If you’re in or around Stellenbosch, join us next Friday at 15:30 for the 9th annual LEAP Lecture. Michael Muthukrishna (LSE) will discuss his research on ‘Cultural evolution and public policy’ in the Jan Mouton building, Room 3010. RSVP here.
At the recent Woordfees in Stellenbosch, I interviewed TJ Strydom about his new book Capitec: Stalking Giants. Please consider a paid subscription to access the full interview and all of my twice-weekly content, including columns, guest essays, and summaries of the latest relevant research.
1. Stellenbosch is the headquarters of Capitec. How did Stellenbosch, with its academic environment and history, play a role in the establishment of the bank? Why not Paarl, where the old Boland Bank’s headquarters were?
The short answer is that Capitec’s main funder – the financial services group PSG – was headquartered in Stellenbosch, as was Finaid – a chain of dozens of microlenders from across the country that would form the basis of the new bank’s distribution network. So, set up shop where your funders and your operational hub is.
The longer answer is that Stellenbosch had been doing some work in leveraging the university’s skilled labour output to build a special economic zone of sorts since the 1980s. The patchwork of buildings outside the town called Techno Park, modelled on a Taiwanese model for tech development, was the result. It was in Techno Park that Finaid set up its offices in the late 1990s and where Capitec also later moved in. And it proved very fortuitous as the fledgling bank could then draw from a deep pool of young, relatively cheap, university graduates – especially engineers (to develop and implement systems) and finance specialists (to string the chain of microlenders together into a sustainable business). Techno Park allowed Capitec to rent offices for the first 18 years of its existence and gradually expand by signing a lease for another building across the road, and another, and another when needed. Only by 2019 did it build a large corporate head office, at the edge of Techno Park.
2. How did Michiel le Roux’s background in the liquor industry influence his approach to banking?
Le Roux indeed spent a decade and a half as managing director of Distillers Corporation, a forerunner of Distell (which was famously acquired by brewing giant Heineken a few years ago). Distell sold wine, brandy and other alcoholic coolers and this is where Le Roux got exposure to the process driven nature of the liquor industry. Products were only designed, manufactured and distributed if they would sell. It was a client-centritcity that I describe in more detail in the book, but that lay the foundation for developing financial services later on. Further, it made him question the established way of doing things in banking – for example, why did bank branches close at 15:30 in the afternoon? And he then moved to change that. His peers in the liquor industry – such as Riaan Stassen and Carl Fischer – were also an important talent pool he drew on later on after entering the banking sector.
3. Michiel and Chris Otto, co-founder of PSG, were freshman roommates in Eendrag. What does this teach us about men's residences and the networks they establish? What do we lose when we close them?
The benefits of networks are obviously not exclusive to university residences (koshuise in Afrikaans) – you can have similar effects in religious organisations, golf clubs, MBA programmes, and probably (if you use it incredibly well, so don’t include me in that group) even LinkedIn. And with all these conglomerations, it is not the rituals or any compulsory participation in events that necessarily fosters camaraderie, but more likely just the shared experience, the dead time in between and the close proximity that forms strong bonds. Sharing a room with someone definitely gives you a good idea of what makes that person tick (and whether you can trust him or her). More importantly, then sharing a block or a section or a hallway with other people who also share a room gives you similar information about all of those individuals. Using, for example, the same dining hall means you are in an ecosystem of people who are going through something similar. A koshuis is then not only a place of friendship and competition but also serves as an accelerated vetting process. You get to know quite quickly who is good, who is great and who is trustworthy – and that is vital in business.
4. One of the themes in the book is how Capitec emerged from the micro-lending industry. How did those early micro-loans shape Capitec’s core philosophy?
The cash-loan shops, many of them in rural areas, convinced Capitec of the need for a distribution network that focused on direct client interaction. Even though banking could increasingly, from Capitec’s founding in 2001, move to electronic channels, the management team learned through their direct experience – visiting hundreds of sites and questioning clients about their needs – that face-to-face service was what most of South Africa’s ‘unbanked’ population would prefer. So they used technology to accelerate the delivery of face-to-face interaction. And they simplified processes for both staff and clients, but used a sophisticated and scalable tech backbone to make it all quick and smooth. The compound effect has been massive over two decades – those early learnings from microlending clients enabled Capitec to build the right sort of distribution platform to serve the financial needs of most of South Africa.
