers, driving greater regular interaction with them and enhancing the cross-sell opportunity across the group. It will also enable the group to accept retail deposits, thereby providing a cheaper source of funding.”
Old Mutual said that it is building transactional capability using the latest technology that will allow enhanced servicing and personalisation.
“This, together with a cloud-based technology stack, will enable us to deliver cost-effective, flexible and scalable solutions to our customers.”
In terms of financing the planned build, the group said that the approved expenditure to complete the build of the transactional capability is R1.75 billion.
“In line with the business case, we have incurred costs of R830 million for the current period and approximately 10% of these costs were capitalised.”
Once relevant Prudential Authority approvals are received, the launch is targeted for the second half of 2024. The entity is expected to break-even three years after the launch.
“As the capability matures post-break-even, the return is expected to be significantly above the target return of 4% in excess of the cost of equity. We are currently working on our application under Section 16 of the Banks Act for the registration of the bank,” it said.
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