It happened one Saturday afternoon; the meat was on the fire, the smoke was in the air, and a father sat his 13-year-old son down for a paternal chat that was to change his life.
The father was billionaire investor Jannie Mouton – known as the &#8216;Boere Buffett&#8217;. The son was Piet Mouton who was to grow up into a multi-million-dollar investor. Billionaire and son have beefed up PSG, the investment holding company worth $4.3 billion (market cap) that has spread to a combined market capitalization of approximately $12.5 billion in just 22 years.
&#8220;Growing up in our family, at the age of 13 I already knew what options and futures were… It was a new thing on the JSE and my dad came home and, at a braai on a Saturday, he sat me and my brother down and explained it to us. So here I had some great knowledge that I didn&#8217;t know what to do with at school, but I understood the concept of options and futures,&#8221; says Piet.
&#8220;[PSG] was part of our life growing up, the entire business concept. Being mathematically inclined, [my future idea] wasn&#8217;t necessarily to go into business with my father, but it was to go into business.&#8221;
This was the incredible inside story told from the two men as FORBES AFRICA sat down at 35 Church Street, Stellenbosch, in the heart of the quaint South African wine farm to hear how one family built an investment giant.
&#8220;My wife once told me that was your favorite child, PSG, you never ask anything about Jan or Piet, or Charity. It’s only PSG, PSG. The whole braai [barbeque], the whole evening was talking about PSG. It was very much part and parcel of how we started,&#8221; says Jannie.
The choice of the building in Church Street for this interview was a spot-on smart investment.  They call it Ou Kollege and it is as much of a reflection of their humble characters as their life stories. The wooden panels, grey walls, African paintings and sculptures of leopards have that millionaire touch. Jannie bought it with his old friend GT Ferreira, FirstRand founder and also a multimillionaire. The two men decorated it with paint pot and brush in hand.
&#8220;We bought this building and we haven&#8217;t left.  I remember GT saying to me &#8216;Jannie, it&#8217;s just a structure, you must put stuff in it as well&#8217;, so he ended up being the interior decorator here as well,&#8221; says Jannie.
&#8220;You can see this wood paneling is the same as GT&#8217;s office on the third floor which looks very similar to what we&#8217;ve got. It had the same interior decorator at the end of the day,&#8221; says Piet, as they both laugh.
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On this day, in the very room where they plotted billions of dollars of investment around the world, Piet and Jannie don matching black suits and white shirts. They are every inch the shrewd businessmen, with a dash of down-to-earth humility.
Thomas Edison, the man famous for the lightbulb, once said opportunity is missed by most people because it is dressed in overalls and looks like work. The Moutons are dressed in suits and look like investment.
Jannie founded the group just 22 years ago after a kick in the gut. He was fired by his partners from his own stock broking firm. To add insult to injury, his name as part of Senekal, Mouton &amp; Kitshoff was on the door. The fact that Mouton will never forget August 5, 1995, shows how deeply it hurt him. At the time, probably the last thing on his mind was that this humiliation was the best thing that ever happened to him.
<div id="attachment_32675" style="width: 270px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-32675" class=" wp-image-32675" src="http://www.forbesafrica.com/wp-content/uploads/2017/07/IMG_2492.LR_-200x300.jpg" alt="" width="260" height="390" />Jannie Mouton (Photo by Jay Caboz)</div>
<blockquote>&#8220;If you were fired in your life, you must have realized you&#8217;ve made a mistake. I think it was a good lesson. It&#8217;s a team effort and all the team must be happy and must respect their standing credibility and wisdom. I&#8217;ve learned a lot about that,&#8221; says Jannie.</blockquote>
That lesson hit like a sledgehammer when young Piet was told the news.
&#8220;I was in first-year and was 19 years old. The first part started with Jannie being fired. He was so ashamed he got my mother to phone us up and say he&#8217;d resigned,&#8221; says Piet.
Jannie searched his soul and vowed to own a financial services JSE-listed company. It took three months to get onto the JSE. Jannie, then 48 years old, bought a 51% share of JSE-listed PAG for R3.5 million ($273,000). He sold it two years later for R107 million ($8.35 million).
Then he went home. He settled in Stellenbosch, the town where he studied alongside fellow decorator GT, in the Western Cape.
From these humble beginnings the PSG Group took off like a rocket with annual compound growth in earnings of 50.8% a year.
Their main investments are in bank start-up Capitec, private education firm Curro Holdings, PSG Konsult and agribusiness firm Zeder – with the 31% interest in Capitec constituting roughly 40% of the value of PSG&#8217;s portfolio.
Here&#8217;s how rapidly PSG has grown: An investment of R100,000 ($78,000), on its first day in business, would be worth approximately R390 million ($30.5 million) today if all dividends were reinvested. No other company in the world matches this, according to the Moutons and researchers at the Top Performing Companies &amp; Public Sector.
Jannie is Afrikaans with a capital A. When you speak to him you can see he thinks in Afrikaans and speaks in English. Yet when it comes to business he knows, whenever he speaks, English is king. So when it came to sending his sons to school he bent the rules to claim he was English-speaking so they could grow up learning the world language.
