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 yesterday.
Old Mutual plans to spend 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 three 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.”
Nitrogen Fund Managers chief investment officer Rowan Williams said, the lower end of the banking market was becoming increasingly competitive with the likes of Capitec, TymeBank and Bank Zero, and it would be interesting to see what kind of products or integrated offerings Old Mutual would bring to the market. He believed the bank would be targeted at the lower end of the banking market, as Old Mutual does lending to this market.
He said a competitive new bank would be positive for consumers, and the development also added some dynamism into Old Mutual’s business.
The announcement of the bank and a trading statement released yesterday were all “broadly positive” for Old Mutual, said Williams.
“The group’s existing lending and transactional solutions in South Africa consist of the Money Account product and an unsecured lending product. The Old Mutual Money Account is handled through a partnership with Bidvest Bank. The unsecured lending solution was already a strong contributor to group profitability,” the group said.
“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, drive greater regular interaction with them and enhance 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 cloud-based technology stack, to its customers using the latest technology that allowed enhanced servicing and personalisation, Old Mutual said.
The group, the first insurer to offer shares directly to the black South African public in a retail scheme, also said yesterday that the number of applications for its Old Mutual Bula Tsela Retail Scheme, had “far exceeded expectations” resulting in an over-subscribed offer.
More than 38 000 black South African individuals, small businesses, and groups such as trusts and stokvels had qualified for RetailCo shares.
Bula Tsela aimed to help Old Mutual’s long-term objectives of broadening South Africa’s economic base, improving savings and driving financial inclusivity
Old Mutual added that it had maintained its sales recovery in the third quarter to September 30, despite increasing financial pressure on its customers.
“South Africa has experienced rising inflation, interest rate increases and ongoing load-shedding. In the African markets where we operate, the economic climate continues to be volatile due to escalating inflation and depreciating currencies. These factors have resulted in increased financial pressure on customers,” the group’s directors said.
Sales benefited from strong issued sales across all channels and improved credit life sales in Mass and Foundation Cluster. Sales growth was also driven by higher group risk and annuity sales in Old Mutual Corporate, as well as higher retail and corporate sales in Namibia.