Capitec is coming after these businesses in South Africa
Finance group Capitec says it is no longer just another bank but has grown into a fully-fledged financial powerhouse in South Africa—with its eyes firmly set on bringing the same disruptive business model seen in the retail banking sector to the business banking and insurance industries.
Speaking at a media engagement in Johannesburg this week, Capitec chief executive Gerrie Fourie laid out the bank’s broad strategy for the next few years: bring “proper” services to small and medium businesses, scale up and create new markets, and build and grow South Africa.
Capitec has had a remarkable growth journey in South Africa, going from the “cheap” banking option for low LSM markets, to a major disruptor in the entry-level and mid-market banking space.
In 2014, the bank had around 5.4 million banking customers. By 2024, it had 23 million—more than a third of South Africa’s entire population—representing an astounding growth of 325%.
Over this time, the bank launched a banking app (which it says is now the biggest digital banking platform in the country), started a race to zero in the entry-level banking segment (where every other bank was forced to launch accounts to compete with the Capitec Global One), and expanded its branch and ATM networks at a time other banks were scaling down.
As of August 2024, Capitec is the third largest bank in the country by market capitalisation, valued at R330 billion, just below Standard Bank (R390 billion) and FirstRand (R470 billion)—though the executives are quick to point out that this isn’t a particular metric they’re focused on.
According to Fourie, Capitec’s monumental growth in the retail banking sector gives the group confidence to enter new markets with a strategy underpinned by three key things: scale, data and flexibility.
The bank’s rapid rise in retail gave it billions of data points to track customer behaviour, allowing it to develop the products and services that clients need and value.
In a nutshell, Capitec clients are South Africa, and trends and analysis of their behaviour gives a clear indication of what is happening in the country at large.
This scale, in turn, also allows the bank to disrupt pricing and cost savings in the services it offers. If you have the client numbers, then building products with simpler and lower fees is much easier. This gives the group its other big benefit: flexibility.
Entering new markets
Capitec’s rapid growth and billions of rands of investment in upgrading its systems and infrastructure have primed the group for its next big step.
Following the acquisition and rebranding of Mercantile Bank to Capitec Business, and gaining the relevant licences to underwrite its own insurance products (and taking over the policies sold via third parties), Fourie said the next phase of Capitec’s journey lies down these paths.
For Capitec Business, the group wants to bring the same simplicity and low-fee banking services it has offered retail clients for years to the business sector.
Fourie stressed that the group has no interest in entering the highly competitive corporate banking space but is rather looking to service small and medium businesses (SMEs) and entrepreneurial clients who have long been left underserved.
This entails offering the same one-account, simple price and personalised service structure, just with added business-focused services included.
According to the bank, the formal SME market in South Africa is worth around R400 billion—and the informal market is thought to be even larger, though its true scale is unknown. Some estimations put it at R750 billion, making it a very attractive segment for any finance group to tap into.
Capitec is not alone in this, however. Other banking groups, from digital-only banks like Bank Zero to private and investment banks like Investec, are all after the same pot of honey.
Capitec Business executive Karl Kumbier said that Capitec Business will take on the market by “disrupting itself” in the space (ie, disrupting its previous offerings as Mercantile Bank) by bringing in aggressively competitive pricing, undercutting competitors by as much as 50%.
Fourie added that this would hopefully bring in the scale needed to match the same results seen in the retail segment. The aim, he said, is to create the market, not fight competitors over the same group of customers, but to “grow the pie”, and bank the unbanked businesses out there.
He said Capitec is happy to lead the way and create the market for other groups to compete in.
The CEO said that there are currently between one to two million businesses out there. Capitec Business currently services around 80,000 active clients, which shows the potential for growth.
Insurance focus
Along with business banking, Capitec is also branching off and growing its insurance business.
While the insurance segment is a whole different ballgame—and already fiercely competitive—the group hopes to bring the same strategy to the fore: scale, data, and flexibility.
Capitec is entering the insurance market (on its own two feet) with the huge advantage of having a ‘captive audience’ of around 23 million potential clients, and a wealth of data on how they transact. This gives the group invaluable insights into how to structure its products.
According to Capitec Insurance executive Katherine Barker, the insurance business is also learning from Capitec’s philosophy on simplicity to stand out. This entails making insurance less complicated to understand and using simple language when writing up policies.
However, compared to the banking side of things, the insurance business is still in its early days. The group is still in the process of carrying over third-party policies (Capitec insurance policies offered through Guardrisk and Sanlam), and the priority, for now, is to ensure that these policyholders are comfortable and seen to under the new Capitec Insurance business.
Barker said that the 13 million people covered by these policies need to be secure and happy, before the group starts looking to expand.
Capitec currently offers life cover and credit cover (the former launched in June), and it said that the take-up has been better than expected. It added that there is a massive, untapped market in the insurance segment, which is where it will focus.
More to come
Fourie said that Capitec’s expansion is far from over, and that the focus on business and insurance doesn’t mean that the retail side of the bank is left out.
He said that the bank will continue to hone its services, and sees huge potential in the value-add segment.
This shines through with projects like the MVNO, Capitec Connect, which is looking to disrupt mobile services with aggressive pricing, as well as partnerships and deals like the recently-launched tie-up with Showmax.
He said a similar partnership with DStv is on the way, and the group continues to talk to various other players in different markets looking for similar opportunities.
He also talked up Capitec’s voucher system, which also holds potential for future benefits.
Underlying everything, however, the Capitec CEO said that the bank will go where the data points and the business model makes sense.
Read: Capitec’s next big move
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