&#8220;My wife was a bit smarter than me. She was in an English school her whole life at Rustenburg Girls’ High. She realized how important English was in life and in business… To send your children from an Afrikaans background to an English school, you had to apply officially. Otherwise they wouldn&#8217;t do it. I still have the little document that says I am English-speaking. That was to protect Afrikaans, they didn&#8217;t want Afrikaans schools and English schools to mix.&#8221;
With parental guidance, and the English language, Piet took to business like a duck to water in his first year at Stellenbosch University where he studied actuarial science.
&#8220;Remember, this was at a time when we were coming into a new democracy. We were at university, there was massive growth in the PSG share price, I think it went up from 36c and peaked at about R18 which was my last year at university. Students do take interest in what happens in the world and it&#8217;s a phenomenal story, so everybody knew who Jannie was, and obviously Jannie and GT were Simonsberg Old Boys, which was the residence where I went to,&#8221; says Piet.
With seven years as CEO of PSG, Piet is the new generation injecting adrenalin into the beating heart of this $4.3-billion company. There were no short cuts for the young Piet, according to Jannie, he had to work his way up the corporate ladder.
<div id="attachment_32676" style="width: 266px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-32676" class=" wp-image-32676" src="http://www.forbesafrica.com/wp-content/uploads/2017/07/IMG_2503.LR_-200x300.jpg" alt="" width="256" height="384" />Piet Mouton (Photo by Jay Caboz)</div>
&#8220;Piet had started in the group in 2004 with a company called Arch Equity. It was actually a tough day in our lives, because his mother and my wife passed away on 11th of May. On the 17th we launched Arch Equity. We never discussed him becoming CEO,&#8221; says Jannie.
&#8220;Piet was a candidate and I stood back. His colleagues selected him. Here, in private and in public, Piet was the best candidate, I couldn&#8217;t get involved. I would never do that in my life, misuse my title and it was the shareholders decision to appoint him head of the board… For us, it&#8217;s the best CEO who must be in charge.&#8221;
Despite this, you can only imagine the pressure that Piet feels. Not only does he juggle billions in other people&#8217;s money, the chairperson is also your father, the person who started to build it.
&#8220;[Jannie&#8217;s] entire business philosophy is a lesson. The biggest one is don&#8217;t give me problems, give me solutions. Jannie always says &#8216;it&#8217;s easier to tell a guy something won&#8217;t work, it&#8217;s a lot more difficult to sit with an idea and think of a way of doing it differently&#8217;,&#8221; says Piet.
A cornerstone of PSG&#8217;s success is a 30.7% stake in Capitec Bank. In 2002, Capitec’s individual shares listings were worth less than a rand and now they are worth R531 ($41.50). The guiding spirit of Capitec is Michiel le Roux, who disrupted South Africa&#8217;s once cozy banking market by bringing in an aggressive strategy in search of deposits from low-income earners.
<blockquote>&#8220;The Moutons, as the main drivers behind PSG, have built a company that created wealth for many. Their active involvement in the beginning years to get the Capitec dream off the ground was crucial to our success,” says Le Roux.</blockquote>
Capitec was built on 300 micro-lending branches. It shook up the banking sector with new ideas, like the no-brainer of opening on Sundays.
&#8220;The five big banks, prior to Capitec, sat back and they had a nice little oligopoly. Capitec came around and they were allowed to build a great business. By the time the competition realized this is a real player, it was too late. Now Capitec is a serious competitor,&#8221; says Piet.
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PSG has proven time and again that opportunities can be found in the pessimism of others. These are tough times for South Africa, one of Africa&#8217;s most developed economies. It has suffered a string of downgrades, political uncertainty and questions about corruption and fiscal mismanagement.
&#8220;Everybody is always outwardly focused in South Africa… But it means you can actually operate in a very uncompetitive environment. You would not have been able to start a Capitec in London,&#8221; says Piet.
Now technology is also a factor.
&#8220;Each and every week, we at PSG level encourage our subsidiaries to look at the changes. It&#8217;s a fact of life. From the start [Capitec] was a bit of an IT business but now it&#8217;s becoming more and more an IT business. Just look back 10 years; it&#8217;s unbelievable how business has changed. I&#8217;ve also realized my generation has to step back, because we don&#8217;t keep pace with this generation,&#8221; says Jannie.
&#8220;It&#8217;s going to continue changing in the years ahead. It&#8217;s a big thing at all the companies at the moment. You have to sit down and look at your business model and say ‘can it be interrupted?’ There are businesses that are just not there, take for example Kodak,&#8221; says Piet.
&#8220;Now you sit at the Capitec level and you say we mustn&#8217;t be caught with our pants down, because there are guys sitting in garages developing FinTech stuff. At least we at Capitec acknowledge – we don&#8217;t know where the problem is going to come from, we&#8217;ve got to constantly be smart about it,&#8221; says Piet.
