TymeBank, which is owned by Patrice Motsepe’s African Rainbow Capital, is planning to start piloting unsecured lending in July.
This will broaden the focus of the new kid on the block, which will compete with the likes of Capitec in this lucrative market.
Capitec was the bank that first disrupted the unsecured lending market in SA. It is now the dominant player after moving to fill the gap left by the collapse of the then African Bank Investments Limited (Abil) in the entry-level market. Capitec generated more than R15.5bn of its income in the 2019 financial year from
interest income compared with R8.4bn generated through transactional income.
TymeBank’s CEO, Sandile Shabalala, told analysts and investors in Johannesburg on Tuesday that the bank would start by piloting unsecured term lending in July and a credit card in partnership with consumer lending company RCS in the later part of 2019. Shabalala said the bank would reveal its pricing when it launched, but warned that it would be cheaper than the other banks. "Our proposition is going to disrupt the current personal loans market."
He said the bank was aiming to be cheaper than other banks as it will do "proper risk-based pricing". The pilot is likely to run for the rest of 2019, and the bank is looking to launch the credit offering to the market in 2020.
While the personal loan component will be TymeBank’s sole responsibility, RCS will manage the credit-card offering. The rationale was that TymeBank would leverage on RCS’s more capitalised balance sheet as the latter would underwrite the debt and pay TymeBank commission for allowing it to use its bank licence, he said.
Lending is a profitable sector for the banks because of the spread between the interest they pay depositors and what they charge borrowers. For instance, FirstRand’s financials for the six months to December showed that about 35% of its revenue was generated from lending activities. Its banking subsidiary, First National Bank, has been ramping up its own unsecured lending book, mostly enticing its own premium client segment as new market entrants are intensifying competition for transactional revenues.
Absa has also said it wants to grow its personal loans business now that it does not have the restraints imposed on it by former British parent Barclays.
This increased activity comes at a time when there is concern about a rise in credit used for consumption.
Research and consulting firm Intellidex has warned that the level of unsecured lending in SA is a ticking time bomb.
Analysts said last week that lending could help increase the number of customers who use TymeBank as their primary bank. "For this thing to make sense, you’ve got to lend," TymeBank deputy CEO Tauriq Keraan said on Tuesday. He said that on its own the transactional banking could make money, but it would take much longer for the bank to break even.
The bank is targeting 2-million customers in three years’ time. It wants a minimum 200,000 customers using it as their primary bank. This means they will have their salaries deposited with the bank. To break even, the bank needs to have 2.3-million customers and to cross-sell unsecured loans to 60% of those. Keraan said that the transactional part of the business was also doing well on its own with just more than 40% of the bank’s 400,000-odd customer accounts active and transacting five times a month on average.
Although most of them used TymeBank as their secondary bank, they were seeing huge EFT transfers coming through at the end of the month, Keraan said. Customers would then use the funds throughout the month, which indicated that they were supplementing their transactional activities with TymeBank.
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