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Asset and cash-rich Standard Bank and major retailer Pepkor, whose footprint spans 6,000 stores, are exploring a possible partnership that might see them launch an offensive in the personal banking industry and dethrone Capitec.Business Day can today report that the partnership talks are taking place at the highest levels of the companies, which together have more than 50-million customers.The exploratory talks come just less than a year after Pepkor, owners of household brands such as Pep and Ackermans, was granted a banking licence by the South African Reserve Bank for a lender that is expected to go to market next year, with a big focus on the mass market and the township economy.The parties intend to build the country’s best retail bank, in which Standard Bank might put to the fore its insurance, investment and savings capabilities, housed under Liberty, as a value-added proposition for Pepkor’s customers.Read: Pepkor doubles down on informal economy with plans for fintech listingThe partnership, if successfully concluded, will also see the parties take to market a revamped rewards programme.Among the drawcards for Standard Bank are Pepkor’s footprint and low-cost business model, as well as that the proposed partnership is more likely to pass the competition hurdle than a full-blown merger.Business Day has it on good authority that the discussions are advancing at pace, with a deal highly likely at this stage.When approached, Standard Bank declined to comment. “Standard Bank does not comment on speculation. What we can affirm is our ongoing commitment to our clients and to delivering value across all segments of the South African market,” the bank said.Pepkor took a similar line. “Pepkor does not comment on rumours or speculation. We can confirm however that there is no such agreement or partnership with any bank,” the retail group said.Read: NEWS ANALYSIS | Pepkor has all the makings of the next CapitecIn South Africa, Standard Bank competes directly with established South African retail banks as well as new entrants with niche offerings. The group has maintained its market leadership in home loans since 2006, financing one in three homes countrywide, with strong positions in overdrafts, as well as current and savings accounts.Unlike Capitec 25 years earlier, the retail group is not starting from scratch but is backed by trusted brands with decades of building goodwill with its customers.Pepkor has developed extensive capability in financial services over the years, including retail credit, lending, bill payments, money transfers and insurance.This foundation, with the group’s retail footprint and proven ability to acquire customers and brand equity, is ideal for expansion of the group’s financial services offering, it has argued.The retail major has a huge pool of clients to draw into its banking ecosystem, as 32-million people visit its stores annually. It has more than 6,000 stores in its network, more than the branches of the country’s top four banks combined.The opportunity is there for Pepkor to win market share. The challenge will be to convert a large chunk of its client base to its banking platform.Traditionally banks used to capture income and risk segmentation, while retailers such as Pepkor would capture footfall, and telecommunications were left to capture the device market. This has all changed, and Pepkor hopes that its banking franchise, PlusB, set for launch in 2027, will deliver single-platform convergence.The early signs look good. Pepkor, in its results for the six months to end-March, reported a 41% surge in revenue to R3bn from its financial services segment, which lifted operating profit 63.4% to R691m.The key leg of its financial services, FoneYam, a smartphone rental product, reported a 32% increase in activated accounts in the period under review, which translates to 1.3-million cellular rental accounts, taking the active base to 2.4-million.Its data shows that customer take-up of a second FoneYam rental after completing the first has exceeded expectations, effectively extending customer lifetime value.The device market will make PlusB an interesting proposition, as Pepkor already sells eight in 10 smart devices — a key element in the digital banking space.PlusB and Capitec will also slug it out for market share. The adoption of digital transacting is expected to continue to grow, with the number of Capitec clients active on its app having grown to 12.9-million (20% of the South African population) at end-February.Pepkor’s insurance proposition covers 1.3-million lives, while its personal loans platform, Capfin, grew its active loan base to 378,000 loans by the end of March.Capfin’s gross credit book increased to R5.3bn in the six months under review.Pepkor’s informal market play is also gaining traction, a market around which Capitec, the country’s largest bank by customer numbers, has also planned to build its business lending platform.Pepkor’s informal market proposition, Flash, reported a 20.3% increase in throughput to R34.7bn, ending the six months under review with 176,000 active traders.It is in the mass market and informal market that the imminent competition between Capitec and Pepkor’s yet-to-be-launched bank will slug it out.Capitec has identified the informal market as a key growth vector, particularly for its business banking franchise.Whether from devices, insurance, banking or value-added services, the battle lines between Capitec and PlusB are becoming more pronounced.Business Day
