Capitec engages transformation gear, turning 400 branches into call centres

I caught up earlier today with Capitec's CEO Gerrie Fourie, ostensibly to discuss the bank's financial results for the year to end February. We eventually get around to the numbers (and the share price's wild ride) near the end of the podcast, the bulk of it is focused on how SA's highest rated bank is already transforming. Quite radically, in fact, with the 14,000 staff being put onto shifts at different "stores" and half the 800 branches having been changed into call centres. You get the feeling Fourie and his team are relishing the opportunity to accelerate plans to position the group for a digital future. As always when engaging with the CEO of the JSE's top performing stock, plenty of ideas for the rest of us. – Alec Hogg.If you look at all the different scenarios that companies have built, I don't think there are any that built this scenario. .___STEADY_PAYWALL___.Only Bill Gates, he's the only one..It's interesting to see how you react and what you do..Today's reduction in the interest rate from the Reserve Bank. How is it going to affect you going forward?.Just after, we had a very quick ExCo meeting and we've decided not to reduce our saving interest by 1% but only by 0.5%. We effectively give back 0.5% to our clients to try and assist them through these difficult times. From that side it's a positive. Then you need to immediately adjust lending rates because we need to be compliant with the NCAA ceilings and that's a fixed formula. That change will go in tonight, so we've reacted. We are giving all 0.5% more interest back to our client base. .What does it cost you?.That's about R250m over a year basis. It's a big decision but we believe that's the right decision that we need to take in these difficult times..That's quite a decision to make by an ExCo. Clearly you must have been thinking though that there would be a possibility of an interest rate cut?.We prepared for May because that's when the Reserve Bank will sit again, so it was a bit of a surprise. For us it's important, our retail call was on 3.5% and we believe we shouldn't go lower than 3%. Other banks by 0 to 0.5%, I don't know what they're going to do. For me it's part of our positioning of Capitec, to make certain that when people put money with us they get a positive return. .I was on a conference call this morning with the Minister of Finance and he made mention of changes in regulation that's going to release R650bn through the banks into the economy. What is that about?.I'm not aware of the R650bn. I was busy with the media at the time and didn't have a chance to listen to him. What the banks, Reserve Bank and the government are all looking at is some sort of a government guarantee scheme, whereby the banks can help businesses to start up when the lockdown has ended. That's the challenge, the first step is to say there's a payment break or a rescheduling but that's only one component. The moment you're going to start up again you need to make certain that a company has working capital, money to pay suppliers or to buy goods and pay wages. That's where a lot of work has gone in the last couple of days between the different role players and hopefully we'll have an answer on that quite soon. .Of course this is important for you now, because you own Mercantile Bank..Yeah. So normally we are not too worried about small and medium sized businesses apart from them creating employment. With Mercantile, we are in it. From where I sit, it's all about South Africa, it's not about who does what. That's the nice thing about the way the banks and the Reserve Bank are working together. It's all about what we can do to help South Africa and what plans can we make to make certain that we can get the economy going. Everyone knows it is a health issue and then there's the economic side. We weren't in a good space on the economic side, so it's important to soften the economic impact as far as possible..On another conference call with Business for South Africa, where they say that 60% of SMEs have already started retrenching. These are the guys who employ the bulk of the people in the economy, presumably they'd be employing the bulk of your clients. as well. To look at this in two ways starting off from the impact on your clients with retrenchments and secondly Mercantile Bank is very heavily invested in entrepreneurs and in the SMEs as well, you've got a double two balls in the air there. How are you handling them?.The survey that I've seen and heard is that 53% are considering, there's a big difference between considering and having started. I think a lot of people are thinking about retrenchment. We haven't seen any uptick in our retrenchment applications of our 1.2 million clients so it's business as usual. That's telling me that the retrenchment hasn't taken place yet. The million dollar question, you've got the lockdown and will it be lifted and if its lifted what rules or regulations are going to be in play and are we going to support the small business plan to survive? I've mentioned stats this morning, if they ask 1,000 business people, 'will your business survive?' 