GUGU LOURIE: If Old Mutual makes the right moves, the sky’s the limit for its low-cost digital bank

After more than a year, I reconnected with an interesting colleague, Lufhuno, aka Lloyd, whom I last met on March 5 2020, when the first Covid-19 case was reported in SA.

We met at the weekend and had a lot to talk about — from the reeling English Premier League leaders Arsenal to the pandemic and, of course, the topic of money — especially digital banking.

We left the West Rand, where Lloyd lives, to visit another colleague, Dunga, who resides in Featherbrooke Estate in Krugersdorp, right next to the magnificent Walter Sisulu National Botanical Gardens.

When we arrived at Dunga’s posh home, all indications were that this was the ideal place to talk about money.

Dunga, a private equity specialist, offered us Kilchoman Cask Strength 2014. I was introduced to this particular whisky by Cuen and Uncle Frank, back in the days when the drink you had accurately described your income.

With whisky glass in hand, it seemed appropriate to talk about money, banking and everything to do with wealth.

I ventured: “Are you aware that Old Mutual plans to launch a digital bank in 2024 to enter a contested terrain dominated by Capitec Bank, Discovery Bank, Tymebank and the newly formed Bank Zero, plus Shoprite?”

Lloyd replied, “What’s new? The boundaries between insurers, investment groups, retail and banks are blurred.

“There’s nothing new here. Look at what Old Mutual is doing after selling its stake in Nedbank, that’s not new.

“It’s like what Telkom did in 2008 when it started selling its lucrative stake in Vodacom to UK mobile giant Vodafone.”

Dunga and I were silent.

We all knew that Telkom sold its crown jewel to the UK’s Vodafone Group in the hope of achieving similar growth and dividends with Telkom Mobile or 8ta (at the time) within a few months or a year, because the mobile industry was flourishing round about 2008.

“I think Old Mutual digital bank will end up like Telkom Mobile (which replaced Vodacom). It could deliver first-class revenues and earnings and become a core asset,” Lloyd asserted.

I thought about what he said and agreed with him.

I am convinced that Old Mutual can make a name for itself in this highly competitive industry dominated by the well-funded Absa, FNB, Nedbank and Standard Bank.

“Old Mutual already runs a digital bank,” I said.

In 2018, Old Mutual sold its stake in Nedbank, which it had held since 1986, but kept a residual stake of about 5%.

The stake was hedged and held as part of Old Mutual’s capital stock to be sold at the right time. The money could then flow into the yet-to-be-named digital bank.

In November 2022, Old Mutual received the green light from the SA Reserve Bank regulator to apply for a banking licence.

Old Mutual plans to set up its own bank in 2024.

Obtaining the licence is a formality. Old Mutual already offers a simple “money account”. The offer was launched in July 2015, and had 330,000 active money accounts by the end of 2022.

The group also has an unsecured lending product to the mass and foundation cluster via a commercial arrangement with Bidvest Bank.

To ramp up its banking product and challenge Capitec, Old Mutual should consider acquiring a bank like Bidvest Bank.

Bidvest Bank is not a strategic asset for the Bidvest Group.

If Old Mutual does this, the sky’s the limit.

Old Mutual could also integrate Old Mutual Finance, established in 1993, into its banking division, which already generates a profit of about R500m a year through transaction banking and diversified income streams.

Old Mutual Finance offers loans and low-cost transaction accounts, and has expanded lending to Bridge Taxi Finance, giving it access to a new market.

These initiatives can position Old Mutual to become a formidable digital bank.

“I think what Old Mutual has done is strategic. They can source the latest technology globally to offer the local market a low-cost bank that is better than Capitec,” said Dunga.

“I am also sure they will be able to provide a home for small businesses, but they will have to compete with the expertise of Sasfin Bank, which knows how to treat its entrepreneurs.”

As we left Dunga’s house, I could already envision Old Mutual’s digital bank.

Even though it seems like a plausible idea — the memory of how Old Mutual cancelled my father’s life insurance when he retired remains a barrier to trust.

Old Mutual’s digital bank sounds like a good move, but I will not be joining it.

My father is still bitter.

If successful, Old Mutual could help transform SA’s digital banking space.

As part of its larger plans for a digital bank, Old Mutual last August acquired a minority stake in Preference Capital, a specialist provider of financing solutions for the SME market.

What Old Mutual will do with its money market accounts managed by Bidvest and Old Mutual Finance plus Preference Capital could be innovative.

Whatever it does, with its financial strength and ability to raise cash, it will be a serious competitor to existing digital banks. 

• Lourie is the founder and editor of TechFinancials.