Start-up costs for Old Mutual’s newly launched app-only banking division are estimated to top R5bn by 2027 as the insurer doubles down on its ambitions in the increasingly crowded and fiercely competitive market.
“It’s a bank that is starting up. It doesn’t have capital, it depends on the group. At the end of the year, we will request another capital injection until it gets to a point of break-even and self-funding, which will take about three years,” said Clarence Nethengwe, CEO of OM Bank.
Old Mutual, which has lagged behind closest rival Sanlam operationally and in the stock market, has already pumped R2.8bn into the businesses and plans to inject an additional R1.1-R1.3bn annually in 2026 and 2027 to sustain the business.
The launch of a digital banking unit marks Old Mutual’s return to banking after offloading its controlling stake in Nedbank, a legacy bank that has invested more than R11bn to modernise its systems and embrace digital transformation.
Old Mutual’s re-entry comes less than five years after the insurance giant spun off its remaining stake in Nedbank, raising questions about whether the separation which began in 2018 and ended in 2021 was a strategic faux pas.
But Nethengwe, a law graduate, said it had always been Old Mutual’s intention to branch out into banking but the “arm’s-length” bancassurance tie-up cooked up in the mid-1980s limited the extent of its influence on the strategic direction.
“We didn’t acquire Nedbank because we wanted a bank at that point. We acquired Nedbank because it was a national duty. Nedbank was going under, so it needed Old Mutual to come to the party,” Nethengwe said in an interview with Business Day.
Old Mutual first bought a majority stake in Nedbank in the mid-1980s, at the height of the apartheid SA debt crisis. The 1985 financial collapse, fuelled by capital flight, reckless borrowings and the apartheid regime’s political isolation, left key financial institutions like Nedbank vulnerable. International banks were withdrawing support, pulling short-term loans and further destabilising the economy.
Old Mutual stepped in during this time, underwriting a rights offer and providing stability in the financial system. However, the set-up limited Old Mutual’s sway in the strategic direction of Nedbank in the mid-2000s when the trends were pointing to an integrated financial strategy as the next bright growth area.
“It proved very difficult for us to execute our integrated financial services strategy, which was emerging at that time, because of the massive Chinese walls that were built between Old Mutual and Nedbank. From a regulatory perspective, it made a lot of sense but not for us,” Nethengwe said.
For instance, before Old Mutual approached Bidvest in 2015 to run its basic transactional and lending “Money Account” under its licence, Nedbank was the first company lender it reached out to.
“It didn’t work out, even though we were [a] 54% shareholder in that business. We ended up having to go to Bidvest to do that,” Nethengwe said.
“It’s not a change of heart. It’s taking things to their logical conclusion because now we’re in full control of what we want to do with our banking operations. We could not impose our will at Nedbank.”
Old Mutual’s return to the sector throws it into a market dominated by legacy giants such as Standard Bank, FirstRand and Capitec, all of which have entrenched customer bases and deep resources.
It would also be up against the digital vanguard — TymeBank, Discovery and Bank Zero — which are disrupting the status quo with their cost-effective models.
The company’s targeted customer base — those earning R10,000-R40,000 a month with a sprinkle of those with up to R80,000 a month, as well as township entrepreneurs — puts it on a battleground where Capitec reigns supreme.
“Capitec clients? We’re going after South Africans who are formally employed as well as those who are informally employed but have businesses, like small businesses in the townships. So those are the types of people we are targeting,” he said.
OM Bank already has more than a million clients under its tie-up with Bidvest, and Nethengwe hopes to turn at least 300,000 into quality customers, or those that regularly use the account to generate transactional income.
“If I can get all 1.1-million into active clients, that would be brilliant but we know it’s less realistic. Out of that 1.1-million, not all of them are quality customers. I’m really looking for quality customers,” he said.
The bank is targeting a cost-to-income ratio — a key measure of operational efficiency — of 38%-45%, giving it firepower in pricing and competitiveness as the ratio is much lower than the 50%-plus ratio typically borne by traditional brick-and-mortar banks.
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