73% said over a 3 month lockdown, no. For a 1 month locked, 27% said no. There is so much uncertainty of what we know and don't know. If you look at all the different cash flows and circumstances of all the different players in the market you're very uncertain exactly what's going to happen. That's where the Reserve Bank, the banks and the government are looking for ways to say, how can we support it? We need to get support to businesses and make certain that they survive and that they employ people. .Well, maybe the Business for South Africa numbers are updated, what they also mentioned this morning is that they expect a million people to join the ranks of the unemployed, again that would be many people doubtless from your client base as well. You mentioned earlier retrenchments, do you have any retrenchment insurance and how long might it last?.Yes we have retrenchment insurance or liquidation insurance. If a company is liquidated or they are retrenching and you're covered for your full loan and that's part of what we've always given. From that side we're fine, but you will definitely have an increase in your premiums because the insurance companies need to be compensated. That's uncertainty. The Reserve Bank talks about 360,000 people that will be out of jobs, other people say a million. It's like the impact on the GDP, some people say it's -1 and the Reserve Bank said this morning -6%, There's people saying it is -10, -20%. That's where we need to have cool heads, you need to look at the factors and manage every single opportunity in the short term to see how you make certain that South Africa survives..What about your employees? You've got 14,000 people who work for you, if it's a 3 month lockdown what happens at Capitec?.We are still fine. I said this morning that 50% of our branches are closed and we rotate staff on shift basis, so even if a person doesn't work at a particular branch he will work on shift to relieve the pressure. Currently we are still paying all our people and we don't see that changing, we are still positive that we can pay our suppliers, all our rentals and our employees. That is a focus and we're also trying to maintain that..What's foot traffic been like in the branches that are open now?.The foot traffic has dropped tremendously because we've only got 50% of our branches open and we have cut our hours. Traditionally we were open from 8am to 6pm and now we're only operating 9am to 4pm. From me again, it's a positive thing, about a week ago we set a challenge, how well can we use our people in the branches? We got a team together of 7 people and they've created magic converting our branches into call centres. We will have 38 branches by Thursday turned into a call centre, we should be up to 100 by the end of this week and hopefully all 800 by the next 2 to 3 weeks. What that does is you can perform all the functions that you do in the branch by telephone. This is being done in preparation for an extended lockdown. We have plans to see how we can continue using our people and deliver on the service needs of our clients..You've got 852 branches, half of them are closed, call it 425. 38 of those have become call centres, do the others almost 400 of them also become call centres?.Yes. We are starting to see now with the 40 currently converted call centres and the 100 coming this week what volumes we can handle. If we can handle the volumes and that's normally just tweaking on the IT side, we will go up to all 850 branches. An interesting thing is four weeks ago I was at a meeting with the call centres and I challenged the people, 'can you work from home?' And the answer was No. In a 10 day period, we've converted. We've rented 2,500 laptops, set it up with our own technology and bar 37 people out of 1,200 people are working from home. We've got the same throughput and the same efficiency etc. It's a clear indication if you think differently and you change your thinking that you can do things completely differently. It's going to be an interesting thing going forward. If you look at business in totality the way we've done business in a traditional manner is going to change completely. We have a lot of flexibility, different values, different focus areas, that's where businesses will have to focus on to make certain that they can deliver on those needs..Is it likely that you might keep these call centres?.Yes. We have still got 40 million clients looking for assistance. We've always struggled over peak periods with enough staff, now you can go into micro jobbing, you can say to a person we will pay you from 1 pm to 5pm to perform a certain function for us and handle a certain amount of calls. You create much more flexibility in the marketplace, that's what I call micro jobbing. If you look at all unemployment it's a very nice opportunity to create work for people that you don't employ for a full month but for peak periods or specific areas where you have needs..So far you haven't seen an impact on retrenchments or of the lockdown? We're 3 weeks in and have two more to go. Are you anticipating, are you modelling that some of your clients are going to be struggling in May if the lockdown continues i.e. if they don't have an income?.For sure. I'll give you an example, we haven't seen an uptick in retrenchments but what we have seen is people looking for payment breaks or rescheduling. We normally handle about 2,00-3,000 calls per day, now we are handling 10 to 12,000 and we are monitoring it. Its the retrenchment and liquidation side that we haven't seen uptick, but there is an increase in people looking for assistance and help over these difficult times..And is the Reserve Bank able to help you so that you can help those clients?.Yes, it's one of the good things that the Reserve Bank has done. They brought out a regulation whereby if you give a payment break it's not seen as distress. So you don't need additional capital for that. It is helping us a lot to be able to give those relief measurements because normally if you have done it in normal circumstances you would have had to hold extra capital, this is where the Reserve Bank has done extremely well..How long can this carry on for how long does that regulation of the Reserve Bank remain in force?.There's no particular period. It's a matter of time, they will evaluate things as they happen over time and then decide from there. We are having weekly conference calls with them, so we talk on a very regular basis, but I can give you a timeframe. .It sounds like it's being pretty well coordinated?.Yes, we are getting together weekly with the Reserve Bank and the Treasury. It's the one thing about South Africa, when the chips