Describe the Critical Element of the Business Model of Capitec Bank

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Question 4:

Discuss the attractiveness of a micro-lending institution such as Capitec, entering the SA banking environment. You answer must include a SWOT analysis of the banking industry in SA

Strengths

Weaknesses

Opportunities

Threats

-Understanding their target market and matching its offering with the existing needs.

- High risk, possible high bad debt rates due to nature of employment of majority of clients

- 10.2 million potential customers who does not have a bank account.

-The “Big Four” coming up with products to emulate the Capitec’s offering and reduce Capitec’s market share (competitive rivalry).

-Large existing market of 10.2 million unbanked populations.

- Very high volumes required in order to become profitable

- Coming up with a range of innovative product offerings to increase the service to their target market and hence growing profitability

- Possible new entrants into market. Notwithstanding the fact that Capitec was the first new entrant into this industry in 20 years, this market does proof highly attractive at present.

-Regulations allowing for very profitable lending rates to borrowers in this industry

- Possible high cost of acquiring debt due to high risk nature of envisioned target market

-Extending the company further into the African continent where similar business model might proof very successful

-As the prototype customer becomes economically more active and stronger, he might consider moving to a more ‘reputable’, more sophisticated bank. Capitec has to have retention strategies for these contingencies.

-Capturing the hearts and minds of the lower income groups

Question 5

Identify and describe the competitive advantage of Capitec compared to their competitors in SA. Clearly identify the competitive pillars supporting their competitive advantage.

Capitec

Competitors

People: Capitec identified the unmet needs of the lower income earners and came up with products and services that spoke to the needs of this market and did so with a handsome portion of respect and dignity, thereby allowing them into the hearts and minds of their customers

People: The lower end of the income bracket in SA always felt that banking was an elite service that they we were excluded from. The Big Four traditionally aimed at catching the cream of the society, never endeavoring into the poor, but employed sector of the economy.

Pricing: The uneven wealth distribution within the SA economy and the massive numbers of our population being in the lower income earners category made minimum pricing models possible as Capitec was positive that they will realise high volumes if the product was affordable and attractive enough to this market.

Pricing: Traditionally, the “Big Four” could charge premium prices for lavish value adds to their products. This was how they competed and differentiated themselves. Having to come up with ‘striped’ products, less all the add-ons and ‘selling points’ was new to these banks and forced them to re-assess their total product bouquet.

Distribution: Capitec realized the lack of transport in the market they were targeting. Their strategy included cognizance of this dynamic and made sure that they offer convenient contact points for the customers. They considered bus and taxi routes/terminals when deciding on bank locations and they ensured accessibility to ATM’s was within reach of the target groups.

Distribution: The “Big Four” was traditionally very central to the suburbs and economic hubs of their regions. They did not view the inaccessibility of the service to the poorer communities a factor to consider. Their focus was staying close to the market that had premium transport capacity!

Technology: Innovative cutting edge technology platforms made banking simple, easy and affordable. The uncomplicated approach to banking made it very attractive and less intimidating to its target market.

Technology: The “Big Four’s “technological offering was very similar to its competitors; world class, value-add, complicated and less user-friendly than Capitec’s platform.

Question 6:

Identify and describe two generic strategies that Capitec employed as well as the supporting strategies to increase market share and competitiveness in the market place.

- Achieving lower costs than rivals

Capitec strategy was to achieve low-cost advantage and to under price the competitors in the industry. It did so by keeping its product offering simple, uncomplicated and free from unnecessary value-adds that would increase costs of the product. Their aim was to keep cost very low, realizing attractive profits by achieving high volumes. They also focused on a limited amount of products, steering away from a wide range of services that would clutter, complicate and increase the price of the service range.

- Targeting the lower end of the market

Capitec aimed at capturing the unbanked population of SA, the lowest earners in the market. Their focus was at the opposite end of their rivals and they structured their products to align with the needs within this target market. This target market wanted a less complicated, more affordable, accessible banking service with a provider that understood their disadvantageous and delighted them with personal touch of respect and dignity which captured the customers heart and mind.

Question 7:

Explain the disruptive innovation strategy that Capitec applied in SA and evaluate whether this will work in the rest of Africa?

Capitec challenged traditional banking thinking and strategies by defying the perception that only the wealthy and middle class needed banking services. They came up with an innovative product

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