&#8220;There are 150 people working on innovation and it’s costing us R200 million ($15.6 million) a year, to constantly scan and see if we can implement some of this new innovation.&#8221;
A recent purchase of an online lender in Poland is a Capitec move toward technology.
&#8220;The model is slightly different here. Whereas here in South Africa we are backed by bricks and mortar with 800 branches with a massive 300 ATM network, there it will be an online operation. Michiel coined a great phrase, shortly after I came back from the UK: it was either going to be a small failure or a big success. Now, where a lot of corporates go overseas and make massive acquisitions and then try implement them, Capitec actually tackled a very small business that has the potential to expand and they can contribute capital if it grows… It&#8217;s a longer path but it&#8217;s a sure way of hitting success at the end of the day. If it&#8217;s a failure it&#8217;s a small failure,&#8221; says Piet.
Another of PSG&#8217;s success stories is Chris van der Merwe&#8217;s Curro Holdings that develops, acquires and manages private schools in South Africa. What started off as a school of 28 learners in the hall of a church in Durbanville, Cape Town, now has a market cap of $1.4 billion.
&#8220;Chris van der Merwe is a unique person. Education and doing something great for the company is his passion. He tells you to your face he doesn&#8217;t understand accounts or profits. He is one of the people I admire in life, he isn&#8217;t fanatically orientated but he has a big thing about education,&#8221; says Jannie.
&#8220;Chris was a primary school teacher who knew he was also phenomenal businessman. He built the school himself, with his own hands. He took his early pension, started with 28 kids in a class, now it&#8217;s up to 50,000,&#8221; says Piet.
In May, Curro Holdings announced it would buy the South African School of Motion Picture Medium and Live Performance (AFDA) – a film, television and live performance higher education institution. Step one of an expansion into the tertiary education system under the soon-to-be JSE-listed company Stadio. In six years, the share price has increased more than 300% to R44.70, with pupil numbers rising 14% to 47,589 in 2016, reports CNBC AFRICA.
&#8220;A typical school class has about 45 students. At varsity, a class could be 100, and the fees are even a bit more than school. It could be a fantastic model,&#8221; says Jannie.
<a href="http://www.forbesafrica.com/cover-story/2012/11/01/outbuffetting-buffett/" target="_blank" rel="noopener noreferrer">Outbuffetting Buffett</a>
Asked if this decision had any particular influence from recent education crisis events, like FeesMustFall, the campaign that saw South African universities come to a standstill amid violence over tuition fees, the Moutons were open.
&#8220;See, there you have almost hit the nail on the head of investments. Big macro themes, if you can get it right, you shouldn&#8217;t be limited to growth. Take the whole education sector as a whole, primary and core, if you can get it right, there is actually a massive scope for growth. You are right about the FeesMustFall, because people are becoming disillusioned [with education].&#8221;
Another company Jannie believes could surprise investors is PSG Konsult. With 270 branches and 800 advisors, each branch is its own company, 70%-owned by the individuals who run it – what Jannie calls ultimate empowerment.
&#8220;You should attract very good people alongside you and you must make them co-workers inside the business. You must trust them implicitly and give them the space to grow. That has worked significantly for our group, because they act like shareholders and look after the company,&#8221; says Piet.
Back in the boardroom, the conversation shifts toward the lighter side of life, something the pair can&#8217;t agree on – rugby.
&#8220;It&#8217;s one of the points we don&#8217;t see eye to eye on. Jannie is a Stormers supporter whereas I am a strong Lions supporter. Literally, Saturdays would be a fight to behold.&#8221;
Imagine if the idea to invest in the Stormers or Lions was raised in this Stellenbosch boardroom.

One Name, Two Investors, $4 Billion

On this Thursday afternoon, in Stellenbosch, a small university town, east of Cape Town, the sky is blue and the air crisp. In the gentle light, dressed in khaki pants and a checkered blue shirt, he doesn’t look much like a multimillionaire but Michiel le Roux has done for banking what Bill Gates did for software and Muhammad Ali for boxing. He has created a bank that in 15 years has forced its way into the top five in South Africa. He wears his $530-million net worth lightly, but behind the smile and humility, is a hint of power with a firm handshake that means business.
“We said let’s build a bank and we were not going to experiment on a small scale, we always stayed very close to our clients and we knew what we wanted to bring to the industry,” says Le Roux.
About a decade ago, few deposited their salaries into Capitec, most had never heard of it. Today, Capitec has over 7.3 million active clients, 720 branches, 11,440 employees and holds R13.7 billion ($1 billion) in shareholders’ funds. For Capitec, simplicity is everything.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-5187" src="/wp-content/uploads/2017/05/Michiel-Le-Roux_JC-3-200x300.jpg" alt="" width="200" height="300" />
“When I was young, everyone was a Sir in the corporate industry and I hated it. There is a woman here who used to serve tea when we started and she couldn’t get herself to call me Michiel so she called me Mr Michiel,” he laughs.
“Here, there is no distinction between people. Nobody flies business class. How you fly, where you stay, the rental car you drive is the same whether you are the CEO or the junior in the company. Everyone gets the same treatment.”
There is a business reason for this.