are down people are getting together and we're working together, where normally to get a regulation out takes 2 to 4 months. In these circumstances this was a day or two, so it shows it can be done..Indeed. We haven't spoken about your results, but I suppose it's ancient history now when you have a look at what happened in the year to end February, and when you look ahead to the year to February 2021. Have you just thrown your budgets away?.Yes. Everyone at ExCo knows that we re-prioritise The Book of work. We focus on digital, we're looking at things to help us to service our clients, like the examples that I've mentioned. We've cut back on bigger expenses. We've built certain scenarios just to see what impact has got, and we're fairly fine from that point of view. To do a proper re-budget you need much more certainty and currently everything is uncertain. Hopefully by May/June we will be able to have more certainty and clarity to do a proper budget and relook at what needs to be done..What about your capital adequacy? How long can you actually see this through? .We have run stresses and we are fine currently, we don't see it as a problem. Our capital adequacy is over 30%, liquidity ratios and solvency ratios are extremely high and are in the thousand percents, from the point of view we are fine. Long term you need our economy that's on its feet and working, that's the challenge. How do you overcome the short term and then how do you make certain that you are ready, long term with sound business principles and delivering on those different needs we will have because the way we operate is going to be completely different..What about just getting into the nitty gritty, are you allowed to pay a dividend this year?.The board's intention was to buy a dividend but the Reserve Bank came out very strongly advised not to pay. Given the circumstances, the board took the right decision to support the Reserve Bank and to be conservative over these areas..What about that share price move? The insanity almost where you had this whipsaw. Now, talk in the market, is it Michiel le Roux the original founder of Capitec had a collar and cuff. In other words he had a structure there and that the share price fell below that which triggered a whole lot of sales and some lucky people got to buy your shares at bargain basement. Have you got to the bottom of this yet?.We have looked at it. I think in our sense that we classified it as technical sales because we didn't have a correction on our share price when the other banks dropped. You first had a correction and then you had these technical computer sales that forced sales to take place. It was just incredible the share price dropped from let's say a R1,000 to R550 and then suddenly back again at R1,000. It's very difficult to understand really what happened but there was a lot of uncertainty and emotions and even if you look at Michiel's collar, the amount of shares that traded on those 2 days were unbelievable volumes. Much higher volumes than he was involved with. It was more the uncertainty in the market and what needs to take place in the market..I suppose you have a trigger and then people just jump on the bandwagon as a consequence. How do you as a CEO of a bank that you know is fundamentally healthy, you explained your capital adequacy of 30% which is probably the highest in South Africa, and yet you see that happening to your share price? It can become self-fulfilling..It's a difficult one. Again we believe in communicating with the market very directly very quickly if something happens. We've done it with Viceroy and again we monitored the market, we looked at what happened and then communicated. In a very appropriate manner, explaining everything. Somewhere there is still that perception that all 14 million clients borrow from us but it's only 1.2 million, 9% of our client base, it's a small portion that's been affected. It's the way you communicate and work with the market. If I look over the 3,4 5 days we've communicated there were no changes in the positives or anything, we are fairly happy with the outcome..You mentioned that your share price is back up. Back to the R1,000 and over level. What kind of guidance are you able to give your shareholders when they ask you about the coming financial year?.There's not much guidance one can give. Somebody asked me that same question. I said, you can sit and build 20 different scenarios and all 20 could be wrong. It's going to be very uncertain in the short term but for me, you build a company and you manage your company for the long term and we believe our long term fundamentals are sound. So the best is to look at the fundamentals and say what you can achieve over a longer period..We've now heard from every source from the president to the finance minister to you that business will be different in future. In your marketplace, is it to Capitec's advantage, in other words are you better positioned for the future world that we are moving into than perhaps your competitors? .We've got a low cost base. We are operating at a cost to income ratio of 4%. If I look at what we did for example in 10 days with our call centres, suddenly you're asked do you need that very expensive building, rental, infrastructure etc. If you take that out and make a couple of those decisions you can make that 40% and 35% or 30%. That the opportunity to look at your cost base completely differently and see all the things you can do differently in this market..It's a very digitised. .For sure. That's the opportunity in South Africa. If I look at payments, we are still cash dominant and we need to change that behaviour. Cash is extremely expensive, we need to use QR codes etc. like the rest of the world. That can make a big difference in the way we're doing business.

Capitec engages transformation gear, turning 400 branches into call centres

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