An application for a banking license has been submitted by Old Mutual, this is in a space which has traditionally been dominated by the big four banks, Business Live reports.
In a statement released by the company, the third-largest insurer in South Africa stated that the acquisition of a banking license would provide a platform for the company to foster greater interactions with its client base and to cross-sell its products throughout the group. It would also make it possible for the insurer to accept deposits from individual customers, making retail deposits a more cost-effective source of funding.
Old Mutual already has established lending and transactional solutions in South Africa. These solutions primarily include the “money account” and an unsecured lending product that is provided by Bidvest Bank through a commercial arrangement. The money account is a transactional account that clients can use to save money at a low cost. The account has a monthly admin fee of just R4.95, and it is designed for customers to use.
“While this commercial arrangement has allowed us to gain experience in transactional banking services, a divergence of aspiration requires us to reassess our future arrangement in order to deliver on the needs of our customers,” the company said.
The company anticipates that it will be profitable three years after the new bank opens for business, provided that it receives the necessary regulatory approvals from the Prudential Authority of the South African Reserve Bank. The launch of the new bank is scheduled for the second half of 2024.
R1.75 billion has been set aside as the budgeted amount for the expenditures necessary to finish the construction of the transactional banking capability.
Old Mutual stated that they had incurred costs totaling R830 million for the current period, and that approximately 10% of these costs had been capitalised. “In line with the business case,” Old Mutual said.
The entry of new challenger banks in the financial industry, such as Discovery Bank, TymeBank, and Bank Zero, has resulted in a particularly cutthroat competitive environment in the retail banking sector in recent years. Absa, Nedbank, Standard Bank, and First National Bank are the four traditional players.
Capitec Bank, which is the most successful retail bank by a wide margin, already offers insurance coverage to its 18 million or more customers, and as a result, it has taken market share away from more traditional insurers.
According to Radebe Sipamla, an investment analyst, “I think that overall it’s strategically a good fit for Old Mutual to have a banking licence given that it no longer has strong ties with Nedbank post the managed separation.” This statement was made in reference to the fact that Old Mutual no longer has strong ties with Nedbank.
By providing their customers with financial services, merchants like Shoprite are increasingly competing with one another for a larger portion of the market.
READ MORE: Recording cash transactions over R25k is now a thing of the past for banks
According to findings from research that was carried out earlier this year by PwC, relatively new players have an advantage over traditional incumbents because they are not restricted by high fixed-cost bases. The majority of their communications with their customers took place via various forms of digital technology.
According to the findings of a study conducted by PwC, this pattern is likely to continue and spread into other business sectors as companies that already have sizable customer bases search for new ways to increase their market share of customers’ wallets by providing competitive banking services.
