What makes Capitec interesting? From a price of R1.17 on its first day, the counter has shot up to its current levels around R200 per share. In the last three years alone, the share has more than quadrupled in value, testimony to its outstanding performance, providing quality banking services to the unbanked and low-income banking segment, ignored by the “Big Four”. How is it achieving this growth, especially in a downturn? There are two main reasons. First, its founders understand their customers' needs, particularly in the mass market and low-income sector. Second, they developed an innovative strategy and business model aimed at addressing those needs better than the established players. They have executed that strategy well. The second aspect is important because their main market insights were not necessarily original. They recognised that though the SA banking sector is highly sophisticated, much of the population has no or limited banking facilities. Many people find bank products and services difficult to understand and expensive. Often they can't easily get the credit they need. They distrust banks. They mostly - or entirely - use cash rather than bank products. And they spend a lot of time waiting in queues to draw cash and settle bills. This happens because banks have traditionally viewed the market through the prism of their own risk management needs and processes. As Capitec's 2009 annual report puts it, their approach has mainly been from the banks' perspective, focusing on administration and control, rather than the clients' perspective, focusing on ease of use. "Whatever the cause, it has resulted in procedures that are complex, cumbersome and inconvenient for the average customer."
Capitec's business is built around four core principles: Affordability: fees and interest rates charged on its products are significantly lower than at other banks; Accessibility: achieved mainly through the branch network; Convenience: cash can be withdrawn, and purchases made, at retail partners such as Shoprite, Pick n Pay and Pep, or from ATMs; and Simplicity: transactions are quick and simple, with no paperwork.
Capitec has increased market share through:
• A technology-driven banking offer based on simplicity and outstanding service
• A single facility through which the individual can service all his/her everyday money management needs, i.e. save, have access to credit and transact
• Increased client numbers by facilitating increased accessibility to our banking offer to all South Africans
• A transparent, affordable price offer
Capitec's 570 branches are central to its strategy. The moment you walk into one of these branches, you know they are different from a typical bank branch. They are relatively small, at 180 m²-200 m², but are carefully positioned and low-cost. Branch costs are minimised, as none of the transactions other than deposits involves cash. When customers deposit cash at the branches, it goes straight into a drop safe. Cash can be withdrawn at ATMs or at the partner retailers but not over the counter in the branches. As branch staff don't have to worry about looking after cash, they can give customers more personal attention. It also reduces security needs and costs. There is no armoured glass in front of counters, so customers have direct contact with trained consultants. Transactions are simple as customers never fill in forms; the branches are paperless. Customers use a single card and pin number, and are identified biometrically with cameras and fingerprints. And things happen quickly. The company says a deposit should not take longer than 60 seconds.
As the branches are relatively small and inexpensive, they can be targeted more precisely. In Bellville near Cape Town, there are two branches within 300 m of each other. One has a client profile in the middle-income market. The other, near the station, has clients mainly in the mass market. At all the branches, processes are designed to give customers more control, while keeping costs down. Management noticed that when most people go to an ATM, the first thing they do is check their balance. Capitec's ATMs now give account balances automatically - at no charge. It avoids pricing products on sliding scales, or offering different products for different markets. It also does not quote figures such as effective interest rates, which need explanations. It also offers cheaper options than the "big four" established banks on a transactional account - far higher interest rates and lower transactional fees (between R2,50 and R3,50 – between $0.20 and $0.30 - for withdrawals or transfers). Online banking is free. In a basic transactional account, Capitec pays 7% interest on balances of less than R10 000. That is remarkably high, but drops to 6,25% for balances of more than R10 000 (presumably Capitec does this to lower concentration risk in its deposit base: better to have a widely spread deposit base so chances of large-scale withdrawals are lower). The big four banks offer interest rates of less than 1% on most of their transactional accounts. One of its biggest advantages is that it offers a single, standardised product range that's relatively narrow. Most of the bank's loan book is short-term, though it has started offering 36-month loans. Management has resisted the temptation to use the branches to sell other financial services. The bank provides free credit life insurance on six- to 36-month loans. It has also avoided going into products such as home loans, though that could develop later.
