History shows that the South African banking sector has predominately focused on middle to upper class income groups in the market, whilst neglecting the needs and demands of low income groups (Manson, 2012). Capitec Bank on the other hand, focused on the needs of these low income groups, creating a business model that was specifically tailored to their needs. Capitec was introduced in the banking industry during a time of crisis, Saambou Bank, which focused in micro lending had collapsed (McNulty, 2009).
However Capitec has managed to endure this predicament and since its inception, has emerged as a force to be reckoned with, in a relatively short period of time. The bank has managed to penetrate the South African banking sector with progression in a matter of a few years due to its implementation of the inventive Bottom of the Pyramid (BoP) strategy aimed at targeting the lower end consumers (van Themaat et al, 2013). It is therefore essential to evaluate the BoP strategy, along with all of its aspects.
For this reason, this essay will examine the history of Capitec Bank and in particular outline the successful adaption of the BoP strategy as well as its growth and current position in the banking sector. However, the main objective that will be discussed in detail will be on the aspects of Capitec’s strategy crucial for leverage in its position in the South African banking sector.
Capitec Bank was founded on the 1st of March 2001 and built back on its micro credit business, keeping in mind its intention to establish a proper bank in the microfinancing platform (Manson, 2012).
Microfinance is a term used to describe the provision of financial services in addition to microcredit to small businesses and the bottom of the pyramid (BoP) population (van Themaat et al, 2013). Initially, Capitec started as a 300-branch micro-loan business with the sole product being 30 day loans with a 30% monthly interest. Imperatively, this business of micro-loans supported the strategic aim and complementary cost of building out an underlying foundation necessary for a transactional bank (Ashton, 2012). Based on statistics it is found that BoP is more than two thirds of the population that survive on bare minimum income (van Themaat et al, 2013). Furthermore Finscope 2003 estimated that 35 percent of the total population in SA have never banked or used any financial service to manage their finances. With relation to the above, it is recognized that other financial institutions overlook serving the BoP as they are perceived as non-profitable (Coetzee, 2003). However on the other hand, Capitec recognised this market as a window of opportunity as the majority of this population remained unbanked due to the many constraints that prevented them from obtaining financial services (van Themaat et al, 2013, Robin et al, 2005). The bank implemented its profit-driven strategy by customising its services and products to the needs of the BoP to achieve the following: Acceptability, Availability, Affordability and Awareness, thereby overcoming the constraints that existed. (Coetzee, 2003, van Themaat et al, 2013, Robin et al, 2005) This approach deemed successful which has resulted in an increase of market share with 51.23 percent compound interest over the last five years which is in line with its goal of being a profit-driven microfinancing institution (van Themaat et al, 2013). These aspects used by Capitec Bank to penetrate the banking sector will be discussed in this paper.
As mentioned previously in the history, Capitec overcame many constraints that had previously left the BoP sector unbanked. The founders of Capitec critically evaluated the BoP and found that many are embarrassed by their lack of education, skills, literacy, are unable to afford basic financial services and that their perceptions of banking is that it is complicated, expensive, difficult and time consuming (van Themaat et al, 2013). Capitec offers a simplistic and acceptable approach to banking which has changed these perceptions taking into consideration that the Bop are first time users. Capitec Bank (2014) displays Capitec’s product offering which is a Global One account that incorporates a savings, deposits and a credit facility which makes for simpler banking offering exceptional utility and value.
Capitec’s interaction with clients are face-to-face, paper-less, cash-less and card-based (Haladjian, 2006). Overcoming the lack of confidence and literacy skills in first time BoP clients was achieved by the paperless IT and management information system (van Themaat et al, 2013). This also incorporated biometric identification using fingerprint technology and cameras to identify their clients which creates ease of use and quicker response time (van Themaat et al, 2013). Overcoming the language barrier was achieved by employing staff from the local communities. (Robin et al, 2005). Capitec’s investment into human resource training has made for efficient interaction with clients strengthening customer-to-bank relations and by eliminating a bulletproof glass barricade, clients receive a personal service and are treated importantly, which makes transacting a more approachable service. (Coetzee, 2003) By treating their customers with respect, this increases the emotional appeal to the BoP population. As compared to service in a big four branch, the Bop customer is treated as inferior and unvalued, therefore Capitec defines it focus by customer and not by income (van Themaat et al, 2013).