“After the army, I worked at a company I thought was a very smart company but there was too much hierarchy. I found it very awkward and terrible. [Imagine] you have meetings out of town and you wait for your flight with your colleagues and you chat while you wait; then in the plane you sit in front and they all pass you to go sit at the back. I find it very stupid. The natural thing is to continue talking,” he says.
At Capitec, they take simple seriously. No suits, the CEO’s office is the same size as everyone else’s, the CEO shares a personal assistant, no personalized parking spots, even the guard at the gate calls him Michiel, while the receptionist jokes freely about his sense of style — or lack thereof.
This simplicity and business acumen has made Le Roux a rich man; the 38th richest in Africa to be exact, according to FORBES. In just 15 years, this fortune has grown rapidly. It has nearly doubled from around $290 million in 2011.
Capitec had big friends early on, on the other side of Stellenbosch. One of the earliest and biggest was PSG Group, an investment holding company, owned by former FORBES AFRICA cover, Jannie Mouton, who is worth $970 million. One day PSG called Le Roux to listen to what they had to say; he believes this was an attempt to lure him into its micro-lending business.
“I said I am not interested, this is not the type of business I want to be involved in because it’s a terrible business; they charge exorbitant interest rates. Those were the old pin and card days. When you wanted a cash loan, they would take your card and your pin number and they would withdraw whatever you owed and then give the card back to you. It sounded, and still sounds, terrible,” says Le Roux.
PSG convinced him to visit their branches and he was fascinated by how the micro-lending company treated its clients. According to Le Roux, in banking, the lower income consumers in South Africa were poorly treated, but not by PSG.
“A bank always determines the value of the client based on their net worth which to this stage in my mind doesn’t make sense because a guy with high net worth might be very frugal with the use of his credit card whereas a guy with a much lower net worth might be exorbitant with his credit card use. The guy that is exorbitant should be much higher in the rankings but banks don’t look at it that way.”
“If you are a factory worker and earn very little, they were not that interested in you and that to me was a failure on banks not accommodating the lower income people,” he says.
In this, Le Roux saw a gap. He was bored at work and he decided to build a bank that would right these wrongs. He joined forces with PSG Group.
Before the bank was called Capitec, it was called Daxacom.
“We had about three branches that we put up and put on the logos and when we looked at it, it didn’t work. We had many other names but I am ashamed to say them,” he chuckles.
Le Roux says it took a long time to find the right name because they didn’t want a name that reflected they specialized in servicing lower income groups.
“We didn’t want to call it people’s bank for example, if anything, we wanted something that sounds modern and as if it could have been an electronic bank only, although we are also a physical bank.”
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-5188" src="/wp-content/uploads/2017/05/Michiel-Le-Roux_JC-12-300x200.jpg" alt="" width="300" height="200" />
Capitec won. The next problems were timing, licensing and money.
According to Le Roux, there was a small banks crisis just before they opened. Timing was not of the essence.
“In the late 90s, South Africa granted a number of new banking licenses and as far as I know, that was the last time they granted new banking licences. Most of those banks folded quickly. A bank called The Business Bank, which was about three to four years old, folded and PSG took them over and we sort of bought the license through taking over a failed bank. If it wasn’t for that, I don’t know if we could ever have got a license,” he says.
As Capitec was about to launch, Saambou Bank, one of South Africa’s significant players in the industry, went bankrupt. It was a very public collapse that did the image of banking no good at all. Lines of people appeared on TV news desperate to get their money out.
“The Reserve Bank closed them on a Saturday to minimize the impact on the markets and we listed Capitec Bank Holdings Ltd on the Johannesburg Stock Exchange on Monday, 18 February, 2002, the week later. That was a terrible time to list a bank and it also meant it was a terrible time to get finance whatsoever. I know I sound like an old man saying you learn from your mistakes but it’s true. Starting a business in good times is always very dangerous because you will think business is easy when the wind is blowing from behind and the sailing is smooth. When you start with wind blowing from ahead, then you know business is tough and you grow,” says Le Roux.
To survive when others failed wasn’t easy.
“It’s a hard slog to create the infrastructure, to network, to decide what you want to do. We take pride in the fact that at that stage, when we were also starting, Old Mutual had a retail banking license and they wanted to start a retail bank. They were looking for systems when we were looking for systems and the rumour mill had that they paid out R800 million ($60 million) for their system and that was when the rand was about R4 to the dollar but they never opened that bank because they couldn’t make it work.”
Capitec kept it cheap and simple.
“Other banks use systems that are designed for them which means that they have to maintain that; when the coders that wrote that leave, you are left with a gap. We made right calls because we had a good management team and we had a good management team because we hired the right people when we started. We don’t spend where there is no need,” he says.
Persistence and good planning helped them survive.
“We have been creating new branches but we try to be creative in the way we do that, we don’t over invest in a branch, we don’t build a branch, we don’t have specialized buildings and we don’t own a single branch, we lease all of them so we have the ability to cut back in future if things change.”
Although they want everything to be digital, they want to keep branches open for their clients.
