Capitec’s fintech business – value-added services including prepaid airtime, data, electricity and money transfers, plus its Capitec Connect mobile service – contributed R2.7-billion to group headline earnings in the six months to 31 August, according to the group’s own breakdown.

That is about three-quarters of the R3.5-billion in headline earnings from its Personal Banking business excluding fintech, up from less than two-thirds a year earlier.

The fintech contribution rose from R2.1-billion and the Personal Banking figure from R3.3-billion, Capitec said in its unaudited interim results, published on Wednesday.

Group headline earnings rose 19% to R9.5-billion and the interim dividend was raised 19% to 3 110c/share. Net non-interest income accounted for 70% of income from operations after credit impairments, up from 65%.

Combined net income from value-added services (VAS) and Capitec Connect rose 32% to R3.8-billion. VAS net income alone rose 30% to R3.5-billion as the number of clients buying prepaid airtime, data, electricity and other services grew 14% to 13.5 million. VAS transactions rose 26% to 1.1 billion. Net income from “send cash”, the electronic money-transfer service Capitec says clients are increasingly using instead of withdrawing cash, rose 32% to R906-million, with 6.8 million users.

Capitec Connect, a mobile virtual network operator that sells mobile services over Cell C’s network, as does rival FNB Connect, lifted net income 72% to R284-million – almost two-thirds of the R442-million it generated in the whole of the previous financial year. Clients active in the past three months rose to 1.8 million from 1.1 million a year ago. Data usage more than doubled to 34.3 petabytes, and voice minutes rose 84% to 573 million.

Digital payments

During the period, Capitec introduced free Capitec-to-Capitec calls and raised the maximum airtime advance from R10 to R100. Clients took up R96.8-million in Capitec Connect advances, up from R36.1-million.

Digital payments grew quickly, too. The number of clients using Apple Pay, Google Pay, Samsung Pay and Garmin Pay rose 68% to 2.4 million, and their spending rose 87% to R52.1-billion. Banking app users increased to 16.5 million from 13.9 million. Capitec Pay, the group’s enterprise payments platform, processed 182 million payments worth R45-billion for 12.5 million clients, with net income up 51% to R365-million.

Capitec did not raise any fees for a second consecutive year, yet total net transaction and commission income rose 20% to R12.2-billion on 14% growth in transaction volumes. Some of that increase came from volume rebates rather than from clients: in Personal Banking, card machine transaction expenses fell to R128-million from R625-million, and Capitec said higher rebates drove a 67% rise in net income from card payments. The removal of the international transaction fee on card payments contributed significantly to net income from international card transactions falling by 10% to R285-million.

Credit costs rose. The group’s annualised credit loss ratio – the net credit impairment charge as a percentage of average gross loans – increased to 8.4% from 7.9%. In Personal Banking, where the ratio rose to 9.2% from 8.1%, Capitec attributed the increase largely to a bigger forward-looking provision for expected losses, citing the US-Iran conflict, which it said contributed to higher inflation and a 25-basis-point repo rate increase in May, to 7%. Personal Banking’s forward-looking macroeconomic provision rose to R664-million from R290-million in February, though it remained below the R831-million held a year earlier. Excluding the forward-looking charge, the Personal Banking credit loss ratio was 8.5% rather than 9.2%.

Capitec's head office in Stellenbosch. Image: Capitec — Capitec’s head office in Stellenbosch. Image: Capitec

Business Banking headline earnings rose 52% to R609-million. Its credit loss ratio climbed to 3.4% from 2.1% as unsecured lending approved through credit scoring, which carries a 13.7% loss ratio, grew 175% to R4.2-billion.

Operating expenses rose 5% to R10.5-billion and the cost-to-income ratio fell to 36% from 40%. Technology spending excluding salaries rose 8% to R1.7-billion, driven by a 27% increase in cloud fees and a 20% rise in outsourced technology resources.