The customer interface systems at ATM’s have been adjusted to the needs and preferences of the BoP catering for illiterate clients. (Coetzee, 2003) The management IT system is centrally controlled, increases simplicity and customer value by reducing administration costs, paper work, prevents fraud and keeps track of transactions using fingerprint biometrics. (Coetzee, 2003, van Themaat et al, 2013) It also creates a safer environment as cash is not kept at branches and withdrawals are available at ATM’s and selected retail stores considering that many unbanked sectors exist in areas experiencing high crime and this positively contributes to driving down financial service costs (Coetzee, 2003, Haladjian, 2006). Opening an account takes ten minutes. After credit evaluation and approval, the loan application process is as follows: scan ID document and verify using barcode, scan payslip, take a photo of the client, capture other data, open account, print loan agreement, allow client to sign, then scan and return the original, create an ATM card and give card to the client (Coetzee, 2003).
Coetzee 2003 highlights that this previously unbanked population deemed as undesirable and unprofitable are being served by Capitec Bank in large volumes since its inception. This further proves that the strategy of simplifying its service implemented by Capitec appeals to the Bop population allowing Capitec to penetrate the banking sector.
Capitec makes their services more available to customers by having longer business hours, increasing the number of branches, allowing withdrawals at retail outlets, using ATM’s, internet banking and applying for credit online. According to Planting (2006) Capitec Bank has extended their business banking hours. On weekdays branches are open from 8am to 5pm (Manson, 2012). Most of the branches of the big four banks: Absa, Nedbank, FNB and Standard bank close at about 3:30pm or 4pm. Capitec considers that most customers are working and can only access branches after working hours which is around 4pm. In some cases branches are open till later where it suits customers and branches are also capable of going to the workplace of customers to offer their services (Coetzee, 2003). On Saturdays branches are open between 8am to 1pm and on Sundays branches in large shopping centres are open between 10am to 2pm (Manson, 2012). Most of the big four banks branches close on Saturday at about 11am and on Sunday most branches are not open. These times considers that customers may not be able to do their banking during the week because of long and tiring working hours. They understand the needs of customers by offering longer business banking hours. Capitec knows that their customers need to reach their branches easily. This is done by reducing the size of branches and increasing the quantity of branches (Manson, 2012).
They would rather have more branches in one area than have one big branch. Many people do not save because they do not have access to banking services (Finscope, 2003). Increasing the number of branches increases accessibility and savings will be encouraged. Using this approach makes their services accessible and convenient for customers. Initially Capitec’s main target focus was the BoP. Branches are located at taxi ranks, train stations and townships where their services are easily available to the low income group. They have expanded over the years, making their services available to the other income groups by locating branches near rural areas and in shopping malls. Capitec uses existing infrastructure to improve banking service accessibility. They have partnered with retail outlets such as Checkers, Pick ‘n Pay, Shoprite and Pep. Customers can withdraw cash at these retail outlets. Most of the retailers allow cash to be withdrawn when purchasing items at the stores except at Pick ‘n Pay no purchase is required to make a withdrawal. They have increased their network location by allowing withdrawals at retailers without having to invest in any large infrastructure (Kim & Mauborgne, 2005). This allows easy access to money and convenience for customers. Capitec ATM’s are located across SA making them easily accessible.
If customers cannot access an ATM to withdraw cash, they can always go to retail outlets making their services more accessible and unique compared to the major banks. The ATM’s can be used to check balances, withdraw cash and multi-loan, transfer money to savings plans and change a pin. The availability of services offered by Capitec is improved by partnering with MasterCard. Cards are developed to allow customers usage even in remote places (Lee, 2010). Mobile banking is also used by Capitec; customers can use their cell phone to access multi-loan, savings plans and savings account. It can be used to purchase airtime and electricity, check account balances and previous electricity tokens purchased, withdraw multi-loan and make payments to clients who bank with Capitec, transfer money between your accounts and register for SMS update for security purposes. Capitec offers internet banking that is simple, safe and saves the customer money.