“Our clients like the one-on-one interaction. In January, 6.7 million people came into the branches. It means, on average, our clients visit a branch at least once a month. Most importantly everything should be done on mobile. We suspect that is the future of banking but we are not quite sure what it’s going to be,” says Le Roux.
While other banks turn a blind eye to South Africa’s “unbanked” or “unbankable”, Capitec has made these customers their market. Over time, Capitec slowly transformed its micro-lending clients, who mainly relied on it for loans, into transactional banking clients who deposit their salaries and manage their transactions through their Capitec accounts.
International banking advisory group Lafferty has ranked Capitec Bank as the best bank in the world in its inaugural 2016 Bank Quality Rankings. According to the report’s findings, Capitec came out on top, with the only five-star rating out of the 100 banking groups listed. In South Africa, Barclays comes second with four stars, while Nedbank, Standard Bank and First Rand have three stars. Lafferty uses a combination of financial and non-financial disclosures in the latest annual reports to determine the quality of the organizations and their respective business models.
“South Africa’s Capitec was the only bank to achieve five stars. The bank has a level of focus, geographically and strategically, which boosted its scores across all of the metrics in the ratings process,” says the report.
Capitec is giving South Africa’s banking industry a run for its money. Michael Lafferty, Chairman at Lafferty Group, says it’s because its founders understand their customers’ needs and they developed an innovative strategy and business model aimed at addressing those needs better than the established players. He says the best quality banks in the world are found in South Africa.
“Capitec is doing well because of its focus on the consumer&#8230; We only found two or three banks in Europe that were near to the top quality rating we saw and only one in the United States. There is something remarkable about South African banks,” says Lafferty.
That focus on the consumer is also visible in Capitec’s decision to open on Sundays. In 2011, according to reports, Capitec’s marketing and corporate affairs executive, Carl Fischer, said the idea has always been to operate like a retailer as a lot of people went to malls over the weekends.
Many people sing the praises of Capitec. But, says Le Roux, you can ignore your competition in other industries, but not in banking.
“If you bank with Standard Bank and I convince your friend to open an account with Capitec and you want to pay money to your friend, your bank must be prepared to pay money to Capitec. If you use a Capitec card and you are in a restaurant and they have a Nedbank machine they must cooperate. We all have to be in agreement and work together.”
Banking is a tough industry. Capitec’s closest rival, African Bank, collapsed in August 2014 as bad debt soared and the lender failed to increase provisions.
“When African Bank went bankrupt, it was terrifying. We thought African Bank were over optimistic with their credit assessments but we thought they were a big strong company. When they closed their doors it practically felt like a funeral. If they can sink, anyone can sink,” says Le Roux.
Capitec however was much more conservative. They set aside cash to cover bad debts and stuck to strict budgets.
The globally-awarded retail bank increased its active client numbers by 1.03 million, to a total of 7.3 million for the year to 29 February, 2016. This bolstered headline earnings to R3.2 billion ($234 million) for the financial year ended February 2016, up 26% on the previous year. Net transaction fee income increased by 16% to R3 billion ($220 million), the value of credit advanced increased by 25% year on year to R24.2 billion ($1.7 billion) for the 2015/16 financial year.
Capitec Bank CEO, Gerrie Fourie, on its website, says the brand acceptance continues to grow substantially in the market and there has been a 26% growth in total retail deposits to R37.8 billion ($2.7 billion).
“We are excited about the continued growth in client numbers and in particular the higher income clients who are finding our offer the best value in the market, which is an important consideration for consumers in the current economic climate,” says Fourie.
As rivals hobbled through two banking crises, Capitec sailed through. The advantage, says Le Roux, is that they thought big from the beginning.
For Le Roux, confidence in yourself and the belief that you can achieve something is the starting point and not money. He says many young potential entrepreneurs see the lack of money as an excuse.
“Money is a valid problem but the bigger problem is management and getting the right people to do the job. We started, knowing it was going to be a difficult journey. At one stage during the founding phases, we reduced the rates we charged for loans by about 40 percent. That meant we had to do 40 percent more loans to break even. To do 40 percent more loans, you need 40 percent more capital and it took about four months before we came to that point where we had 40 percent. In the first month, we made a loss, and in the second, we ran out of money. We had to put our own cash into the company but we knew that if the boat doesn’t turn next month, we won’t have any more cash,” he says.
They also had Riaan Stassen; Capitec’s pioneering CEO from 2004 to 2013. Stassen has been friends with Le Roux for years and served as the Managing Director of Boland PKS from 1997 to 2000, a division of BoE Bank Limited.
“Riaan is a very smart guy. I believe he built Capitec Bank. If I may claim some role, I would claim that I had a dream of creating a bank and Riaan made that a reality. He actually made a different reality. My vision was that we should be a bank for low income people, for instance, to my shame, I must admit that at that stage I said we should have books. Riaan laughed and said ‘you are crazy; we are in the electronic age’. He said ‘we are going to build an electronic bank for the new age and not for low income people but for everyone’ and that’s what we have done.”
