Discovery has one. Old Mutual launched one last year. Pepkor, the group behind PEP and Ackermans, is building one. Sanlam starts selling banking products in November, and MTN is weighing licences of its own.
They have come from completely different industries, but they are arriving at roughly the same conclusion: if you already have millions of customers, there is a lot of value in getting closer to their money.
A banking licence buys one thing that nothing else does. It lets a company take deposits from customers and use that money to fund lending. Payments, cards and even credit can all be offered in partnership with somebody who already holds a licence. But taking deposits requires one, and deposits are a big part of the attraction.
The cheapest money a retailer can get
A company that lends without a banking licence has to find the money to lend somewhere else, and pay whatever that funding costs. A bank has another option: it can fund lending using the billions sitting in customer accounts, which can be considerably cheaper.
Pepkor has been pretty open about this. It told investors that owning a banking licence changes the economics of lending, and it is winding down new lending through Capfin as it prepares to move future credit into PlusB, the bank it is building. The target is eventually to have R8 billion sitting in customer deposits.
MTN sees a similar opportunity. CEO Ralph Mupita said in August that the group is considering banking licences in markets where it already has huge customer bases and large amounts of money sitting in mobile wallets. A licence could allow MTN to lend from its own balance sheet rather than relying on a banking partner.
In other words, some of the ingredients of a bank are already sitting inside these businesses. The licence allows them to do more with them.
Why Discovery is the one the others are watching
But cheaper lending only explains part of the appeal.
Discovery has shown that a bank can also become the front door to everything else a company sells. Its data shows that customers who first arrive through Discovery Bank take a second Discovery product in under a year. Customers who enter the group another way take more than 2 years. And 7 in 10 new Discovery Bank customers had no previous relationship with Discovery.
That makes the bank less about squeezing another product out of an existing customer and more about finding entirely new ones.
The numbers underneath it are starting to work too. Discovery Bank now has about 1.6 million clients, is adding more than 1,500 a day and made R370 million in the year to June. Old Mutual is seeing something similar: OM Bank reached 742,000 customers and R1.4 billion in deposits by the end of June, with CEO Jurie Strydom saying half its customers were completely new to Old Mutual.
You don’t actually have to become a bank
There is still a fairly expensive door between wanting a bank and owning one. Getting a licence has meant putting up at least R250 million in capital, which helps explain why many companies offering bank-like products have historically partnered with an existing bank instead.
And Sanlam is showing that this route is still very much alive. From November, it will start offering GoTyme banking products to its customers through Sanlam’s own channels, without getting a banking licence itself.
The bigger story isn’t that every large South African company wants to become the next Standard Bank. Banking is becoming an increasingly useful layer underneath businesses they already have. For Pepkor, it can make lending cheaper. For Discovery, it brings new customers into the group. For Sanlam, it is another product to sell to an existing customer base. And for MTN, millions of customers are already keeping money inside its ecosystem.
The next generation of South African banks, then, may increasingly come from companies that never started as banks at all.
