Old Mutual, the life assurance and financial services group, plans to launch its own banking business in the second half of 2024.
It has received Section 13 approval from the Prudential Authority to proceed with the application for a banking licence.
“We are working on our application under Section 16 of the Banks Act for the registration of the bank,” the group’s directors said in a trading update Tuesday.
Old Mutual’s board have approved capital expenditure of R1.75 billion to complete the build of the transactional capability for the bank.
“In line with the business case, we have incurred costs of R830 million for the current period, and approximately 10% of these costs were capitalised. The entity is expected to break- even 3 years after the launch.”
As the capability matured post break-even, the return was expected to be significantly above the target return of 4% in excess of the cost of equity,” the directors said.
They said the establishment of an entity in the group with a banking licence “is a natural progression of our core strategy, helping us to sustain our customers’ prosperity through an enhanced transactional banking capability.”
The group’s existing lending and transactional solutions in South Africa consist of the Money Account product and an unsecured lending product.
“These solutions are offered mainly to our Mass and Foundation Cluster customer base and the unsecured lending solution is already a strong contributor to group profitability,” the group said.
Currently, the transactional solution was delivered through a commercial arrangement with a third-party bank.
“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 to deliver on our customer needs,” Old Mutual’s directors said.
“The establishment of a bank…will allow us to hold the primary relationship with our customers, driving greater regular interaction with them and enhancing the cross-sell opportunities. It will also enable the group to accept retail deposits, thereby providing a cheaper source of funding.”
The aim was to deliver flexible and scalable solutions, with a club-based technology stack, to its customers using the latest technology that allowed enhanced servicing and personalisation.