Capitec goes into mourning to increase revenue

● Disruptors earn that title by bringing something new to a market, so some might find it ironic that Capitec — the main disruptor in South Africa’s financial services sector — is launching something old.

Capitec this week announced that it would offer funeral cover through a joint venture with Sanlam in May. The funeral policy is the first of the insurance products due to emerge from the bank’s newly built bancassurance platform. Capitec will try to differentiate itself from an already active insurance category with aggressive pricing 30% below the market.

While some may interpret the product launch as a failure to innovate, Capitec CEO Gerrie Fourie is confident that the bank will offer something unique.

Policyholders under financial stress will be able to take a payment break of up to six months, load up to 21 beneficiaries and review the terms of their policies from within the Capitec app.

Be it something old or something new, what is clear is that pressure to diversify income streams is mounting, as the Stellenbosch-based lender, like most local banks, finds it increasingly difficult to grow its loan book.

Capitec this week reported a decline in credit clients from 1.5 million to 1.4 million, with its share of the unsecured market remaining relatively flat at 27%. Its cost of bad debts showed a marginal increase.

Capitec is trying to expand its client base, which is fast approaching the 10 million mark, by attracting more middle- to high-income earners, but it remains active in the lower end of the market, made up of people earning R5 000 a month or less, Fourie said.

“We’ve seen a lot of risk in the R5 000and-below market, and that’s where we’ve pulled back. A lot of those people, given the economy, have lost their jobs or are very unstable,” he said.

The bank has become stricter in granting credit, reviewing its criteria weekly.

With loan growth thus restrained, selling a new product such as funeral cover, which is in high demand among a large part of its client base, was an effective low-risk strategy, said Jan Meintjes, portfolio manager at Denker Capital.

With its distribution infrastructure already in place, there was room to become highly competitive in a market segment where margins were often fairly generous.

“It would be a natural addition to the product suite, without adding substantial complexity to systems and major product development,” Meintjes said.

Leveraging Sanlam’s expertise will enable Capitec to stick to its core competency.

Perhaps that is why Fourie has said previously he does not think the bank is a disruptor.

It has focused on doing fewer things but doing them better, rather than innovating for the sake of it.

That is the plan with its funeral cover offering — to establish dominance before expanding.

But as the bank attracts higher earners, its simple transactional and unsecured loan offerings may no longer be sufficient. Secured credit, in the form of vehicle financing or home loans, should become a strategic priority in due course, says Patrice Rassou, head of equities at Sanlam Investment Management.

The retention of higher earners could hinge on this, with many of the big banks offering primary clients better deals on loans.

The demand exists, with Capitec clients already financing big-ticket purchases such as used cars and home renovations through more expensive unsecured loans.

But venturing into secured lending may be biting off too much, with many clients under pressure from the latest tax hikes.