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Expect to pay between R50,000 and R60,000 for one Amazon share if you’re keen to invest in the online delivery giant. For those who don’t have reserves of cash, investing in large companies (like Amazon) is often an unrealistic endeavour. However, low-cost investing platforms such as EasyEquities have made investing in desirable stocks more accessible. Through a partnership, Capitec has collaborated with the South African investing platform by providing the service through its mobile app. For as little as R100, Capitec users can now invest in large companies listed on the JSE and even US exchanges. In this interview, CEO Gerrie Fourie speaks to BizNews founder Alec Hogg about the partnership with EasyEquities. They also discuss Capitec’s financial results, with the bank weathering the Covid-19 storm, just two years after the Viceroy report which saw the share price drop 21% in just two days. The report, which painted Capitec as preying on vulnerable borrowers, was critiqued for being inaccurate. – Jarryd Neves
Gerrie Fourie, the chief executive of Capitec has graced me with his presence many times over the years. From breakfasts in London to fighting off – you were anyway – the Viceroy reports. Is that all behind you now?
Yeah, I think so. It’s close to three years, yes. I think the fun and games this year was fighting Covid. I think none of us expected Covid and the impact of Covid. That has been quite a nice challenge.
Extraordinary impact on your results. Four, nearly R5-billion rand that you’ve allocated directly. Big question there is, we saw similar write downs from, for instance, Discovery and other financial services companies. But they are seeing that the impact is not quite as bad as they’d conservatively anticipated. Do you have a sense of this yet?
My view – and when I did the results – I said that I think we are going to do better in the short-term than expectations or definitely better than what we said in April when we did our first forecast. This morning I was actually talking to the credit people, just going through the provisions for September.
Short-term, I think we’re going to do better. But the more worrying factor is the economy long-term. You know, I think the economy has definitely taken a hiding, especially the smaller guys. You know, the people are employing less than 10 employees.
We are seeing a lot of stress there. But I think overall, I think it’s going to be better than what everyone has made it out. Let’s hope we can get back to a level zero and we can open up the economy in totality and focus on what I believe the only objective should be. And that’s growth.
What about dividends? Have you got any feedback yet from the Reserve Bank on when those can be resumed?
No, we haven’t had any feedback. So for this year, there won’t be any dividends. But we’re expecting – and that expectations – that when we do our results in February, we will announce that in April that we will be back to normal. But I think it’s also a situation of are we staying on level one or level zero? I think if it’s back to level four or five, then it’s a completely different scenario. But our expectation is that we will go back to normal.
Are you going to pay back dividends almost? I know that the profits were really crunched in the six months to the end of August. Down from normal levels of almost R3-billion in the six month period to around R650-million. So there isn’t a heck of a lot to go around, but are you hoping to do that? In other words, make maybe a one-off temporary higher payment?
We haven’t made any decisions on it. We had a very short debate at the board meeting on it. The general feeling is that we should wait and see what happens when we’ve got our results for February. Then you can take a better view on what’s happening. So at this stage, it’s let’s wait and see.
EasyEquities deal. We spoke with Charles Savage a couple of weeks ago, and he was terribly excited about it. This morning. I opened my account and I opened my wife’s, brand new EasyEquities account, both through Capitec. It was a dream. You guys must have spent a long time putting this tech together because it is world class.
Yes, I think it’s one of those nice things where – if you talk about fintech companies – we’ve always believed that we need to partner and don’t see it as a threat, but actually to say, ‘how do we work together?’ I think that’s what we’ve done. We’ve seen in the market opportunity – especially our younger generation – the majority of our people, the banking profile is between 25 and 35.
People actually start asking, ‘how can I invest in equities?’ That’s why we saw a very nice opportunity with EasyEquities. Let’s see how it goes. We’re very optimistic about it. I think it’s an excellent opportunity, especially where you can actually put money aside and you can actually play with it. So it’s not real money, but you can put R100,000 aside.
That demo account?
