Capitec disrupts the South African banking industry

by Nigel Hollis | November 12, 2018

Banking is a tough industry for new entrants. People value the availability and trust promised by big, incumbent banks and may not wish to hand their money over to an unknown. And yet, Capitec, now the largest, if not yet the most valuable bank in South Africa, managed to gain a foothold and grow. Capitec’s story highlights the power of disruption.

From the start Capitec focused on appealing to the under-served: people with lower incomes who did not currently have a bank account. In 2001 this represented roughly one in three of the South African population. A huge potential market mostly ignored by the incumbent banks. The company’s Global One Account was designed to appeal to its target audience offering a debit card with low transaction fees, interest on account balances and low rate loans. The new offer was backed up by a centralised technology platform that freed up branch staff to focus on customer needs and quickly process opening new accounts, transactions, withdrawals, and deposits.

Inherent to the Capitec’s success was the removal of barriers to use. Given that many of the people the bank was aiming to serve could not write, Capitec introduced the use of fingerprints instead of signatures to validate transactions. Branches are situated in close proximity to travel hubs making access easy for the thousands of people using public transport to get to and from work. In 2011, Capitec introduced Sunday banking on the grounds that if you can shop on Sunday you should be able to bank on Sunday too. And in 2014, the bank introduced its remote app that worked on the cheaper, feature phones used by the vast majority of its customers.

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Since the beginning Capitec’s brand promise has been one of equality, simplicity, and transparency. In 2007 Capitec launched its first broadcast ad campaign. Capitec’s straight-speaking and simple messages resonated with its target audience, and contrasted with the complexity and opaqueness of typical bank advertising. As the number of branches expanded, so too did the number of customers. By 2017 Capitec had over eight million customers.

As with all growing brands, the challenge for Capitec is how to keep up its growth momentum. BrandZ finds that Capitec is a Specialist, perceived to be very different, meaningful to many but less salient than the average. To grow, the brand needs to reach out and make its difference salient and meaningful to new customers. The obvious move is to extend the bank’s appeal to higher income customers. The company’s last annual report shows the bank claims a 25 percent share of customers earning less than 10,000 Rand a year but only 2 percent among those earning over 30,000 Rand. The challenge, however, will be to extend the brand’s appeal without undermining the clarity of what the brand stands for among its existing target market.

The Capitec story is a classic one of disruption, finding success by doing something different from the norm. By tailoring its offer to an under-served group of customers and ensuring widespread mental and physical availability, the brand has grown quickly. However, the biggest challenge may be yet to come. Can the brand continue to grow without changing what has made it so successful to date? But what do you think? Please share your thoughts.

6 comments

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  1. Nigel, November 16, 2018

    Thanks for the additional comments.

    Jean-Christophe, thank you for bringing a new brand to my attention. A fascinating example. I guess a big question will be how well the brand survives under BNP Paribas. Established businesses have a track record of buying smaller, more disruptive brands and then choking the life out of them. I hope not in this case. 

  2. Rathin, November 14, 2018

    The bank has robust purpose (equality, simplicity, and transparency). Moving away from this would be suicidal. However, whatever else worked, gave them edge to outperform competition and grow are not going to keep helping them. Because those were the very essence of disruption, and disruptions by definition are time bound. What disrupts today would be expected tomorrow.

    Therefore, the bank needs to continue innovating, off course on the foundation of the well placed purpose.

  3. Jean-Christophe Chantereau, November 13, 2018

    In France, we have a similar successful business case with Nickel, a fintech recently acquired by the BNP Paribas Group. They reached 1 million accounts in 5 years of existence. Their purpose is to expand banking inclusion at a time when 500,000 French customers do not have access to a bank account. And their offer is particularly disruptive.

    First, their account is distributed through tobacconnists, a very large distribution channel, where many French people are used to come, whether for buying cigarettes, a lottery ticket, or simply to drink a cup of coffee or a glass of wine (this is not a cliché). Tobacconists are happy to propose new offers as tobacco market decreases. And Nickel customers are happy to benefit from a convenient place to deposit money on their online account, especially poor people who use cash more often than the rest of the population.

    The second strength of Nickel is technology: they give customers a real-time, fully transparent account with a debit card for only 20 euros per year. No extra fees, no overdraft and only 5 minutes to set up.

    Until today, the growth of Nickel was mainly relying on word-of-mouth and the enlargement of their distribution channel (more and more tobacconists willing to propose their account). They also found that their product is appealing for unexpected targets: middle class people opening accounts for their children; travelers attracted by the absence of fees on foreign payments; online buyers who use their Nickel card for online payments to avoid a fraudulent use of their primary bank account.

    They are now at a pivotal point: to grow, they need to increase their salience through more classical media (they are known by only 20% of the population today). And increase income per capita: they recently enlarged their offer, now proposing another account with more services but still competitive (30 euros per year) and in line with their purpose.

  4. Nigel, November 13, 2018
    Thanks for the comments. I have to say I tend to agree with Manuel, there is still huge potential among the existing target audience. By continuing to appeal to the existing audience the brand will likely grow penetration among higher income groups. Changing or extending the business model risks creating internal complexity and external confusion. I guess we will have to see what Capitec does and how it turns out.
  5. Feroz Masthan, November 13, 2018
    If the "company" needs to grow, then it needs to have a brand that caters specifically to other target audience, with a different set of needs, physical or emotional. Perhaps Capitec's next growth will come from geographic expansion.
  6. Manuel Mdluli, November 13, 2018
    K.I.S.S keep it simple stupid. I like this model and if they maintain that i think they can keep growing. At the end of the day the majority of the population is the >10 000rand per annum.v

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