Chances are, most entrepreneurs will never get their hands on R250 million start-up capital. They probably won’t have the backing of a large investment company to get their dream off the ground. These are considerable advantages and Capitec Bank had both of them. But that’s where the dissimilarity with most entrepreneurs ends, and a truly visionary journey begins.
Had you purchased Capitec shares back in 2002 when the company listed, you’d be feeling smugly pleased with yourself right now. From a listing price of R2, the company’s shares are today worth R173. The success of the bank that took on the banking industry is a remarkable story, and one from which entrepreneurs can learn a great deal, no matter how small their business or how modest their means.
It is a story of disruptive thinking in action, of the new kid on the old block who took a gap that others saw but were unable to fill. In doing so, it showed up the big players at a time when they seemed immovably entrenched as market leaders. And while it hasn’t yet dethroned one of the Big Four banks, it certainly has them sitting up and taking notice.
With good reason too. The country’s first new retail bank in decades, Capitec has cornered the massive lower-middle income retail banking market, signing on average 70 000 new customers a month. It has ambitious plans to grow its branch network by 55 branches a year for the next five years, and recently posted continued profit growth of 46%. All those things are deeply worrying (or should be) if you’re an established bank that’s grown used to your entrenched position in an industry that’s remained essentially unchanged for decades.
Shifting the game
And there’s the thing. Capitec’s greatest achievement is arguably the fact that it has changed an industry. Its no-frills approach to simple banking that meets the real needs of the customer has introduced a new element to the banking landscape and fundamentally changed the rules of the game. Those who want to compete can’t but take cognisance of this fact.
Capitec’s success has been driven by a ‘go big or go home’ approach that’s nothing if not ambitious. But then it has to be. As CEO Riaan Stassen points out, “You can’t compete in the banking industry as a small-time player. Not if you want to get ahead.” The same applies to any established industry. You might be able to carve out a tiny niche for yourself, but you’ll never really be in the game. Knowing this, Capitec did for banking what William Webb Ellis did for rugby. (Popular legend has it that Ellis picked up and ran with the ball during a soccer game at Rugby School, birthing a new sporting code named after the school). It’s what Apple did internationally and kulula, locally. And it transformed Capitec from ‘the little guy trying to carve out a market space’ to ‘the next new big thing’.
Taking the gap
This had always been Stassen’s goal. He’s not a maverick like Richard Branson and he doesn’t possess the charismatic god-like aura of Steve Jobs, but he’s no less the disruptive entrepreneur for all that. As far back as 1995, when he was MD of Boland Bank, he had ambitions of reengineering the bank, but when it merged with BoE and became part of a larger corporate structure, those plans were scuppered.
He didn’t forget them however. “We’d done a thorough analysis of the retail banking market and we knew there was an opportunity to do things differently,” he says. So when he and the majority of the former Boland Bank Exco left BoE to join PSG’s micro-lending outfit, Keynes Rational in 2000, those plans were revisited. (Keynes obtained a retail banking licence in February 2001 and Capitec was born.)
What the market analysis revealed was hardly surprising. After all, it wouldn’t take a genius to point out the flaws in the current banking landscape. The average banking customer could easily identify astronomically high banking fees, poor customer service, opaque policies and procedures, overly-complicated products and services, and reams upon reams of red tape. And that’s just for a start.
But while the market gap might have been obvious, the fact remains that no one – least of all the established banking players – had taken advantage of it. What Stassen did was outline where the opportunities lay and used this to clearly articulate the new bank’s vision.
“They key thing was to ask ourselves what we wanted to achieve. The answer was directly informed by where we saw the market gaps: affordability, greater and more hospitable branch access, and simplified, easy-to-understand banking products,” says Stassen.
It sounds simple: identify the gap and build your business around filling it. But it’s something countless businesses, large and small, fail to get right, even when they can see where the opportunities for
differentiation lie. That Capitec got it right speaks of a single-minded focus on a clearly defined vision, and the strength of leadership to carry that vision through to fruition.