Yes, the demo account. You can actually play with it and get that experience. I think that’s what everyone needs to do, to really understand equities. Everyone thinks it’s easy to make money on equities, but you need to do proper research and understand the companies you’re going to invest in. I think that demo count gives that opportunity for young people.
Now I can see what’s in it for the purple capital group of EasyEquities. They’ll be having access to – you must tell me how many – you talk about 3,8-million quality banking clients. I can see their deal. But what’s in it for you?
Well, it’s actually access to; we’ve got now just over four million clients on the app. So everyone that’s got the app has got access to EasyEquities. For us, it’s just about adding value to our clients. We’ve got a very strong drive on financial education and understanding your financial lives.
Everyone thinks it’s easy to make money on equities, but you need to do proper research and understand the companies you’re going to invest in.
We believe equities are a very important part of that. You need to start investing early in your life to make sure that you’re looked after when you’re older. So it’s just adding value to our clients. It’s an additional value that you create for your clients.
And they get a 20% discount on already incredibly low rates that EasyEquities charged. It looks like a fantastic deal all round. How many clients are you anticipating? And let’s just start with those four million app users. Maybe a good way to start is, I know it’s only accessible on the new app. So how many clients of those four million have got the new app versus the old app, and how many of them might you expect would take up this opportunity?
Of that 4-million, 2,5-million are on the new app. The whole plan is actually to switch off the old app by the end of the year. So we’re on a big campaign to get people to switch over to the new app. So basically – in theory, let’s say by the new year – everyone will be on the new app.
When we did the sums or when we started working with EasyEquities, we had about 100,000 – 150,000 clients that were already making use of EasyEquities. So there was already interest in our client base. We believe that number can grow easily up to 500,000 and even to 1,000,000.
The nice thing about EasyEquities as well is, if you look at a share like Capitec, let’s say it’s R1,000 a share. What you can do, you can actually buy a partial share. So you can actually say, ‘I want to own one tenth of a share in Capitec’ and you spend R100. You just own a small portion. So it’s a very nice and flexible way of investing in shares.
It gets even more interesting when you do international purchases. I’ve been battling to get R60,000 to buy one Amazon share. But, with EasyEquities. I bought $100 worth of it. It just opens up a whole new world.
Yeah, because you can decide and say, ‘I want to invest, R300, R400, R500 or R100 every month. Now you’ve got the opportunity to invest in overseas stock on American exchanges or South African stocks. So we believe it definitely opens up a new world for young people.
Why didn’t you just buy EasyEquities? Because if you consider what an important transaction it is for them, you’d have thought they’d fit well within the Capitec group?
For us, it’s actually more about partnerships. That people focus on what they are doing well. It’s very similar to our deal with Sanlam on funerals. They are very strong on the underwriting side, we are strong on the selling and distribution side.
So it’s a very similar transaction for us on EasyEquities. They’re good and they understand. They can focus their attention on, let’s call it, handling the transactions and buying and selling shares. That’s not our game. Our game is actually banking, but we are adding this value to our client base.
Yeah, because you can decide and say, ‘I want to invest, R300, R400, R500 or R100 every month. Now you’ve got the opportunity to invest in overseas stock on American exchanges or South African stocks.
That’s been very successful, your partnership with Sanlam. This one – anyone who knows equities would imagine – will also be similarly successful. Is this a new strategy for Capitec? You guys have kept it very simple and very basic in the past.
But now these are two different products that are also going to be added to the app. Are you looking for more partnerships like this or what went on in your heads when you decided to do these?
Yeah, we’re looking very carefully at the financial world. I’ve always said if you look at the financial needs of people, it’s savings. With savings is investing. Then it’s insure, then credit and transacting. So that’s your four main core needs of a client. Now you need to go and say, ‘but what actually happens in those particular areas?’ And what products we believe are very suitable for clients.
And as you said, keep it very simplistic. That’s the nice thing about EasyEquities. It’s not being sold in the branch. So, our branch personnel can focus on what they are very good at and the people that are on the app can then first do the demo account and from there on they can then do real transactions. So we will continue. We’ve always said, we believe it’s important to partner. So, if there’s a good opportunity, we’ll grab it.