As a travel enthusiast, Le Roux wanted to take Capitec across Africa, but, he says the longer they are in business, the more the dream recedes. Emerging market countries such as Brazil, Chile, Turkey or Poland are preferred.
“We don’t think Africa is a natural habitat for Capitec Bank, we are based on a digital financial environment, our client base are more salaried people and if we go into [for example] Zambia only 10 percent of the population earn a decent salary  and most of the people are [in the informal sector]. Even Nigeria is a tough country, it’s not like they have a massive urban digital employed population. We could do business there but we will have to redesign our products,” says Le Roux.
As we leave, the fiery red ball is dipping towards the mountain. This sun may be setting but it seems Capitec is just rising.

‘A Terrible Time To List A Bank’

<h4>Entersekt</h4>
Entersekt is a global pioneer in transaction authentication for financial institutions. The system combines electronic certificate technology with encrypted cloud messaging and the convenience of mobile phones to give banks, and their customers, full protection from cyber criminals looking to steal users login details and passwords. Entersekts clients, who include Investec, Absa, Old Mutual, Nedbank and Capitec, have allegedly reported an elimination of online banking fraud since implementing the system. Over 12 million customers are protected by Entersekt’s security software which has authenticated more than 250 million transactions since being launched in 2010. The start-up has so far raised around $10 million and has been implemented in Swiss financial institutions with plans to expand to Nigeria, Britain, Netherlands and the United States.
<h4>iono.fm</h4>
Described as PVR for radio, iono.fm is an audio-on-demand platform that publishes content from radio stations, podcasts and audiobooks. Listeners create their unique playlists and download content for later use. The revenue model centers on short audio adverts and all the content is currently free but going forward they may charge for exclusive content and added functionality. Where traditional radio stations can only monetize their content once as it is streamed live, iono.fm can monetize the content multiple times with different advertisers as the audio is stored online for repeat use. The platform currently generates over a million page views and 800,000 downloads per month. In the second quarter this year, iono.fm saw a 400% increase in downloads. The company has been self-funded since 2008 but is now engaging with venture capital investment to expand operations to the rest of Africa, India, and South America.
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<h4>wiGroup</h4>
wiGroup is a specialized point-of-sale integration platform that enables retailers of any size to tap into the mobile money market. Retailers that plug-in to the wiPlatform are able to accept any kind of current or future mobile payment, loyalty, reward or couponing application that exists on the platform. MTN Mobile Money, FlickPay and M-Pesa are some of the apps that have been integrated into the system which services over 50,000 till lanes across South Africa and has processed close to $250 million in mobile transactions. wiGroup’s clients include Pick n Pay, Shoprite, Vodacom and KFC, and the revenue model is based on transaction fees and monthly licensing subscriptions for apps that run on the platform. The company has a presence in Namibia and Mauritius, with plans to expand into Nigeria, Zambia and Britain in the near future.
CapeRay
CapeRay develops and manufactures advanced breast cancer screening equipment combining X-ray and ultrasound technology to enhance a clinician’s ability to detect cancer in women &#8211; especially those with dense breast tissue where conventional methods often miss a cancerous lesion. The technology is the first of its kind globally. The start-up spun away from the University of Cape Town around four years ago and has so far raised $2.26 million in funding pre-revenue. Clinical trials have been completed and an offering memorandum is now in front of 15 major multinational companies with CapeRay looking to raise an additional $10 million to begin rolling out the product in the United States, Europe and South Africa.
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<h4>iKubu</h4>
iKubu specializes in developing computer vision and commercial radar systems. The small team of engineers have a deep understanding of embedded software solutions and electronic hardware with a strong focus on algorithm development. The start-up developed a 3D scanning system for automated baggage check-in that has been implemented in major airports, including Heathrow, Sydney and Singapore. The company has, up until now, been bootstrapped by the founders who are engaging with international investors to expand operations.
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<h4>Nomanini</h4>
Nomanini develops and manufactures rugged mobile point-of-sale terminals to sell products such as airtime and electricity in emerging markets. The technology enables vendors in the informal sector to efficiently distribute prepaid vouchers and facilitate micro cash payments with plans in the works to enable additional transactions such as mobile money and insurance premium collections. Nomanini has partnerships in Kenya, Nigeria, Zambia, Namibia, Guinea and Mozambique with active terminals processing over a million transactions in September with the company expecting to process a million payments per month by December. Nomanini has so far raised more than $2.3 million in funding and is engaging with venture capital players in foreign markets for further expansion.
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<h4>8bit</h4>
8bit is a content recommendation platform that connects online publishers to a larger network of content producers driving traffic to members’ websites by showcasing their most popular content on other sites in the network. 8bit’s system automatically detects a site’s top content based on time, click rate and social media engagement and shares impressions across the network of publishers. It is currently in a closed invite only beta stage with South Africa’s leading independent publishers and has begun trialling with the country’s largest media houses. 8bit will officially launch at the upcoming Web Summit conference in Dublin in November after being named as one of Africa’s top 10 start-ups. In the upcoming months the company will be launching its paid promotions platform where publishers and advertisers can promote sponsored content not only on 8bit’s network but on traditional advertising exchanges. Since being founded earlier this year 8bit has raised around $135,000 in seed funding with plans to expand into Kenya, Nigeria and Denmark. 8bit processes over 20 million recommendations per month and in many instances, directs more traffic to publishers on its network than Google, Facebook and Twitter.
