Old Mutual is looking to make a comeback to the banking market by launching a digitally enabled mass-market lender capable of taking on Capitec in the second half of 2024.
The insurance and investment group has completed the first phase of regulatory processes required to begin its application for a banking licence ahead of a planned public market launch of the lending unit by no later than the end of 2024.
As part of the process Old Mutual has also reduced the 19.4% stake it held in Nedbank before an unbundling process that began in November 2021, and plans to offload the 3.56% it still holds in due course.
“As you would expect, given Old Mutual’s customer base, we expect the centre of gravity to be the mass market,” Old Mutual CEO Iain Williamson said in an interview when asked about the banking unit’s planned target market.
“We will design it to appeal to certain needs of all of our customers, but the centre of gravity will be very much a mass-market centre of gravity,” he added
The group started Old Mutual Finance, a division that provides loans and low-cost transactional “Money Accounts” in 1993 to meet the banking needs of its customers.
However, since then it has watched Capitec, which was founded in 2001 as an unsecured lender, grow into what is now SA’s biggest retail bank boasting 20-million customers.
By contrast, Old Mutual had only 330,000 active Money Accounts by end-2022 out of 809,000 launched since the offering was first rolled out in July 2015. The group also has an unsecured lending product via a commercial arrangement with Bidvest Bank, but is proceeding with its own banking licence application.
As part of the bank build project Old Mutual is investing heavily in its IT stack to add further capabilities to its transactional solution in the hope of turning it into a “growth engine” for the broader group. It has already spent R1bn on building out the banking unit and expects to spend another R750m on the project ahead of its launch.
Old Mutual has also bought out the 25% minority stake in Old Mutual Finance during the course of 2022 and now owns 100% of the subsidiary.
“We’re building it as a digital-first proposition — I’m not saying it’ll be exclusively digital, but it’s very much a digitally led proposition,” said Williamson. “We’re aiming through this stack that we’ve built to come in at a compelling price point, as well as with compelling features.”
While Old Mutual has received the first two pieces of regulatory approval — what is called section 12 and 13 dispensation as per requirements in the Banks Act — it is now applying for section 16 and 17 approvals from the Reserve Bank. This will allow it to begin testing its infrastructure in the SA payments environment, which if successful will pave the way for the final application for a banking licence.
“Our biggest dependency in terms of our time to market is the time to secure all the necessary regulatory approvals around the licence,” said Williamson. “There’s a series of steps we have to go through and they are all related to effectively securing the full bank licence at the end of that process. That is the risk ... that we end up with a long protracted process. But we think it’s in hand ... I remain reasonably confident that we’ll get there [by end-2024].”
Old Mutual’s plan to revive its banking credentials comes at a time when all of SA’s traditional big four retail lenders — FNB, Standard Bank, Absa and Nedbank — are fighting pitched battles for a consumer market faced with increasing choice and an array of offerings punting their digital capabilities. At the same time, traditional lenders are trying to recoup market share lost to Capitec while fending off new rivals such as TymeBank, Bank Zero and Discovery Bank.
A revived African Bank, which was rescued from the ashes of its collapsed former parent, African Bank Investments (Abil), is also planning to list in 2025 as it continues with a diversification strategy that has seen it acquire Grindrod Bank to move into small and medium enterprise (SME) lending. However, despite this seemingly crowded environment, Williamson believes Old Mutual can present a compelling banking proposition to SA consumers.
“We do think it’s superficially congested,” Williamson said of the local banking market. “But I don’t think it’s necessarily overcompeted — very few of the existing incumbents have really leveraged the capabilities of digital to full effect. Even some of their more recent forays are not as modern as what has become available literally in the last few years.”
Williamson said Old Mutual has partnered with some of the world’s leading global technology providers to deliver a future-fit, digital banking solution that will offer expanded functionality at low cost.
Old Mutual said in November it is planning on its bank breaking even about three years after its late-2024 launch.
“We aim to effectively compete on being able to respond very fast and being able to run a very tight ship from an operating cost perspective,” he said.
Old Mutual also plans to gradually move into small business banking on the back of the minority stake in Preference Capital, a specialist funder of SMEs, in a deal it announced in August 2022. That added further impetus to its battle with Capitec, which finalised its purchase of Mercantile Bank in late 2019 also to move into SME banking.
Asked if Old Mutual was planning to potentially buy out the rest of Preference Capital over time to build a fully fledged SME bank, Williamson had no hesitation in answering.
“That’s a potential pathway forward — absolutely,” he said.
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