FNB, the retail banking unit of FirstRand, is planning to make a big push into entry banking and middle market financial services in what appears to be a clear strategy to stave off relentless growth by Capitec.
Raj Makanjee, CEO of retail and private banking at FNB and RMB Private Bank, said the lender is targeting customers who earn between R36,000 and R450,000 a year, a broad segment regarded as the sweet spot of SA’s retail banking market.
FNB estimates that of the roughly 30-million bankable adults in SA, 27-million earn less than R450,000 a year, making this by far the biggest consumer cohort in a fiercely competitive retail banking market.
“If you had to ask me where I’m putting disproportionate focus, it’s to grow in the R36,000 to R450,000 market segment,” Makanjee told Business Day.
“Where we believe we need to grow and switch away from the other banks, including Capitec, is [this] segment. The profit pool opportunity ... is a very important focus for us.”
Capitec, which has 16.8-million clients, has transformed itself from a microlender into SA’s biggest retail bank by customer numbers in little more than two decades since it was first registered as a bank in 2001.
While its market capitalisation has swelled to R233bn, briefly displacing Standard Bank as SA’s second-biggest bank by value in December, it is also winning market share in the insurance, small business banking and home loans markets.
“In terms of the large-scale players who are making inroads into the market, that’s largely being made by us and Capitec at a client level,” said Makanjee.
FNB estimates the size of the R36,000 to R450,000 a year banking market in SA at 10-million individuals, of which it has about 2.5-million customers. These are clients who consider FNB as their main bank, giving it a roughly 25% market share, far lower than the 35% share it enjoys in the affluent and private banking segments.
One of the ways FNB plans to attack this entry and middle market banking segment is through the provision of credit, an area where Capitec has built a reputation of being willing to cater to clients who were historically ignored by the “big four” banks. FNB wants to leverage the data of other FirstRand units, such as WesBank, to capture a greater portion of client expenditure on insurance, investment products and financial advice.
“We’re putting a lot of focus in staying relevant by being able to offer secured or unsecured credit to solve for client needs in this segment,” said Makanjee.
“There’s an opportunity to disrupt by using our rich data to price better and to make better decisions on [insurance] risk. We’re also focusing on money management by helping clients bank smarter.”
Key to that will be using insights from FNB’s more than 6-million digitally active customers — those who use its FNB and RMB banking apps, as well as online and cellphone banking — to expand the breadth of its financial solutions for clients. But while FNB sees the R36,000 to R450,000 a year salary range as the sweet spot in terms of client acquisition, it says it remains focused on both the very low and very high end of the market.
“We want to be relevant across all customer income segments because we see it as a continuum,” says Makanjee.
At the bottom end of that income spectrum are clients earning less than R36,000 a year. FNB estimates that this cohort, which it typically serves through digital wallets and the Easy Zero low-cost bank account, constitutes 16.5-million of SA’s bankable market.
Though this is by no means a profitable market segment for banks, Makanjee said FNB is “passionate about winning in this space”. His reasoning is that many of these lower-income clients will eventually migrate up the income ladder, particularly if SA can reinvigorate its economic growth.
Of the higher end of the market, those earning above R450,000 a year, FNB estimates SA’s total market size at a mere 3-million.
While this is a much smaller market by numbers, its greater wealth makes it very valuable, especially when it comes to selling insurance and investment products.
Though FNB’s market share here ranges from just over 30% for the mass affluent segment (R450,000 to R850,000 a year) to about 35% for affluent clients (R850,000 to R1.8m a year) it faces stiff competition from traditional rivals Standard Bank, Absa and Nedbank. Then there is also Investec, which has a strong presence in the private banking market, where new entrant Discovery Bank is steadily winning clients.
“There our strategy has been largely to defend,” Makanjee, said of the higher end of the banking market.
While he argues that this defensive strategy is still enabling FNB to grow, it is hard to see it offering anything more than a steady income stream without a sustained acceleration in economic growth.
With SA increasingly resembling a lower-income developing country, banks are going to have to fight it out at the lower-income echelons of the market rather than the white-collar executive arena in which they are accustomed to playing.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.