Old Mutual expects to launch a full transactional bank account in the second half of 2024, after receiving approval from the Prudential Authority to proceed with its application for a banking licence.
The group was working on its application under section 16 of the Banks Act for the registration of a bank, Old Mutual said in a voluntary trading update on Tuesday.
The establishment of a bank was “a natural progression of its core strategy”, it said.
Old Mutual will enter a highly contested market, with the likes of Discovery Bank, TymeBank and Bank Zero challenging the established retail banking players: Absa, Capitec, First National Bank, Nedbank, and Standard Bank.
African Bank has opened more than one million transactional accounts. In August, it bought Ubank, potentially giving it access to more retail customers.
Meanwhile, retailers and mobile network operators are expanding their range of financial products and services. For example, Shoprite plans to launch a bank card for its money market account to enable its customers to withdraw cash at ATMs.
‘Divergence of aspiration’
Old Mutual already offers lending and transactional products in South Africa: a basic “money account”, using Bidvest Bank’s licence, and an unsecured lending product. Both are offered mainly to its Mass and Foundation Cluster customers.
The money account aims to encourage clients to save, with a monthly administration fee of R4.95.
Old Mutual said its “commercial arrangement” with Bidvest has allowed it to gain experience in transactional banking services, but “a divergence of aspiration requires us to reassess our future arrangement to deliver on our customer needs”.
Moneyweb speculated that Old Mutual and Bidvest clashed on the potential of the insurer’s push into banking, “possibly product design and, very likely, fee structure”.
Old Mutual said establishing a bank within the group will allow it to hold the primary relationship with its customers, “driving greater regular interaction with them and enhancing the cross-sell opportunity across the group. It will also enable the group to accept retail deposits, thereby providing a cheaper source of funding.”
It was building the bank’s transactional capability “using the latest technology that will allow enhanced servicing and personalisation”. This, together with a cloud-based technology stack, will enable it to deliver “cost-effective, flexible and scalable solutions to our customers”.
The approved expenditure to complete building the bank’s transactional capability was R1.75 billion. Old Mutual has incurred costs of R830 million for the current period, and about 10% of these costs were capitalised.
The bank was expected to break even three years after the launch. As the capability matures post break-even, the return is expected to be significantly above the target return of 4% in excess of the cost of equity, the group said.
Nedbank unbundling
Old Mutual owned a majority stake in Nedbank from 1986 until 2018.
In 2016, Old Mutual plc announced a new strategy, called “managed separation”, that sought to unlock and create value for shareholders. The strategy entailed the separation of its four businesses – Old Mutual Emerging Markets, Nedbank, UK-based Old Mutual Wealth Management (now Quilter), and Old Mutual Asset Management (now BrightSphere) – into standalone entities.
Old Mutual unbundled most of its 52% stake in Nedbank to Old Mutual shareholders in 2018. It retained a 19.4% “strategic” holding, which was reduced to about 7% after a second unbundling in November last year.
Insurers and banks fishing in the same waters
Moneyweb commented that with Old Mutual establishing a bank, two of South Africa’s five largest insurers will have entered the banking space. One of the five, Liberty, has been bought by its (former) parent, Standard Bank.
Meanwhile, the banks have been steadily entering the insurance market. Capitec, the country’s most successful retail bank, provides insurance to its 18-million-plus clients. It was granted a life insurance licence in October.
Moneyweb commented: “In an economy growing at just above 1%, there are precious few opportunities for growth. While growth rates on the rest of the continent dwarf those locally, the scale of many of those opportunities pales in comparison to our banks’ and insurers’ home market. This explains many of these moves over the last five years.”