Riaan Staseen (MD) is very disciplined. “When you have a branch network, it is easy to get seduced by other opportunities and start diluting your focus. That hasn't happened. We prefer to offer fewer things and do them well," Much of the focus is on operational efficiency. All staff activities are managed on budgeted production time. When customers enter a branch looking for a loan, they are expected to be able to leave within 15 minutes, with the transaction completed. Transactions are closely monitored. "I can go to a computer now and tell you the hourly turnover for the bank and for each branch and consultant," says Stassen. All Capitec's staff are trained in all of its products, which is not true of the bigger banks. Stassen says he likes working to an agreed methodology, in a disciplined organisation. Overall, Capitec has shown considerable success at tapping into a large market that has not been well served by the traditional banking sector. Personal contact with clients and staff, innovation, delivering products that clients want and efficiency are all important parts of a formula that has so far worked well for the company and investors.
Core customer tenets
The approach Capitec Bank has applied “simplicity and transparency” as key elements of its market strategies to ensure that a long-term trust relationship is built with clients. The Global One single solution to money management has therefore been simplified to ensure no confusion can exist regarding its features and benefits. Clear and simplified communication in all the consulting steps is applied by the bank to minimise the possibility that clients experience an expectation gap.
The service system New service flow processes have been developed to enhance transparency. Consultants and clients sit side by side so that clients can be informed simply and clearly of their options and the implications of each step. A step by- step road map of the administrative process is also incorporated in the service flow to inform clients of the process to be followed.
Contract clarity - Capitec Bank highlights the essence of the contract and emphasises important information that clients need to take note of on the first page of its credit agreements. Specific credit communication material is also provided in-branch to clients who request a loan quote. This material enables easy price comparison between credit providers, as a decision support mechanism in the interest of the client.
Where does this company’s growth potential lie?
Its ability to continue the growth will depend partly on how well management maintains the focus and efficiencies. Capitec’s technology-driven business model is the right approach to serving the low-income-earning population. The bank has strong front-end information technology, including the paperless (no forms to fill, tasks are carried out electronically) and cashless (using ATMs and drop-safes) branches. By making use of magnetic strip and electronic smart cards (with embedded computer chip) that can be used not only in its own 550 ATMs (plus access to 4000 + partner ATM’s) but in all machines linked to Maestro, Capitec uses technology as its main distribution means. The bank is also able to use the distribution outlets of retailers; around 15% of customer cash withdrawals take place at retailers such as Pick’n Pay and Shoprite, with whom the bank has business agreements. Capitec has banking units in retailer’s premises and has come to a funds-transfer arrangement with Shoprite to enable its customers to send funds to other areas in the country.
As it continues to seek expansion, Capitec believes there is room for it to introduce more products to develop its client base. Innovations such as larger, extended loans for home improvements, insurance products and more mobile and internet banking functionality have all been mooted.
Although the company was founded on, and is still highly dependent on, micro-lending, it has become a notable disruptor in the South African banking sector. Through attractive product offerings, market-leading cost control and strong brand development, Capitec has carved out a niche for itself in this sector.
In establishing its banking operation, Capitec benefitted from a blind spot shared by South Africa's 'big four”. These larger players were chasing new mortgages in their traditional middle income markets and failed to recognise that existing customers are more valuable than new customers, which are expensive to acquire.
Capitec Bank was the only South African brand – and one of only 27 brands globally – to be named a ‘Great Brand of Tomorrow’ by Swiss-based financial services group Credit Suisse. A group of 3 000 analysts in 50 countries identified brands around the world that are most likely to significantly outperform their markets and competitors over the next three to five years. The list includes world-renowned brands like Amazon, Apple, Mercedes-Benz and Facebook, which puts Capitec Bank amongst international heavyweights in business.

Footnote: Capitec’s founder & Chairman, Jannie Mouton wrote a book called “En toe fire hulle my” (And then they fired me) – the story of how he was fired from the first company he started and then went on to found Capitec. Bet the person who fired him feels silly.