5. In what way has Capitec succeeded in serving a market segment that traditional banks ignored?
Capitec has succeeded in pulling millions of people into formal banking, probably by making it seem less formal. In the early 2000s, bank branches were cages of thick glass – to prevent robberies, clients had to walk through a double set of bulletproof doors. But Capitec took a retail approach to banking and used chairs in open-plan spaces – without bulletproof enclosures – more like a doctor’s waiting room than a bank at the time. They could do this because the branches were designed to not handle large amounts of cash. The automated teller machines outside were for dispensing banknotes. Initially, Capitec branches were mostly for handing out loans, which made the doctors’ rooms layout very suitable for the ‘consultations’ that needed to take place. Soon the bank opened a simple savings account – a single channel for transactions. And the simplicity of the product, the usability of it and its low cost, has led to widespread adoption. Some 23 million of those accounts have been opened by 2024.
6. Haruki Murakami writes in Kafka on the Shore: ‘And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure, whether the storm is really over. But one thing is certain. When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.’ Capitec has been through a few storms, from the economic uncertainties during its founding to the 2008 financial crisis to the Viceroy report. What do we learn about Capitec from how it survived these storms?
In Murakami’s Kafka on the Shore, there is a memorable cat-eating villain who looks like Johnnie Walker. But the real crisis in that novel was more about identity and where you belong, also how you deal with trauma (if I remember correctly), and, of course, talking cats. The storms Capitec had to weather, was in a way also about identity. Investors tend to group financial institutions together – this one looks like that one, and therefore, if there is a crisis at one, we should also disinvest from the other. Capitec was a small bank during South Africa’s Small Banks crisis. No surprise then that, despite a solid business model, it could not raise any capital at a time when banks were failing all around it. It had to self-fund. This made a very strong impression on the bank’s management, and as a result, Capitec’s capital adequacy ratio remained sky-high compared to other banks even when it later had sufficient access to capital. The bank was conservative and wanted to be able to withstand any onslaught, whether from nameless faceless investors far away or rapidly changing regulations at home. And so, with a capital adequacy ratio of around 40% (compared to a comfortable norm of, say, 10%), it sailed through the global financial crisis and could actually expand its operations when competitors were cutting back. Banks are ultimately about trust, but having enough of your own resources (and a few other institutions willing to stand behind you) can help you push through those instances where the market backs away from you. When rival African Bank failed, there were serious flutters and investor worries about Capitec, but its next set of financial results proved naysayers wrong and initiated the bank’s big growth phase from 2014 onwards.
7. Especially after the Bell Pottinger episode, many – including many of Capitec’s clients – view Stellenbosch as the power base of 'white monopoly capital'. How did Capitec handle this challenge? How is it that Rupert, rather than a Le Roux or Mouton, was in the spotlight?
Capitec’s founders have always kept a low public profile. In a sense that protected them from photos of them being weaponised in the brutal PR-fights of South Africa’s ‘state capture’ era. Also, by 2017, Capitec was not yet the giant it is today, and it was a very narrowly focused bank. In 2024, with its ambitions to be a broader financial services group it is certainly getting more attention in the media. It also now has a market cap approaching that of behemoths Standard Bank and FirstRand. Perhaps if the Bell Pottinger-aided state capture scenario played out today, it would be different.
8. Gerrie Fourie took over as CEO of Capitec in 2014. Who is Gerrie Fourie, and what qualities does he have that make him so suitable for the role?
Gerrie Fourie – no relation to Our Long Walk author Johan Fourie – is a man who also cut his teeth in the liquor industry. He has a financial background, but his experience is in products and bringing back market knowledge. He has been with Capitec since the start and headed up operations for many years. At 60, he is nearing retirement age, but he still has large international ambitions for the group. He is analytical but also hands-on. And even as CEO he still has an entrepreneurial approach to the business. He is both a builder and a manager – a combination you do not find in any South African bank the size of Capitec.
Keep reading with a 7-day free trial
Subscribe to Our Long Walk to keep reading this post and get 7 days of free access to the full post archives.