Well, you did grab the opportunity of Mercantile Bank. I guess it would be a better opportunity today after Covid, certainly from the numbers that you released for the half year numbers. How’s that integration going?
The integration is going well. I think the one thing that’s actually quite nice, is that people always tell you that if you bring in a company, that culture is important and making certain that people are aligned. I must say, we had no problems with that. It’s a wonderful team. I’m actually now sitting at 9:00, we’ve got an ExCo meeting.
What we’ve said is, ‘how do we actually build the new bank a digital offer?’ And that’s the nice challenge. Covid forces you to – for two/three months – to focus on Covid. Now the focus is back to what we actually want to build. That is a digital bank for SMEs. We believe it’s a very big opportunity and hopefully, we said early in 2022 we would like to launch it. Then if we are happy that we can handle the volumes, then we’ll rebrand to Capitec business banking.
The tech has always been bad at Mercantile, relatively speaking. I guess they didn’t have the pockets to be able to make the investments of an F and B. Are you confident that you’ll be able to leapfrog?
If you’re small, you haven’t got the pockets – like you said. The nice thing is, I just talk about cloud. We’ve spent a lot of time on developing our cloud strategy for Capitec retail. The nice thing now is you basically piggyback Mercantile onto the cloud strategy. So, a lot of the learnings we’ve picked up and learned at retail, we can apply at business banking and hopefully come up with something completely different.
What was interesting in the numbers that you released at the interim, was to see that your business accounts were up 29% in the past year on year. That’s an enormous growth for a bank that is going through a transitional period. Where did all that come from?
Well, that’s the interesting thing. It’s probably the power of the Capitec brand. We’re opening up about 3,000 accounts per month still – let’s call it paper-based. Mercantile on their own, were basically opening about 3,000-3,500 accounts per year. We’re doing that now per month.
So, I think that’s a nice opportunity. It’s from a very small base. So one must be careful of percentages. But we are happy with the small guys starting to ask and coming via the internet and the call centres, coming in and saying they want to open up an account.
But you haven’t pushed this?
No, we haven’t pushed this and we won’t. This is – let’s call it word of mouth.
So these guys have just said, ‘I like the Capitec brand. They’re going to fix Mercantile. In a year’s time, you’ll be unveiling all the bells and whistles. But they’re getting in earlier?
What is interesting is that about 34-38% of those accounts are actually coming through our branches. So a person will come to the branch and say, they want to open up a Mercantile account. We direct them via the Capitec website to our call centre in Sandton. Then we open that account and we do that within eight hours. About 90% of the accounts get opened within eight hours.
Then we deliver the card to you and then you can transact. So it’s one of those interesting things. You know, you can say Mercantile is slow or old. But they open accounts – the majority of their accounts – within eight hours, and your transactioning and you can carry on. The majority of the other banks are more on a two weeks to three weeks process.
Something that I often think about, is that you’ve got at the top into the market, a lot of competition with the Discovery Bank coming in there as well. In many ways, people look at Capitec – the industry looks at Capitec – and says, ‘well it’s fine, they can go and play at the bottom end. We are not really worried about them.’
But I know from our own BizNews community, that people who’ve got money like a good deal. Are you seeing that you might be getting the occasional Investec or RMB private bank client, who’s now coming across to you? Or is it still very much a focus on the lower income group?
No, it’s moved quite a lot in the last couple of years especially. So, if I look at the client acquisition, it’s actually a very good reflection of the demographics of South Africa. So we are starting to see your higher income saying – especially now with the economy where people are looking for value and simplicity – ‘ I can get a Capitec credit card, I can get a Capitec debit card and I’ve got full functionality. I’ve got the app.’
In November, we’re launching remote onboarding. So you’ll be able to sit at home and remote onboard, get a virtual card and you can transact. What you normally have at the top end is that people say, ‘I don’t want to go to a branch.’ So we’re also taking that away. But we’ve definitely seen a big switch to your high income clients coming through and joining the Capitec family.
