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Barriers to entry - Capitec

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Super Contributor
On Saturday I open a Capitec account. I took care at observing everything from the staff, floor layout, IT equipment floor size and amount of people passing through while I waited. Afterwards I walked passed a Nedbank branch ten times the size, elaborate interior, fancy dressed staff standing around waiting to help clients, security guards, extensive IT equipment. I came to the simple conclusion that the barriers to Capitec's business model are much more complex then most people think. How will a bank like Nedbank ever be able to complete in that space? Will they cut staff; reduce products to a handful, downgrade to a simple and much smaller office floor layout? Will they introduce low cost accounts, but retaining hundreds of other products and exclude wealthier clients from getting access to the cheaper ones? My conclusion - the big four banks were caught off guard. The will never be able to compete in this space in any kind of offering that is on par with Capitec, without losing millions in the process. All can say is this is going to become very interesting. In the meantime, I earning anything from 7%- 5% interest on my savings account and after 18 years as a banking client am now only paying for what I use and not being used as a cow to cross subsidize products I will never use.
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39 REPLIES 39
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Super Contributor
The big 4 must and will compete. Where there is profit there will be competition. Capitec charges huge interest rates compared to what the big banks can get away with (ex credit cards.) So the big 4 would need to look at an alternative branding scenario. I don't see any meaningful "barrier to entry" - other than the ability and willingness to absorb losses form potentially higher risk clients.
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Super Contributor
. I believe FNB have launched their no frills banking model. Tell you what kwagga,CPI have the " headstart " advantage , but that's it - the others will catch on and catch up.
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Valued Contributor
an important part of the head start is that CPI is all IT, hardly any paper .. the big 4 have way to much paper that is expensive and ineffeceint, not going to be easy to do away with that ..
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Super Contributor
IT is a big part - One head office and everything gets processed centrally. Cheap floorspace, cheap interior, little security because they keep little cash on site. They are focussed on a single very simple business model, and it works. Just watch how Thebe, Abil , FNB are all scrambling to put something on the table. Point is if you didn't build this model with no huge burden in the way off years of old business model on your back, you won't be able to compete.
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Super Contributor
.. IT and other systems would be easy to replicate.Remember it would be simple to headhunt some of the key management of CPI,by the big boys - happens all the time .
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Valued Contributor
striker .. on this point I disagree .. the big banks have such massive legacy systems that it is frankly easier to turn the moon around then to change their legacy systems ..
their best bet to compete is a completely new stand alone operation started from the ground up ..
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Super Contributor
yes, surely if they basically printing money, another firm will start up! why dont one of the big 4, open a separate subsidairy backed by the bigger bank, on the same model as capitec, separate mgment etc?
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Super Contributor
- my point is simply this - if there is a lucrative market niche' short of having a reg. design patent over the product/intelectual property that prohibits replication,there really are no barriers to other entrants.
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Valued Contributor
sure .. and equally it is not as simple as just taking an existing model and plonking it down into a new model, whch is what the big 4 have tried thus far ..
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Super Contributor
Are we calling nedbank big? Second its about to bought by HSBC.. and they WILL make changes..they are not buying it for that terrible green branding!!!
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Not applicable
Individual clients like you and I are just one of the many revenue streams for the big 4, and yes, Capitec is structurally able to compete at this level, but the big 4 will counter with better product bundling, which is what I am hoping for (homeloan, car loan, current account, credit card etc cross subsidising). But if you really want the big 4 nervous, start chewing into the acquiring space. They still have a monopoly here, but a lot of players are starting to chip off bits and pieces
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Super Contributor
Truth is, there is space for all of them to make a profit..
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Super Contributor
SAA had many of the same issues competing with lower-cost airlines, but brought out Mango, which seems to be doing ok. And they started off with a *much* higher 'uselessness ratio'. It might take a while, but not impossible at all. The huge banks do have other advantages.
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Super Contributor
HSBC is going to change the game...
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Valued Contributor
maybe .. barclays didn't ??
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Super Contributor
..the bottled up feeling of resentment and hate against the 4 Horsemen is an immense obstacle in trying to woo new customers....as can be seen by FNB's new suckling UBank ....this is going to be fought out in the seedier streets and the weapons of choice is....price. Capitec will always be seen as the white knight as it had the nuts to take on the overlords....the serfs friends....now that I know who controls UBank I will not touch them...Capitec remains my electronic bank of choice... an interesting side note, 4 years ago Capitec occupied one floor of a Nedbank branch and the branch utilised the other three floors....Trojan horse? Adios
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Regular Contributor
Kwagga-did you go to more than one Capitec branch? I read a long article on them a while back and one of the reasons they have been successful is that each branch is branded according to location - with two branches in the same street being a completely different experience - one at a taxi rank; one in a mall. Any bank could do this, surely?
YNWA-Where did you hear UBank is owned by FNB? They were Teba and just rebranded - a true peoples bank originally focussed only on the mining sector.
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Super Contributor
Will big 4 banks feed off their current client base to create seperate new entities that compete with Capitec ? How will they explain cheap services at one company and expensive for the same product (savings accounts) at another. They're sitting in a dilemma, created when Capitec started feeding off their client base and not just getting first time banking entrants. Don't underestimate the financial burden and rigididy of legacy IT systems on any company. It can make or break you. It's the backbone of the 4 big banks, and its lightyears away from what Capitec has in place. That's why I maintain that the barriers to entry are huge, even though the concept seems simple. The big four are on one planet and Capitec on another. It's going to take many years to bridge that gap.
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Not applicable
Capitec was one of the first banks to adopt an EFT transaction switch (Windows server based), where the big banks were stuck with older gen mainframe based products costing them orders of millions more.
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