Old Mutual seeks to join the fray

• SA’s third-biggest insurer targets second half of 2024 for the launch of its new bank

Old Mutual has applied for a banking licence in a move that will further shake up the banking industry, which has long been dominated by four traditional players. SA ’ s third-biggest insurer said that the banking licence would serve as a platform to cross-sell its products across the group.

Old Mutual has applied for a banking licence, in a move that will further shake up the banking industry long dominated by four traditional players.

SA’s third-biggest insurer said on Tuesday that the banking licence would serve as a platform to drive greater interactions with its client base and cross sell its products across the group. It would also enable the insurer to accept retail deposits, thereby providing a cheaper source of funding.

Old Mutual already has existing lending and transactional solutions in SA, consisting mainly of the “money account” and an unsecured lending product delivered through a commercial arrangement with Bidvest Bank. The money account is a low-cost transactional account designed for clients to save, for a monthly admin fee of just R4.95.

“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,” Old Mutual said.

It is targeting the second half of 2024 for the launch of the new bank , subject to regulatory approvals from the SA Reserve Bank’s Prudential Authority.

The approved expenditure to complete the build of the transactional banking capability is R1.75bn. “In line with the business case, we have incurred costs of R830m for the current period and approximately 10% of these costs were capitalised,” Old Mutual said.

Competition in the retail banking space has been fierce in recent years with the arrival of challenger banks such as Discovery Bank, TymeBank and Bank Zero. Traditional players are Absa, Nedbank, Standard Bank and FNB.

Capitec Bank, the most successful retail bank by far, already provides insurance cover to its 18-million-plus clients, and in the process has taken market share from traditional insurers.

“I think that overall it’s strategically a good fit for Old Mutual to have a banking licence given that it no longer has strong ties with Nedbank post the managed separation,” Radebe Sipamla, investment analyst at Mergence Investment Managers, said.

“It already offers a lot of the traditional retail banking products, and with the licence it will be able to gather deposits to fund its credit book at better funding terms,” he said.

Retailers such as Shoprite are lining up to get a share of the market by offering financial services to their customers. Research conducted by PwC this year indicates that relatively new players have an advantage over incumbents because they are not limited by high fixed-cost bases. They interacted with their clients mainly through the use of digital technology.

The PwC research suggests the trend will continue, crossing into other industries as players with sizeable customer bases look for different avenues to grow their share of customers’ wallets through competitive banking offerings.

Meanwhile, Old Mutual said results from operations were higher in the nine months to end-September year on year, supported by improved profit from its life businesses.

Despite market volatility, Old Mutual Investments delivered higher asset-based fees due to higher average asset levels, which positively affected profit, it said in a voluntary update.

The company’s share price ended the day 1.52% higher at R11.35 on the JSE.