<h4>OrderCloud</h4>
OrderCloud integrates all the sales channels of a business, whether telephone, web or mobile, into a single online dashboard for simple and effective order management. The system automatically locates the closest outlet to the customer and links it with the necessary delivery services to process the order. Whether customers pay with credit, cash or mobile money, all your funds are instantly aggregated into a single account which distributes the lump sum to all the relevant parties in the supply chain. OrderCloud is being integrated into large franchises in South Africa though the start-up cannot say who at this point as the information is classified. The company is busy putting together a prominent board of directors and has so far raised $226,000 with plans to raise an additional $900,000 from local and international investors.
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<h4>WhereIsMyTransport</h4>
This month, WhereIsMyTransport will be launching Africa’s first official multi-modal transport application for Cape Town. Commuters using the app are able to seamlessly plot their journey from point to point linking various modes of public transport such as Golden Arrow buses and Metrorail trains with minibus taxis to come online in the near future. The application generates valuable data regarding commuter traffic and congestion enabling cities to more efficiently develop their transport networks. The start-up, still in its infancy, is engaged in talks with investors in three foreign markets to develop similar applications for major metros. The long-term vision of the company will be to open up its application programming interface to allow other developers to build apps using their technology.
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<h4>Ekaya</h4>
Ekaya has created an online marketplace where you can list, find and rent property from your phone or on the web. Landlords can vet and rate tenants, collect rent and freely advertise their property on the platform. Tenants applying for property pay an administrative fee of less than $10 for all necessary criminal and credit record checks, whereas property agents usually charge around $100. Also, instead of paying a fat deposit upfront, Ekaya offers an insurance scheme where tenants pay a smaller monthly fee that can be used to cover damages. Ekaya makes money by taking a small commission of the rent and is looking to expand its insurance, micro-loan and deposit components with added loyalty and reward features. Ekaya recently raised $126,000 in angel funding and has over 1,000 estate listings in Cape Town since the beta version went live about two weeks ago with the platform aiming to launch in Durban and Johannesburg in the next few months.

Ten Technology  Start-Ups To Watch

On March 1, 2001, a small bank opened in South Africa with the aim of providing easy and affordable banking services to its customers. Attracted by this alluring promise, in no time people were queuing up to open a Capitec account. Today, the bank has more than four million customers; clearly CEO Riaan Stassen’s move from the liquor industry to banking has been a fortuitous one.
Born in Cape Town, Stassen earned a Bachelor in Commerce Honors degree from the University of Stellenbosch. He then did his articles and CA qualification at PricewaterhouseCoopers (PwC) before spending 14 years in the liquor industry.
The course of his career changed in 1995, when Stassen was asked to reengineer Boland Bank, a conservative regional bank established in 1900. After South African retail billionaire Christo Wiese bought Boland, it merged with Natal Building Society (NBS) and Board of Executors (BoE).
Stassen spent five years at BoE Bank, during which time he came up with a different banking concept: a retail bank for mid-to-lower income people. According to Stassen, the incumbent banks were failing in four areas: accessibility, affordability, simplicity and personal service. He left BoE with his management team and a goal to succeed where others had failed.
Stassen says that South Africa’s existing banks had never transformed to align with the cultural diversity of the country.
“So we saw that as quite a key opportunity for us to create that cement with our customer base,” he says.
Stassen and his team were approached by PSG Holdings, a company owned by South African millionaire investor Jannie Mouton, to manage PSG Specialized Lending, its micro-lending company focused on low-income customers. The name was changed to Capitec and the bank listed on the Johannesburg Stock Exchange in 2002.
It was no easy road for Capitec. The start-up capital was R250 million ($28 million), it listed with net assets of just under R400 million ($45 million), at R2 (around 2 US cents) a share. Within three months its market capitalization dropped to just under R50 million ($5.6 million).
The first few years of Capitec’s life were dedicated to developing an application platform that could handle high-volume, low-value transactions, efficiently and at a lower cost.
The system is run from Bellville—a small town just outside of Cape Town. From there the bank runs the administration that usually takes place at branch level, shifting the branch focus to its customers. The last fundamental of the technology component is the ability to conduct all processes in real time.
The bank uses fingerprint biometrics to counter fraud and is currently testing new ATMs fitted with the system. Capitec is also the first bank in South Africa to allow coin deposits at ATMs, further evidence of its focus on low-income customers.
Stassen says other South African banks are rife with high costs, lack of transparency and confusing jargon.
“We believe what a person needs from a bank is to move money, to park money and to get money,” he says.
