#237: Strategy Lessons from TJ Strydom’s Capitec Stalking Giants: The Story of a Challenger Bank

Good morning friends
 
A few years ago, a client said, “I wish I didn’t need others’ approval”. I smiled and replied, “We all do. Practically, it helps us know we’re doing something useful. Emotionally, we’re social creatures, we like feedback, especially good feedback”.

In that spirit, I was happy to receive these endorsements from Nicole Biondi, Zingisa Jemsana and Sipho Kings.

Thank you also, to everyone who emails comments, shares ideas and links to interesting content and encourages others to subscribe to this letter. Thank you, as well as, to you who are the quiet readers who arrive every Sunday for these thoughts. I appreciate the time you bring to this community and my life. Thank you.
 
/strategy
This week marks 24 years since Capitec Bank started operations.

Initially focused on unbanked customers, they opened for business on 1 March 2001, with 55 branches and 25 000 clients. They now have more than 840 branches and 15 million clients.

TJ Strydom’s Capitec Stalking Giants is a fascinating account of building a business from first principles. It tells how a group of founders acquired and transformed a network of moneylenders and micro-loan operators into one of South Africa’s biggest banks and does a fantastic job of teasing out the strategic principles underlying competitive success.  

Several Capitec founders started their professional lives in Stellenbosch’s liquor industry (Stellenbosch is the heart of South Africa’s wine industry), learning customer research, branding, marketing, and distribution, elements they transposed into the start-up bank.

Strydom reflects, “In the liquor industry, efficiency is the name of the game. Develop products customers want to consume and then remove all the obstacles that could hamper sales”. These experiences shaped how Capitec went to market.

I work with several founders who adopt this approach; to transform a part of their business, they add people who work in sectors that exemplify the attributes they want to build. To improve response times, hire people from paramedic or security services, for governance and attention to detail hire people from high-risk industries, etcetera.  

Five of the Capitec founding team worked at another banking group but were excluded from conversations about its future. Not able to see where it was going, they left, providing founder Michiel le Roux with an overnight accelerant for his business. It is a cautionary tale; the loss of key talent can cripple a business and accelerate a competitor.

They became part of Capitec’s founding core, speaking every day for eight months about how they would design the bank. A secretary typed out everything they said.

Many established businesses fail to leverage the power of consistent dialogue, relegating strategy a two-day conversation. Great businesses engage in deep, data-driven continuous conversation (Read more about powerful strategy councils here). Strategy is a process not an event.

Co-founders, Riaan Stassen and Gerrie Fourie were intimately involved in identifying locations for and opening most of their early branches. Fourie estimates that he personally approved around 650 of their initial branches, having first visited each site.

Stassen reflected “Branch visits gave us time to mull over things and debate among ourselves. In the evenings we’d share a bottle of good wine or three. And the next morning Gerrie and I would go for a run.”

Creating opportunities for informal connection and conversation is invaluable in advancing strategy.

Using time wisely is an often overlooked strategic resource. Fourie’s liquor industry experience had taught him that building a recognisable brand took ten to fifteen years. Being clear about timeframes ensures you can build systematically, adding interlocking and reinforcing capabilities as you evolve.

The branch visits provided opportunities to understand customers’ lives. Strydom recounts, “One day Riaan Stassen and his team were walking the streets, as they so often did, to observe banks and their clients. At the ATM of a competitor they noticed a long queue. It was month end, so that made sense to a degree, but Stassen wondered why the people in line were moving so slowly. ‘Then we noticed why. The client would do two transactions: a balance enquiry and after that a cash withdrawal,’ he recalled later.

The person drawing money first wanted to know how much was available – especially as a nasty penalty fee would be charged if the transaction was rejected due to insufficient funds. ‘We figured that if the terminal had to access the mainframe to verify the user’s PIN, it might as well access and show his bank balance on-screen the moment his PIN was verified,’ he added. And, just like that, Capitec combined two steps at an ATM into one”.

This customer focus translated into operations – extended opening hours to make them more accessible, eventually including Sunday mornings for their shopping centre sites; ensuring that one branch visit enabled you to open an account and receive your cards. Both critical shifts for time and cash-strapped customers.

The opening hours shift also meant shopping centres were more inclined to place Capitec alongside retailers, giving them valuable brand exposure. It’s a powerful example of meeting customer and channel needs.  

Last week’s letter explored Capitec’s approach to pricing. The determination to be a low-cost provider in turn resulted in standardised branch design, meaning fittings could be produced more cheaply, and the redesign of operations to keep branches as small as possible, saving on rental in expensive locales.

Superficially, they are all simple operational moves. Their power rests on how they express and deliver on Capitec’s strategic intent. They aren’t random actions. They’re an articulation of strategy.

No matter where your business is in its cycle, you’ll benefit from reading Capitec Stalking Giants.

//self
Capitec’s determination to be the lowest cost provider of banking services put pressure on cashflow. They needed access to loan capital. Le Roux and his team were turned down by every financial institution in South Africa. He describes it as a ‘long, painful and humiliating process’.

It’s an important reminder. No one likes rejection, but to build anything we have to risk it, at least some of the time we will be, and still, we must persist.

(Ironically, given current events, it was USAID that gave Capitec a guarantee allowing them to raise R50 million from FutureGrowth).

///soul
It is not clear whether the Capitec founders were driven by entrepreneurial fire to pursue an identified opportunity or socio-political desire to make a meaningful difference to the lives of people who had no access to banking services or both.

What is clear is that not having banking services costs already resource-strapped people an enormous amount of time.

Strydom reflects that in the years before electronic banking, “As much as two full days a month had to be set aside for making payments. The client had to go fetch his card from the microlender, queue at an ATM to draw cash, and then do the rounds to settle each of his monthly accounts with the cash he had drawn”. A comparable middle-class client could achieve the same in an afternoon or less (if they mailed cheques).

Capitec solved that, returning valuable time to their customers. As the bank evolved, they built data-led lending models allowing them to advance unsecured loans, further unlocking possibilities for their customers.

We often pose a false dichotomy, do I do good, or do I build a business?  Capitec’s experience shows that well-delivered services and products can be catalytic.

We all have some space in our spaces to have that kind of impact. The time we spend coaching people in our team, when we speak out against malfeasance or unfairness, how we procure, the types of advertising we do, how we identify and onboard talent for our businesses. In every moment, with intention, there are possibilities to add soul to business.
 
Karl

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