When Capitec pushed into business banking five years ago, few thought it would take off. But by the end of August the bank had signed up 182,000 businesses, triple the number it had a year ago, and it’s now eyeing dominance in SA’s booming informal sector.
Capitec’s business banking proposition racked up about 182,000 businesses as clients by end-August, an explosive growth of 57% with the group eyeing dominance in the informal sector, where growth in incomes is outstripping that of people employed in the formal sector.
The growth in Capitec Business clients is exponential considering the unit had just 51,000 clients at end-August 2023.
Group CEO Graham Lee said the group had a lot of runway to grow its business banking unit, which accounted for 5% of the group’s earnings in the six months ended August — a contribution the lender hopes to grow in higher double digits.
The four growth engines
“If you look at growth in our business clients, it is coming in four areas, and we are doing pretty well in four areas. The first area is established businesses that are already fully banked. We are winning this segment over and gaining market share,” Lee said.
“Then there are new businesses that are formal, who are also choosing us first. Then there is a big set of small entrepreneurs who are our existing retail clients. This is a segment we have identified as entrepreneurs and are getting point of sale devices and products like pay-as-you-earn vending,” he said.
“Then there is the emerging market [informal sector], where we are also gaining clients. We have strategies that include putting boots on the ground to win on all four fronts.”
Tapping SA’s hidden economy
The fledgling business banking loan book has grown from R17.1bn in 2023 to R26bn at end-August. Capitec believes there are 3-million informal businesses, mainly in SA’s townships, that are looking to bank.
Capitec’s earnings report and a rise in nonsalary inflows among fully banked customers lend new weight to former CEO Gerrie Fourie’s contention that the SA informal economy is far larger and more income productive than official unemployment figures imply.
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Fourie, who retired a few months ago, sparked a national debate when he said authorities were not fully accounting for the informal sector — suggesting the country’s unemployment rate is much lower than the official headline figure if the informal sector is properly accounted for.
Lee, who took over the R414bn group in July, said the group’s more than 2-trillion data points accumulated from the transaction activities of its 25-million clients have given it a better understanding of the drivers of the economy.
The hustle economy vs the salary economy
The group’s data tells a tale of two SA economies: a dwindling formal economy marked by rising retrenchments, and a thriving informal sector, in which incomes and entrepreneurial activity are accelerating.
With our 24.4-million personal banking clients and the more than 300,000 global business and merchant clients, we have very rich data about the entire economy. Economic growth for the country is not where we want to be.
— Graham Lee, Capitec Group CEO
“With our 24.4-million personal banking clients and the more than 300,000 global business and merchant clients, we have very rich data about the entire economy. Economic growth for the country is not where we want to be,” Lee said.
“But we have the data to be able to see and take advantage of the opportunities. One data I would like to share is that of people’s earnings in the emerging market [sole proprietors]. We have grown our fully banked clients who earn a salary by 7% [to 5.4-million], compared to those people who are entrepreneurs and have multiple incomes and [are] hustling, whom we have grown by 15% [to 4-million].
“On top of that, when we take a like-for-like sample from August last year to August this year and look at the same set of clients and look at the growth in their income, salary earners’ income has grown by an average 6%, while the entrepreneurs and hustlers, their incomes have grown by 15%. That is really good news.”
Banking the side-hustle generation
Capitec this year began sending messages to its retail clients whose banking activities suggest they may draw regular income from businesses.
They are asked if they currently run a business or have a “side hustle”, so that the lender can “get to know your business better … this will help us offer you services and support that suit your needs”.
Capitec believes that, based on transaction activities, much of its client base use their debit accounts for business purposes, because the banking system has traditionally not regarded the informal sector as bankable.
From Mercantile to Capitec Business
The bank made a foray into the competitive business banking arena in 2019 when it bought Mercantile Bank from Portuguese state-owned banking group Caixa Geral de Depósitos in a deal worth R3.5bn, shrugging off competition from Nedbank and a consortium of the Public Investment Corporation and Bayport Financial Services.
It has since rebranded Mercantile to Capitec Business. The group’s ambitions to conquer the business banking segment will not be without its challenges, as the traditional players are also upping their game.
A crowded battlefield
The biggest player in the segment, FNB, has also made serious inroads into the informal sector, having advanced R18bn to 256,000 such businesses by end-June, generating revenue of R3.7bn and R45bn in deposits.
Business banking generally refers to the services used by small companies, while commercial or corporate banking covers the services used by large enterprises with high turnover.
Nedbank, under CEO Jason Quinn, is sharpening its claws to win market share in the business banking segment. In July, it poached FNB Business CEO Andiswa Bata.
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