Stepping into the customer’s shoes
Stassen’s point of departure in all of this was the question, “What does the customer want?” It’s a question many banks (and businesses) claim to ask. But if they are indeed asking it, they certainly don’t seem to be using the answer to inform any of their strategy.
At Capitec, what the customer wants drives everything. Indeed, it’s given the bank its differentiating edge, helping it to introduce a range of industry firsts.
Take its pricing structure for instance. Other banks have repeatedly claimed it’s impossible for them to reduce bank fees because of the high cost of servicing the low-end market. Capitec proved them wrong.
“We identified affordability as a huge opportunity. Most banks were charging very high transaction costs and were giving virtually no return on savings,” says Stassen.
Point-of-sale debit card purchases are free, as are balance enquiries except when using other bank and international ATMs. The monthly administration fee is R4,50. Customers can also withdraw cash from participating retailers – including Pick n Pay, Shoprite, Checkers, PEP, Boxer and Score stores – for R1,00 per transaction. On average, when compared to traditional banks, customers can save close to R100 a month. “Our bank charges are 50% cheaper than the best product in the market,” says Stassen.
Capitec also encourages saving by turning the traditional interest rate structure on its head, offering a higher rate of interest for lower value savings.
This year, the bank took the decision not to raise banking fees. Interestingly these decisions, which put customers before shareholders, have delivered the goods when it comes to the share price, proof positive that the needs of the customer and the shareholder need not be in opposition.
Retaining personalised service
Stassen believes that the face-to-face relationship is also critical to providing customers with what they want. “Banks have become very unfriendly and intimidating places. We wanted to improve access – not just from the point of view of having more branches, but also by making the bank a hospitable place that people felt comfortable visiting,” he says.
At a time when other banks are actively discouraging customers from using the branch, Capitec is engineering its branches to make them welcoming. Cash withdrawals can only be made at an ATM, and cash deposits are immediately sent to a drop safe, which allows the bank to do away with the unfriendly bullet-proof glass of most branches. At Capitec, consultants talk to customers across tables.
In fact, its entire recruitment strategy is informed by the recognition that many customers prefer to speak to a consultant face to face.
“We take cognisance of the diversity of our customer base, so we recruit staff from the communities in which we open branches,” Stassen explains. A policy of recruiting for potential and training for skill brings its own set of challenges. “Very often, particularly in remote rural areas, it’s difficult to find staff with the right potential. We never want to compromise on the quality of service we give to customers, and this means we’ve had to invest a lot in excellent training,” he adds. Around 200 new staff members are trained each month but for every one of those, the bank has interviewed ten people.
Training is intensive and carried out over seven weeks. In order to manage training costs, the bank employs a combination of e-learning and interactive training, and trains all staff centrally at its Stellenbosch headquarters. “Centralised training has also helped us to create a homogenous culture,” says Stassen.
Going where the customers are
Capitec’s objective to grow its branch network by 55 branches a year will provide customers with even greater branch access. Like everything else it does, the way these branches are distributed is directly informed by a thorough understanding of the market and what customers need.
“Modes of transport are particularly relevant to our customer base, and we’ve used research in this area to help us establish branches in the best possible location,” says Stassen. This often leads to distribution channels that might seem counter-intuitive. In Belville, for example, there are three Capitec branches within 200 metres of each other.
As Stassen explains, each services customer groups with very different profiles. “One group commutes by train. They are blue-collar workers who are paid weekly. Another group is employed by bigger companies and government buildings in the area. They commute by car and are paid on a monthly basis. The third group is balanced between monthly and weekly paid customers.”
Typically, branches are located on transport routes and in retail centres, and in order to allow greater access the bank has offered minimum banking hours of 8am to 5pm since its inception. In certain areas, branches are open from 7am to 7pm. Capitec also recently became the first bank in South Africa to open for Sunday trading. (Unsurprisingly, other banks have quickly followed suit).
Making ‘simple’ sophisticated
These are just some of the ‘industry firsts’ that have helped Capitec attract new customers at the rate it has. But perhaps more than anything, it’s the bank’s products that set it apart. There is a single transaction and savings product for all customers, regardless of income. It’s a fundamental break from the multiple and complex products offered by traditional banks trying to provide something tailored for every customer group. The transaction account also acts as a savings and loan facility, all rolled into one.
