Sun, Sep 03, 2017 - Page 7 News List

Price war has pushed down high cost of banking in South Africa

By TJ Strydom

Reuters, STELLENBOSCH, South Africa

A budget bank is booming in South Africa’s economic slump, challenging the decades-long dominance of the “big four” lenders and prompting a price war that is driving down banking costs in a country where many people cannot afford an account.

Capitec Bank has doubled its customer numbers over the past five years and quadrupled in market value, even as South Africa’s economic growth has stalled and the country has slid into recession, squeezing household incomes.

It offers a single “no-frills” bank account with low fees, as well as unsecured loans to customers including low-income borrowers, but steers clear of the more complex financial products offered by rivals.

This model has insulated it from the downturn, which has constrained mortgage lending and vehicle finance, key business areas for the four biggest banks: Standard Bank, FirstRand, Barclays Africa and Nedbank.

Those four heavyweights have reigned unchallenged over South Africa’s financial sector since the 1990s.

However, Capitec, whose shares have risen more than 300 percent since 2012 and over 30 percent this year, now has a market value of 103 billion rand (US$7.96 billion) — closing in on Nedbank, the number four lender, which is worth 110 billion rand.

The Stellenbosch-based bank, which launched in 2001, has 9 million customers, of which 4 million are so-called primary clients who have their salaries deposited into these accounts.

“Most of them we’ve taken from other banks,” Capitec chief executive Gerrie Fourie said in an interview, adding that his bank attracts 100,000 to 150,000 new customers a month.

“The economy is helping us,” he added. “People have started questioning why they have to pay banking costs.”

There are clear risks to the bank’s business model of offering unsecured loans to lower-income borrowers without any other forms of lending to counter any losses, industry experts have said.

Capitec’s rise is nonetheless forcing its rivals to respond. They are all fighting back with their own no-frills accounts aimed at hard-pressed consumers.

This is pushing down the cost of banking in South Africa — a significant development in a country where only around half of a population of 55 million has bank accounts, according to Nielsen research, partly because of the charges involved.

Bank fees for deposits, withdrawals, transfers and administration have for years largely ranged between 100 and 250 rand a month, but can rise as high as 450 — a stiff price in a country where the minimum wage is 20 rand an hour.

Nedbank has reduced the administration fees for its most basic account to Capitec’s level of 5.50 rand a month and also lowered transaction costs. It now offers bank accounts that are about half the price of five years ago.

Nedbank chief executive Mike Brown said it was focusing strongly on entry-level banking and was looking to that segment for customer growth.

The other big banks have gone even further, more than halving their fees for their most basic accounts over the past five years to undercut Capitec.

FirstRand’s FNB arm now offers an account with a monthly fee of 5.25, Standard Bank runs one for 4.99 rand per month, while Barclays Africa’s Absa division offers 4.95 rand.

Standard Bank’s co-chief executive Ben Kruger said it needed to be able to respond nimbly to counterlean new entrants like Capitec, who have been able to enter the market without the stifling processes established banks have inherited from their paper-based legacy systems.

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