Capitec’s solution to this is its Global One account—a single account that can be used for transactions, including online purchases, as a savings vehicle and as a way to apply for credit. Customers can get up to R230,000 ($25,700) in cash within minutes of applying for a loan. This amount is determined by an affordability assessment based on their monthly cash flow and is repayable over one to 84 months, also based on personal ability. The interest paid, 17% to 28%, also depends on the individual’s credit profile.
A big bone of contention in South Africa has been unsecured lending. In the past, borrowers were required to secure a loan with collateral. With unsecured lending, clients do not need this security, “In South Africa nowadays unsecured lending has become a swearword, and that’s absolute nonsense,” says Stassen.
He points out that as far as Capitec is concerned, it’s not about the assets a person has, but their cash flow.
“There are 20 million active credit clients in South Africa. There are 1.8 million credit clients who have any form of home finance, a mortgage grant. Only 1.8 [million]. So what are the other 18 million people doing to improve their standard of living?” asks Charl Nel, the head of strategic communications at Capitec.
Few deny the fact that South Africa, like most of the world, is a consumption-driven society as opposed to a saving one, or that defaults are part of the territory, but as it currently stands, over 95% of Capitec’s book is current. Despite citizens’ household debt often being greater than disposable income, according to Capitec’s interim results from September, its number of arrears had decreased to 4.4%.
“The profile of our credit client is definitely changing as we are seeing new credit clients with higher income levels attracted to our offer,” the interim report says.
According to a report by South Africa’s National Credit Regulator, unsecured credit in the first quarter of 2012 grew by 49.4% year-on-year. This is a rate far higher than any of the other types of credit.
Capitec has millions of customers, and Stassen attributes the bank’s success to widespread discontent with the big four banks among their customer base, as well as its strong proposition to customers. His is the first bank in South Africa to be open on Sundays, a move that persuaded one of its large competitors, Nedbank, to follow suit.
“We had to think a lot on our feet. We change things a lot. What we thought was going to work had to be changed slightly. And often in a very old, stale, established organization you get resistance and that’s dangerous because people kind of trip up the process,” says Nel.
How does the bank manage to make money and a success out of low-cost banking, especially when they have kept their prices unchanged for the past three years? As most business minds know, you can only undercut your competitors for so long before it becomes costly. Stassen says Capitec could only be priced significantly lower than their opponents if they took smaller margins or lowered their cost structure. Their solution appears to be running the bank like a production line.
“Stassen is an exceptional CEO. One of the best that I’ve come across because since he joined Capitec we’re really focused. They developed a great computer system and it’s a great success,” says Mouton.
Stassen admits that they were initially ignored by the bigger banks because they started off as a micro lending organization. When they began to look beyond this; their competitors believed their primary focus would be on the unbanked and the lower income market. Then around two years ago the more established banks started to take notice.
Capitec now has around 9% of South Africa’s banking market share and their most important objective is to attract primary banking accounts, those into which salaries are directly deposited. The bank also plans to launch a credit card at the end of this year.
The interim results stated that Capitec’s transaction fee income for the first six months of the financial year grew by 61% to R583 million ($65 million) year-on-year. Headline earnings per share grew by 35% to R7.02 ($0.80). Income from credit was R3.6 million ($403,000), which the bank says is due to growth in the unsecured credit market.
The management team at Capitec had been part of a share incentive scheme, allowing them to buy into the company. Last year, there were numerous reports and speculation as to Capitec’s health and suggestions that its captain, Stassen, was abandoning ship, and that other executives were offloading their shares too. When asked about it Stassen says: “It was very bad reporting”.
The truth of the matter is that Stassen sold most of the shares in his own name but that 95% of his investment in the bank is held by a company in his family trust. The private investment company owns more than R400 million ($44.8 million) worth of shares.
“I believe it’s extremely dangerous for executives to be over-extended to the company they run,” says Stassen.
He says this is because, when executives become over-exposed, they start making short-term decisions and manipulate numbers to protect the share price.
Last year, Capitec sought to raise funds through a rights issue, which increased the bank’s capital base by R2.25 billion ($252 million). The funds were for the extension of the branch network, with 55 to 75 new branches proposed for this year, and to increase lending.
Earlier this year PSG sold off some off its stake in Capitec to repay debt incurred in the purchasing of approximately R724 million ($81 million) from the rights issue last year. PSG’s stake in Capitec has dropped from 32.2% to 28.5%, and the company says it will not be selling off any more of its shares.
Then in February, the South African Public Prosecutor confirmed that it will launch a formal investigation into a black economic empowerment deal, from 2011, resulting in a consortium with ties to the country’s ruling party acquiring nearly R1 billion ($122 million) worth of Capitec shares. Nel says they will cooperate fully with the investigation.
Capitec is currently focusing on South Africa but will start identifying opportunities in other countries on the continent. Its long-term goal has always been to internationalize its banking model. Infrastructure is however a concern as the bank is highly reliant on technology. As the fastest growing retail bank in South Africa for individuals, winner of Africa’s Top 100 JSE Companies for the second time, forging into an under-tapped market and making the big dogs follow suit, could mean Capitec will lose its underdog title.
Goliath may not be down and out yet, but he is certainly taking notes on David.

Tag: Capitec

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