African Bank’s central Johannesburg branch. Picture: FREDDY MAVUNDA
African Bank’s central Johannesburg branch. Picture: FREDDY MAVUNDA

African Bank’s risky bet on wooing customers with double-digit investment returns is paying off. But then the bank had little choice: it was put under curatorship due to a mountain of bad debts in 2014, and has been trying to rebuild ever since. This is why it is offering a market-beating 13.3% annual return on money deposited over five years as part of a bid to woo back customers.

Figures released last week show that during the year to September, it more than doubled retail deposits, which grew to R1.1bn. In all, it now has more than 15,000 depositors, who each put down an average sum of R72,059.

The number of depositors was about 5,000 two years ago — and the average deposit is now 2.5 times higher. This could be a sign that people are finally beginning to trust African Bank again after its 2014 collapse scared customers away, or perhaps that pensioners are desperate for a meaningful interest rate on their deposits.

African Bank CEO Basani Maluleke says the profile of the typical depositor is vastly different to that of its usual unsecured lending customer base — it is mostly retired people. But attracting new depositors is quite different from the next conquest that African Bank is plotting: entering and competing in the transactional banking space.

Deposits of R1.1bn are also a drop in the ocean compared to the R71.9bn that the youngest transactional bank, Capitec, had in retail deposits and wholesale funding at the end of September.

Maluleke makes a big promise — that African Bank will offer "the cheapest transactional account" in SA. This pits it against Capitec.

"We have done an analysis of the different banks’ fee structures and we are confident that we have the best value proposition," she says.

The company has analysed the three new entrants in the transactional banking space — Discovery Bank, TymeBank and Postbank — and given where they have positioned themselves in the market, African Bank says it is "comfortable".

African Bank has not yet revealed its pricing structure. It will only do so when it launches the transactional account early next year.

Capitec charges a monthly R5.80 administration fee on its transactional banking account, while cash withdrawals are R1.61 at major supermarkets and R6.56 at Capitec ATMs. Maluleke says African Bank does not expect the transactional banking product to break even in the first year. But can it really take on Capitec on price without incurring losses?

"Scale and technology are two important elements in keeping costs down," says Karl Gevers, head of research at Benguela Global Fund Managers. "Capitec has both. Then there are the new transactional banking players such as Discovery Bank, TymeBank and Bank Zero. So the competition is intense."

African Bank says it has the technology. It has invested R140m in the transactional banking platform this year and its transactional account is already up and running — it was launched to the bank’s employees in April. The bank also says it wants to remain "asset light" and it is assessing how best to leverage cloud technology to reduce costs.

Maluleke says the company has "travelled a long way in the past 2½ years to become an emerging digital competitor", and promises an "impressive" African Bank app.

While African Bank might have the technology, it does not have the scale.

Maluleke is counting on the transactional banking offering to increase customer numbers which, instead of rising to reach the 2.5-million target by 2021, have fallen to 1.05-million at the end of September. The decline was blamed on the tighter credit policy that the bank has implemented from 2016.

Gevers says African Bank management will have to give its new diversification strategy some time to take off.

"Given African Bank’s recent history, I think it will struggle to convince new clients to switch from competitor banks. What it may be able to do is convince existing loan clients to use the new transactional account offering and use it as a primary transactional account," he says.

He says even Capitec, which has had 17 years to attract transactional banking clients and offers attractive interest rates on deposits as a drawcard, is still not collecting enough transactional revenue to cover its operating expenses. With a base of 10.5-million customers, the ratio of Capitec’s transactional fees to operating expenses stood at 90% at the end of August 2018.

Capitec’s goal is to cover all operating costs with transaction fees by 2022.