South Africa’s Capitec Bank reduces fees to compete with digital competitors

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The Chief Executive Officer of Capitec Bank, Gerrie Fourie said the bank will lose about $25 million from cutting transaction fees in 2019, as the South African lender fights to defend market share from digital newcomers.

Capitec, which was launched in 2001 as a specialist in small personal loans, is now positioning itself as a fully-fledged bank with no-frills savings, insurance and credit card accounts. The move will help the bank cut its reliance on unsecured loans, which rely solely on a customers’ promises to pay them back.

The launch over the last few months of three digital banks promising fees as low as zero looks set to trigger a price war in South Africa, where more than 80 percent of the population already have bank accounts.

Fourie told Reuters that Capitec would stand the challenge thanks to its strong brand, product offering, extensive branch network and prices, which were reduced at the start of this month. Referring to the price cuts made by the bank, he said “we have reduced our prices from March this year, and given money back to our clients. For this year, we are going to give back 360 to 380 million rand”.

The Chief Executive Officer also said Capitec would hike fees for cash withdrawals of more than 1,000 rand, a strategy that has also been set out by new digital banks- TymeBank and Discovery Bank, both of whom have no branches or ATMs.

Fees at the main banks for deposits, withdrawals and transfers have for years largely ranged from 100 rand to 250 rand a month, but can rise as high as 450 rand, a sizeable sum in a country where the minimum wage is 20 rand per hour.

As a result of a strong growth in customer numbers, the bank reported a 19 percent increase to 4,577 cents in headline earnings per share, the main profit measure in South Africa, in the year ended February.

The company attracted an average of 127,000 clients per month in the past year, bringing the total to 11.4 million.

Fourie said “we believe business banking is complex, pricing is complex … so the thinking is can we do the same in business banking as we’ve done in retail banking, by offering a simplistic and transparent product?”.

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