Diversification spurs Capitec's strong annual performance

Capitec, SA's leading digital bank, has announced strong results, with earnings growing by an exceptional 16% to R10.6bn for the year ended February 29 2024.

The group realised 25% growth in the second half of the year resulting from diversified businesses, and non-interest income now contributes 72% of total income.

Capitec’s active client base grew by 10% to 22-million, while app users increased by 19% to 11.2-million (2023: 9.4-million). Transaction volumes increased 21% to 9.9-billion (2023: 8.2-billion), and as a result, Capitec’s transaction and commission income grew 29% year-on-year to R14.8bn (2023: R11.5bn).

Gerrie Fourie, CEO of Capitec, says this growth aligns with the bank’s strategy of shifting the market towards digital banking, while maintaining a competitive advantage through branch service delivery. 

“Our strategy has remained razor-focused on the future. Over the last three years, we’ve invested R6.3bn in re-platforming our systems and migrating our data to AWS Cloud services, developing innovative payment solutions, and building three new businesses to unlock value for our 22-million clients. This cemented our position as the country’s top digital bank and produced strong results in a challenging economic environment.”

In the financial year under review, strategic initiatives, including value-added services, payments and Capitec Connect, contributed R2.9bn in net income. The insurance business contributed R3bn, and business banking added R478m in profit after tax. 

Leading digital bank in SA

Capitec is by no means traditional. Capitec app users increased by 180,000 per month and registered over 11-million logins per day — that’s over 500,000 people using the app every hour, illustrating how the brand has become a part of people's daily lives.

Card payments increased by 30% to 2.5-billion, which means the Capitec card was used 6.6-million times daily across SA and in top international destinations.

The bank is also the market leader in PayShap transactions, with a 59% share of all PayShap payments.

The bank also introduced Capitec Pay, the first API-based payment solution in SA, which enables secure card-free online shopping by simply entering a cellphone number and authenticating it using the Capitec app. Capitec Pay processed 134-million transactions with a value of R26.7bn; 83% of all financial transactions are now cash-free.

Branch service and cash-based transaction growth slowed as clients adopted self-service and digital banking in line with the bank’s long-term service model. This created capacity in the group's 866 branches to sell more complex products and spend more time on service delivery. 

In February, 65% of client care agent support was provided via chat on WhatsApp, up from only 9% in the previous year, indicating a fundamental shift in how the bank delivers client service. 

“We aim to make banking simple and affordable by leading digital innovation for everyone,” says Fourie. “We have over 2-trillion data points, which helps us anticipate our clients’ needs, develop better products and communicate with our clients in a more relevant way. Our ‘next best actions’ deliver tips to clients on how to bank better, and we send over 40-million messages to our clients through their app, email and SMS every month.”

Serving higher-income clients with innovative offerings

Capitec is growing faster in the higher income segment as clients with inflows of over R15,000 per month into their Capitec account have increased by 17%. Its credit card, banking app, digital payments, purpose-lending solutions, and competitive interest on fixed-term savings accounts, all at the same low fees, have been vital in attracting these clients and competing with premium accounts from traditional banks.

“Our offering is designed to meet the needs of 95% of South Africans without discriminating against age, race or salary. We’ve recently introduced licence disk renewals on our app, gaining substantial market share weeks after launch. We’ve also introduced international payments to over 50 countries, which offer a simple, affordable and transparent pricing structure with a flat fee of just R175,” says Fourie.

Capitec also offers higher-income clients the best credit card to use on their travels, with no currency conversion fees and travel insurance of up to R5m while paying 1% back on every rand spent.

Diversifying retail credit

Capitec diversified its retail credit from traditional term credit to access facilities, credit cards and purpose lending for education, vehicle finance, home improvement and secured home loans.

Net loan sales and disbursements for 2024 were R48.5bn, a access facilities and credit cards instead of term loans.

The bank’s credit card has seen a 35% growth in market share, and the number of high-income clients earning over R50,000 has increased by 56% over two years. Credit income was driven by new credit solutions designed for specific purposes, such as its vehicle loan and education loan offerings, and affordability was improved by recognising multiple income sources. 

Fourie says: “Our retail credit portfolio has transformed over the last two years, focusing on building a higher-quality loan book through 141 granting model changes in the past year and stricter credit granting criteria. Credit card disbursements, in particular, grew by an impressive 28% to R17.3bn (2023: R13.5bn), driven by our strategic focus on attracting lower-risk and higher-income clients.”

Capitec Business delivers impressive returns

Mercantile Bank was rebranded to Capitec Business in the 2024 financial year, delivering impressive results with a 23% increase in profit after tax to R478m (2023: R388m).

The bank implemented a new online banking platform, moved to a single Capitec app for business and personal banking, and implemented cloud-based banking, customer relationship management and lending solutions. The new platform allows clients to on-board remotely in minutes with no paperwork and gives them access to a business banker through a relationship suite that enables the bank to scale service. 

Capitec Business re-priced on March 1 2024 to a low monthly fee of R50 for all business types, and the same low transaction fees as personal banking for all businesses, regardless of size. 

“We strive to offer digitally-led, relationship-based business banking accessible to all South African businesses, big or small. Our clients range from small SMEs to much larger companies or franchises across all sectors. We offer them professional business bankers and credit in the form of an overdraft of structured vehicle and asset finance as well as forex, payment services, card machines and rental finance solutions,” says Fourie. 

Insurance solutions that cover over 12-million South Africans 

Capitec’s insurance business delivered profit after tax growth to R3.1bn, a 12% increase from R2.7bn in 2023.

Net credit life insurance income increased by 13% to R1.9bn (2023: R1.7 billion), with over 558,417 policies issued on Capitec’s own licence that was obtained in 2023. 

Funeral Plan income increased by 27% to R1.3bn (2023: R1bn) due to robust funeral policy sales.

Active policies increased by 23% to 2.7-million and now cover 12.1-million lives (2023: 9.9-million).

Capitec also announced that it will launch new Capitec Life cover later this year.

Investing future growth

On March 11, Capitec received approval from the South African Reserve Bank to increase its ownership of AvaFin, an international consumer online lending group, from 40% to 97%, thus growing its footprint in the online consumer lending space.

The acquisition of Avafin was a strategic opportunity to diversify the bank’s income sources and build on its experience in foreign markets.

“We believe there is still tremendous value in SA to unlock through a combination of our retail banking, business banking, insurance and value-added services. We underpin this with a strong foundation of technology and data and continue to invest in our people and service model. This creates an ecosystem and a unique platform set up for future growth,” says Fourie.

For more information about Capitec's 2024 annual results, visit the bank's website.

This article was sponsored by Capitec.