After unbundling Nedbank in 2018, Old Mutual will launch a bank in 2024

Old Mutual has announced that it has applied for a banking licence and plans to launch a full transactional account in the second half of 2024.

The insurer will join an increasingly crowded market, following the entry of Discovery, TymeBank and Bank Zero in recent years. African Bank is also resurgent, having opened over one million transactional accounts (and in August it bought troubled Ubank, which potentially gives it access to millions more retail customers).

The irony, of course, is that Old Mutual owned a majority stake in one of the country’s big four banks, Nedbank, from 1986 until 2018.

In 2016 it announced that it would split into four businesses – Old Mutual emerging markets (its core African unit), Nedbank, Quilter (the UK money manager) and the US asset management business OMAM (now BrightSphere).

The theory was that the four businesses were disparate enough to each stand alone and, more importantly, that the sum of those constituent parts would exceed the value the market had ascribed to Old Mutual plc.

In this managed separation process, the majority of its 52% stake in Nedbank was unbundled to Old Mutual shareholders in 2018.

It retained a 19.4% “strategic” holding which was reduced to around 7% after a second unbundling in November last year.

Expect this residual stake to surely be sold or unbundled now that it has announced its intentions.

The problem was that Old Mutual never wanted – or needed – to own an entire bank.

Nedbank is a lot more than just an outfit that has some retail account holders. It has a sizeable commercial and investment bank, a wealth unit, operations in SADC countries and a 21% stake in ETI (Ecobank Transnational Incorporated SA).

A 52% stake (with executives of the parent sitting in London) made the situation more complex than it needed to be.

Nedbank’s market capitalisation today is more than double that of Old Mutual (R114 billion vs R52 billion).

Old Mutual knows it needed to play in the transactional space. It already offers a basic account, the Money account, using Bidvest Bank’s licence. This is marketed predominantly to its mass and foundation customer bases. (It also offers an unsecured lending product to these customers and says this “is already a strong contributor to group profitability”.)

Read:

Building a bank

The group has never disclosed the number of Money account holders, but it has a total of 6.2 million customers in South Africa. It also touts 1.1 million digitally active customers. Its Banking app has over a million downloads in the Google Play Store and even though this app is also used for its rewards programme, this still suggests that it has a not insignificant number of banking customers.

In its annual report last year, it listed “accelerate growth in transactional banking” as one of its three medium-term targets.

It appears that Old Mutual and Bidvest Bank clashed on the potential of this push into banking, possibly product design and, very likely, fee structure. Or, as Old Mutual blandly put it: “a divergence of aspiration requires us to reassess our future arrangement to deliver on our customer needs”.

It says building its own bank will ensure it manages the risk of relying on a third party. Owning its own bank will also allow it “to hold the primary relationship with our customers” and ensure it cross-sells its products better. A licence will also enable it to “accept retail deposits, thereby providing a cheaper source of funding”.

Read: Shoprite tackles TymeBank, Capitec head on with no-fee full bank account

Old Mutual has already spent R830 million on building out a transactional banking engine, and in total will spend R1.75 billion in capex.

It says the banking unit is expected to break even three years after launch and “as the capability matures post break-even, the return is expected to be significantly above the target return of 4% in excess of the cost of equity”.

Insurers vs banks, banks vs insurers

Following this move, two of South Africa’s five largest insurers will have entered banking.

One of the five, Liberty, has been bought by its (former) parent Standard Bank, while FNB, Absa and Nedbank have all been steadily entering the insurance market.

FNB has been the most aggressive of the three, having been freed up to play in the space after the RMB/RMI split (its parent RMH previously owned stakes in Discovery, Momentum Metropolitan and Discovery).

Capitec confirmed to the market that it had been granted a life assurance licence last month.

In an economy growing at just above 1%, there are precious few opportunities for growth.

While growth rates on the rest of the continent dwarf those locally, the scale of many of those opportunities pales in comparison to our banks’ and insurers’ home market. This explains many of these moves over the last five years.

Your move Sanlam?