CFO Community Conversation participants heard about the benefits of a client-centric business model.
During this week’s CFO Community Conversation, CFO André du Plessis explained that what makes Capitec special is its client-centricity.
“When we started Capitec 21 years ago, we learned that it’s important for businesses to develop products and services around customers’ needs instead of providing what they have and colouring it in, in a way that the customer thinks they need it.” André said. “Since then, we have lived this philosophy and we measure everything we do against it.”
Principles for success
Capitec came up with four cornerstones for the business, being simplicity, affordability, accessibility and personal service.
André explained that banking is very complex and it’s difficult for customers to understand the inner workings of the business. “Banks, as an example, typically charge a fixed fee for the first R100 of ATM withdrawals, and then a percentage for every R100 thereafter. After all that, VAT is added on top of it. The average customer does not understand what all of this is, making banking a grudge purchase.”
Capitec decided to take the complexity away from clients and provide something that is very simple. In the early 2000s banks were charging R25 for a debit order, and we set a rate of R2,” André said. “These lower fees, according to a review by the central bank caused retail clients to save up to R20 billion per annum. A further benefit is that Capitec does not make use of free deposits; we pay a decent interest rate for every deposit received from clients.”
Other banks followed Capitec’s approach to lower fees, but only for specific low earning clients.
André explained that it has become much easier for people to be able to bank at any time, from anywhere, especially with the advances in technology. Capitec has also improved its accessibility by increasing its digital services.
Capitec has made a point of doing everything with innovation and transparency. “People want to feel at home in our branches, and they want to know exactly what we are doing,” André said. “This innovation and transparency is part of our culture.”
He explained that many banks and organisations have tried to copy Capitec over the years. “Ten years ago, one bank’s CEO announced publicly that they were going to copy everything we did and, because of their superior brand, they would actually close us down,” André said. “However, we are still growing and we are still here.”
He added that Capitec’s success is largely due to their very specific principles around which they measure their client-centricity, which is grounded in the bank’s culture.
Culture
André explained that, at Capitec, everyone is a CEO. This stands for “client first, energy and ownership”. And, as with the four cornerstones of the business, the bank tests everything it does against these three principles of “CEO”.
He said that the ultimate clients are the people depositing, taking out loans, doing transactions and taking out insurance products.
“I also believe that, if you love what you do, you will give all your energy and really try to do whatever you can in order to achieve your goal.”
He added that Capitec empowers its people to take ownership of every project, product development, service and everything they do. “You need to create an atmosphere where people are not scared to take chances, otherwise they will never take that ownership.”
Secondary to all these principles, the bank sees its business in three equal circles that overlap: client, delivery and personnel. “If your personnel are unhappy or feel unheard, they will not be able to give their best to the clients.”
Hero to zero
Capitec’s business, principles and values have come under attack a couple of times. The first challenge was when African Bank collapsed under the weight of bad debt in August 2014. “Capitec was seen as a big risk in the market because if African Bank could fall, then so could Capitec.” André said.
However, he explained that Capitec saw it coming for many years and had looked very closely at what African Bank was doing, what loans they were providing and the levels of their provisions. Capitec positioned itself to the market, investors and analysts to make sure that everybody saw the difference between Capitec and African Bank’s businesses and values.
The second big attack came from Viceroy, which specialises in short-selling and research to aid its investments, and involves many players in different countries. “They attacked us personally, ridiculed everything we did, including our values, and accused us of things we had never done,” André said. “We worked day and night for months, and what ended up saving us were the same values that they were attacking, as well as our culture, transparency and in-depth knowledge of the business.”
Capitec’s staff, clients, shareholders, depositors, advisors and even its regulators stood up for the bank’s values, because of the transparent and trusting relationships they had built with all their stakeholders.
“My motto is to always tell the truth, then you don’t have to remember everything,” André said. “When you start trying to tell your staff something different to what you are telling the market or regulators, you’ll soon find yourself in big trouble.”
The third setback came in 2020, in the form of Covid-19. “There was chaos and lockdown, people had to work from home, branches were closing, people were requesting payment holidays and lending was pulled back. For the first quarter ever in our existence, we made a loss,” André said.
He added that he is very proud of the Capitec team. The consultants took on clients face-to-face, IT created workspaces for everyone to be able to work from home, the bank’s telephone systems became completely agnostic, etc.
“I think the whole world showed their agility, not just Capitec,” André said. “We saw gaps and adapted to fill those. I think the whole world can be proud of what we have done.”
He concluded that what's important is to really understand the “what” and the “why” of what you do.
The rest of the attendees then had a chance to ask André questions around the business model and to share their own business models.
Standard Bank group FD Arno Daehnke thanked André for his inspiring story, saying that what has been achieved by Capitec’s management team in the last 20 years is remarkable. He said that what resonated with him, being a fellow finance professional in the banking industry, is the need to show compassion to clients and all the other stakeholders of the business. “You’re a formidable competitor and one of the things I’m most envious about is Capitec’s client experience.”
Blockchain and cryptocurrencies
Arno asked André what his view on blockchain and cryptocurrency is: whether he thinks it will support or disrupt the banking industry.
“We’ve been part of the development and discussions around the table with regards to bitcoin and cryptocurrencies,” André answered. “My personal view is that it’s going to happen at some stage. There are already many governments and big companies who are embracing it. So we’re certainly not ignoring it, because it can be detrimental to fall behind.”
Arno also believes that blockchain is an opportunity to simplify banking and make it more secure and faster, and ultimately have a better client experience on the back of this. He explained that Standard Bank has worked closely with SARB on the Khokha project, which experiments with blockchain. The bank also has its own blockchain proof of concept that it runs with inter-company settlements and client FX transactions.
When it comes to cryptocurrencies like bitcoin, Arno said that while it is becoming increasingly important as an asset, the market is so volatile that he isn’t sure if it’s a justifiable store of value.
The other attendees agreed with Arno around the volatility of investing in cryptocurrencies.
Investec Life CFO Roxane Leita believes that cryptocurrencies are not yet mature enough to be something that’s widely acceptable. “What’s more exciting in the insurance space is the blockchain aspect and how it can be used to settle claims and client payments.”
She believes that blockchain will become common practice a lot sooner than any cryptocurrencies will.
Fighting the rise of third-party aggregators
While André doesn’t believe there is a lot of space for other banks to enter South Africa’s market because of regulators, that certainly hasn’t stopped third-party aggregators from entering into the market.
Instead of fighting it, André believes that banks should be embracing these aggregators, like Investec Bank, who has introduced aggregator Apple Pay into their business. However, he remains wary and said that whilst they won’t come with a banking solution initially, if banks allow them to become strong, they will eventually add banking services that will compete with the banks.
He added that by making their payment systems more modern, banks in South Africa stand a better chance to keep bigger players, like third-party aggregators, out of the market.
“What’s interesting about banking is that it’s something you grow together in,” André said. “If you have a smart idea, it’s very difficult to operate without the other banks.”
It is one of Capitec’s goals to decrease the dependency of cash by retail customers. In order to do this, however, we have to put a lot of point-of-sales and other digital devices in small towns, townships and other areas that are still predominantly cash societies. “For one bank to do that alone is very difficult,” André explained. “But if all the banks work together, we can achieve this.”