Money can be managed whenever it suits the customer. Internet banking allows customers to transfer money between their accounts, create stop orders, check their statements, tax interest certificate, payment history and register for SMS update system. Customers first need to access their nearest branch to register for mobile or internet banking and to find out how it works. After registration customers can easily access their services when it suits them. They also allow customers to apply for credit online which increases availability of their services. A credit application must be completed online and they will contact the customer to discuss it with them, making credit application easily accessible. The use of EMP technology and cards linked to maestro allows customers use of their cards offline, offering services in areas of limited access such as rural communities (Haladjian, 2006). Using these strategies Capitec has made their services more available and convenient for customers, thus improving the banking sector. These strategies used have increased their client base and resulted in the growth of bank. Businesstech (2014) reveals that Capitec has overtaken Nedbank and is now the fourth largest bank with approximately 10.8 per cent market share. Affordability
A substantial component behind Capitec Bank’s successful business model was its development of a strategy aimed at understanding the needs of its customers which were the “bottom of the pyramid” population (van Themaat et al, 2013). This prompted the bank to offer affordable banking products and services that were specifically designed in accordance to its customers’ needs. Capitec centred on having simple banking products and services and sought out to have the lowest fees, hence arguably making it the most affordable bank to bank with amongst many of its competitors in the banking sector (Manson, 2012). In order to understand this strategy, it is imperative to highlight the banking products and services Capitec offered which allowed it to penetrate the banking sector in South Africa as well as making a comparative analysis with the products and services of some of the major banks in South Africa.
The fundamental factor of Capitec’s success is its Capitec’s Global One account which comprises of three distinct features: it allows an individual to have the ability to transact, save and access credit, all with one account (Capitec Bank, 2014). The efficiency of this account ensures that customers do not have to open three separate accounts which cuts down on administrative costs. The monthly administration cost for the Global One account inclusive of all its aspects as of 01 March 2014 amounts to R5.00 (Capitec Bank, 2014). Furthermore there is free access to card, mobile as well as internet banking and in so doing makes it more appealing to Capitec’s target market (Manson, 2012). Comparing Capitec’s Global One account with that of its counterparts from the big four banks in the table below, it can be seen that this account is more superior in terms of its features and much more cost efficient than the rival accounts of other banks.
Capitec- “Global One Account”
FNB- “Easy Account”
Absa- “Flexi Account”
Nedbank- “Ke Yona Account”
Standard Bank- “PlusPlan Account”
The Global One transaction feature allows you to transfer, deposit or withdraw money as well as to make purchases and payments (Capitec Bank, 2014). The fees that Capitec charges relating to the transaction aspect on this account is by far the cheapest in comparison to the transaction accounts of the big four banks. Fees relating to all card purchases are free whether you purchase at card machines, shop online, order by telephone or through mail. Money transfers to own accounts are also free and to other accounts is charged at a fee of R1.05. Balance enquiries through all channels are also free. (Capitec Bank, 2014) The savings component on the Global One account allows an individual to have four different savings plan which has the ability to earn interest ranging from 4.40 to 9% depending on their plans. These plans can also be flexible or fixed according to one’s preference. With flexible savings, people can earn from 4.40% interest on their daily balances as well as choose the amount they want to deposit and the frequency of their deposits (Capitec, 2014). Another advantage to these plans is that there is no monthly admin fee that has to be paid to each account as well as no minimum balance required in order to start saving.
Fixed-term savings gives one the ability to choose from two deposit options. The first is a “single deposit” which can run from a period of 6 to 60 months with a minimum balance of R10 000 and a maximum investment of R5 million (Capitec Bank, 2014). The second option is “multiple deposits” which can run from a period of 6 to 24 months with a maximum investment amount of R1 million. The interest rate is fixed for the full term and interest gained from this option can either be reinvested or transferred to back to one’s transaction or savings account (Capitec Bank, 2014). Having a look at the competing accounts of the other major banks which can be seen in the table below, most offer interest rates that are less than 1%. Capitec on the other hand offers highly competitive interest rates which make it more lucrative for people to bank with them as they are able to earn more on their savings.
Capitec- “Global One Account
FNB- “Easy Account
Absa- “Flexi Account
Nedbank- “Ke Yona Account
Standard Bank- “PlusPlan Account”
4.40 to 9%