Capitec leaves rivals behind in the dust

Despite aggressive cuts to transaction fees in April, which resulted in a R227 million saving for clients, Capitec Bank still managed to report a 12% increase in net transaction fee income in the six months to end August.

These fees, totalling R3.529 billion (including income on its funeral insurance), now cover 91% of operating expenses. Headline earnings per share were 20% higher, with return on equity at a still-elevated 27%.

One gets the sense that Capitec is operating in a completely different environment to the other banks. CEO Gerrie Fourie jokes it’s the “odd one out”. It isn’t cutting staff (it’ll add around 600 people by February) and continues to roll out branches.

While it trimmed the number of outlets slightly in the six months, to cater for shifts in retail nodes, it’ll add a further 21 branches by the end of its financial year.

Around 50 of its existing branches are under “extreme pressure” meaning they operate at above 80% of capacity for 24 days a month.

Its branches are increasingly important to fulfil the sales function where, despite self-service channels, clients still prefer faceto-face contact. This footprint has been key to it managing to sell over one million funeral plan policies in 13 months (underwritten by Centriq Life). The physical presence comes at high cost, albeit with a structurally lower base than rivals.

Fourie says servicing customers in branches costs ‘R10 per minute’.

Still, he talks about the massive switch Capitec (and others) is seeing from branch to digital.

“With that, comes efficiencies. We can either give that back or keep it – it is very simple”. With cash, it has been the opposite. Fees have increased, and the bank expects this to get more expensive over time.

Capitec now has 12.6 million active accounts, with “quality” banking clients up 15% to 3.5 million. Last month, it added over 104 000 quality banking clients. Savings clients (those with a term savings product) are up 21% to 4.7%, while credit clients in good standing are up 6% to 1.1 million.

On the whole, the bank has been adding an average of 200 000 clients a month since January. This, despite a far more competitive market, with all major rivals cutting or dropping the prices of “entry-level” bank accounts.

Hilton Tarrant works at YFM.