The very existence of the Global One product is proof of Stassen’s innate tendency of turning the tried and tested way of doing things on its head, and challenging entrenched industry beliefs and systems. This is a man who sees things very differently to his competitors, and it’s given him the edge.
As he explains, most banks segment the market in terms of income, based on the assumption that different income groups have different needs. “I take a very different view,” he says, “I believe that the only time that income drives different needs is when it comes to wealth creation. A poorer person requires good savings advice and products, whereas a richer person requires good investment advice and products. But that’s where it ends. When it comes to things like making withdrawals or payments, different income groups might choose different access mechanisms, but at the end of the day they require the same functionality. They want a bank that can handle cash in and cash out, efficiently.”
The bank’s pay-off line, Simplicity is the ultimate sophistication, is borne through in its products as well as its fees. “I don’t like the bundled fee approach. We’ve gone with a single, pay-as-you-go pricing structure,” he adds.
Capturing a market
All this simplicity leads to greater clarity in the minds of the consumer, and transparency is an important deliverable at Capitec. “We believe customers want more control over their money, and they can’t have that if they don’t understand the banking fees they are being charged,” Stassen points out.
Such transparency has no doubt played a central role in helping the bank to gain access to a market that’s notoriously mistrustful of financial services institutions. It goes hand in hand with open communication, and for Stassen this has been key to capturing the market. “For this market, you never want to create an expectation gap. Such gaps lead to things like more enquiries at the branch which, at the end of the day are non-income-generating activities for the business,” he says, proudly asserting that, unlike its competitors, Capitec branches have very short enquiries queues.
As part of its communication strategy, the bank offers customers the opportunity to register for SMS updates. “It’s too expensive to send out statements for savings accounts and many customers don’t have fixed addresses. The SMS facility allows them to see, in real time, how much money they’ve just spent on a transaction and what their existing balance is,” he explains. Customers also get a monthly SMS outlining their banking fees and any interest earned. “It’s all about putting them back in control. We believe customers have a right to know what’s happening to their money,” says Stassen.
Building a system that delivers
Such strategies are easily conceived, but Stassen is the first to admit that setting up a bank is a mammoth undertaking. “We underestimated what it would take to establish and build such an organisation from scratch. You need massive infrastructure to compete with the big players,” he says, adding that technology is a critical component. In spite of that, Stassen believes that Capitec was able to turn its newcomer status to its advantage. “Most banks inherit their systems, which have been changed and added to over generations. It was a major undertaking but the fact that we got to build our own technology platform from scratch turned out to be an advantage. It meant we could tailor it exactly to suit our needs,” he says.
The system had to be able to handle high volume, low value transactions, quickly and efficiently, and be scalable. “Being paperless was also very important, particularly given the fact that much of our market is only semi-literate,” says Stassen. The system was engineered to be process-driven with a high degree of centralised control. As Stassen explains, this took much of the administrative burden away from the point of customer interaction.
At the time that the technology platform was built Capitec was the only bank in the country that ran its main banking system off a Windows platform. And here’s the thing. In total, the company has spent around R120 million on both hardware and software. “Many of the big banks can spend in the region of R3 billion over a three-year period on the same thing, and our system handles similar volumes to theirs,” Stassen points out. “Setting clear objectives of what the bank wanted to achieve was a critical guide as to which components we needed to select for the technology platform,” he adds.
The system has provided the bank with the ability to sign up customers in ten minutes, without any forms. Prospective customers need only their ID document and proof of residence, and in some instances don’t even need to visit a branch to sign up. Stassen formed a mobile banking unit to travel to large organisations and sign up new customers on the spot. The value of such immediacy in capturing the market cannot be overstated.
Overcoming growing pains
Stassen believes that one of the reasons Capitec was able to take advantage of the market gaps where its competitors weren’t, is that it had the nimbleness of a small entrepreneurial company. But the business’s growth plans are ambitious and Stassen is acutely aware of the danger of becoming another large, slow-to-respond bank as the organisation gets bigger.