So when is the final card in the suite, if you like, going to be launched on mortgages?
That’s what everyone is asking for. I think the nice thing is now with SA Home Loans – which we’re launching this week or early next week – where it was always an SA Home Loans product is actually now a Capitec product.
We’ve definitely seen a big switch to your high income clients coming through and joining the Capitec family.
It’s still on their balance sheet, but it’s now a Capitec mortgage that you’re launching. Long-term, probably in the next two to three years, Mercantile has got mortgages. They’ve got that platform. Then the question is, would you bring that into the retail bank? I think it’s more a question of when. You first want to focus on business banking – building, business banking – and then to say when do you actually bring that into the full product suite?
Gerrie, you’ve got enormous momentum. You can see that in the growth and in the numbers that are going forward. You’ve got a wonderful business model. That’s obvious, with transaction fees and funeral income virtually covering all your expenses. Isn’t the difficulty now to decide when to say no? How do you do that? How do you actually decide not to go into something?
I think that’s the biggest challenge of every business. To say no. We just had our strategy session last week and that was the biggest discussion – the ‘no’, the right products and the simplicity. Because, you know, I think the trick lies in – we’ve seen it with funeral – if your consultants fully understand and experience the product, they sell it extremely well.
I think that’s our biggest challenge. It’s quite easy to add, because a client wants this product, this client wants that product, those clients want these products. But to go and look at that 80% needs of clients and make certain you do that and you do it extremely well. So that is a tremendous focus for us, to keep it very simplistic, so that our consultants can understand it and to say no. So that’s why you would rather see fewer products, but executed very well.
And in that context, buying shares in the stock market is a completely new idea for many of your clients. How are you going to educate them? Or maybe a more important question is – given this need to say no – why was it that you decided to do this, which is quite a leap for many of your existing clients?
Well, it’s a need that we’ve seen in the market. If you talk to young people, they all want to invest in shares. They want to understand shares. They want to build-up a portfolio, but they don’t understand it. I think that’s where the demo account is very important. That is why owning a portion of a share is very important.
Then again – given the Capitec philosophy on pricing – to actually buy shares at a commission rate of 0.2% is extremely attractive. Other players are all anywhere between 1-1,5%. So it fits in. The nice thing about it is that it fits in with what we have – we’ve got quite a lot of online financial education programmes. Which we will use EasyEquities for people to say, ‘if you want to invest, we’re giving you a platform to invest and look after your future.’
What are your targets for account openings with EasyEquities?
That’s an interesting one. You know, we won’t drive it. For us, it’s really about – let’s call it a niche market. But we believe you can very easily go to close to a million clients that will make use of EasyEquities.
A little bit like your funeral plan – although that’s happened in a year, hasn’t it?
Yes, that happened in a year.
I think this is an interesting one because you don’t want to sell equities as everything. You know, you want to be responsible. So there’s not a big profit margin in it for us. It’s more that value added service for our client base that you’re actually providing. So it’s part of that whole education programme and that whole product offer that you’re creating for the clients.
Just to close off with, the first half headline earnings were down 78%, and that was solely due to the huge impairment that you put through the books for Covid-19. The second half of the financial year to February?
Well, if I look at the first half – the first six months – you can actually break it up into two components.
There were the first three months. We’ve made a loss of R400m – just over 400m – and the second three months where we’ve made a profit of a billion. So that already gives you an indication that it’s turned. So the challenge I’ve put out to the team is to say, if we can do in the last six months what we’ve done in the previous six months last year, that will be a great achievement.
That’s what the team is going for. So let’s see what the economy does. Let’s see what happens. Because, yeah, I think there’s still a lot of uncertainty – especially October, November, December. And then it’s a question of are we going to have a second wave? I think that’s the one question nobody really can answer, because that can have a big impact on the economy. But we are hoping that if everything goes according to plan, what we really as a team is going for, is to say can we get back to the normal levels of last year?
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