“Implementation definitely becomes more difficult as you grow, but I think the solution is to prioritise properly to get the best new ideas implemented,” he says. Getting this right is partly a function of building the right culture. “We’ve worked hard to make sure our people understand the value of continuous improvement. We communicate the benefits it will bring to them and to the organisation,” Stassen says. The upshot is that the bank experiences very little push-back when things like Sunday trading are introduced. “Staff don’t automatically ask ‘Why should I change or work harder?’” he says.
As the organisation grows, Stassen will continue to implement his conservative approach to financial management and accounting standards. “I’m happy to be innovative when it comes to development, but on issues of managing liquidity and conserving capital, I’m definitely conservative,” he says. Looking ahead, it’s an approach that will stand the bank in good stead.
Stassen wants to grow internationally but typically, unlike other banks, he’s not overly focused on the African market. “The cost of entry in banking is high, so we want to be in the high potential countries. For this reason, we’d rather go into India than Namibia, for example. We would also prefer to focus on countries that have stable economies,” he says. In addition to India, he’s interested in Brazil and the Eastern Block countries. “I’d also love to be in China but the complexities are too great for us to consider it for another couple of years,” he says.
Recognising that a thorough understanding of the market has been so critical to Capitec’s local success, Stassen indicates that the bank would prefer to partner with a local player in overseas markets. One option would be to partner with retailers, which would give the bank access to a customer base, market knowledge and a distribution network.
For the moment, however, he’s focused on growing the South African market. “We want 1 000 branches and five million customers.” Given what Capitec’s achieved to date, it’s not difficult to imagine it reaching those goals. If the future belongs to disruptive thinkers, this is what it looks like.
Building a brand that shows it understands the market
At a time when most banks are encouraging customers to spend more, Capitec launched a campaign to do just the opposite. Called The Live Free Project, the campaign staged events that highlighted ways in which consumers could enjoy themselves without spending money.
In one instance the bank employed a sandcastle construction crew on Cape Town and Durban beaches in December, reminding consumers that they could enjoy a day out with their families building sandcastles on the beach, for free, instead of racking up debt in shopping malls.
In time for the national budget speech it opened Le Budget Cafe in Cape Town, where consumers could enjoy their own home-made lunch in a completely free environment. And in a different take on shopping, the campaign launched a ‘swapping mall’ in Johannesburg where consumers could exchange their lightly-used fashion, homeware, art, books and design items.
“Advising consumers not to spend money might seem like a paradox for a bank – particularly given that they were blamed for the debt crisis that triggered the global recession in 2007. But Capitec wants consumers to save money, stay out of debt and live within their means,” says Charl Nel, Head: Strategic Communication.
For Stassen, it’s all about resonating with the needs of the market. “Not everything needs to be about making more money off your customers.
I can’t stand all those strategies about cross-selling or upselling. We don’t sit around a table and ask ourselves how we can get more money out of our client base. We ask ourselves what our customers need and how we can give it to them in a way that’s different to, and will beat our competitors.”
What you can learn from Capitec
- Don’t accept the status quo: Just because things have been done a particular way by companies that have become market leaders, doesn’t mean there isn’t a new, better way of doing things.
- Ask how it can be done differently: Capitec challenged long-held assumptions about the banking industry and how to service the market.
- Start by going back to the source – your customer: Give them what they need – particularly if no-one else is meeting those needs – and the rest will follow.
- It’s not enough to identify the gaps: You need to come up with a sustainable and profitable solution to fill them. Capitec’s advantage lay not in the fact that it saw the market gaps, but in being able to meet them.
- Articulate a clear vision based on the opportunities available: Gear your business and all its systems and processes around taking advantage of these.
- Structure your systems to meet your objectives: The smartest system is worthless unless it helps your business achieve its goals.
- Be prepared to work longer and harder than your competitors: Taking on the big guns is hard work. Make sure you and your staff are up to the challenge.
- Employ people who understand the importance of doing things differently: Capitec’s leadership was able to articulate why it’s important for the business to continually improve, a critical step in getting staff on board