Financial services provider Old Mutual unveils plans to launch a new bank in 2024

Old Mutual has unveiled plans to launch a new banking institution in 2024 following approval from the South African Reserve Bank.

One of South Africa’s biggest financial services providers, Old Mutual, says it has received approval from the Reserve Bank’s Prudential Authority to apply for a banking licence.

In an update sent out on Tuesday, Old Mutual revealed that it has received Section 13 approval from the Prudential Authority to proceed with the application for a banking license – BusinessTech Africa has found out.

“The establishment of an entity in the group with a banking licence is a natural progression of our core strategy, helping us to sustain our customers’ prosperity through an enhanced transactional banking capability,” it said in a statement.

“The current transactional solution is delivered through a commercial arrangement with a third-party bank. While this commercial arrangement has allowed us to gain experience in transactional banking services, a divergence of aspiration requires us to reassess our future arrangement to deliver on our customer’s needs.

“The establishment of a bank within the group will allow us to hold the primary relationship with our customers, driving greater regular interaction with them and enhancing the cross-sell opportunity across the group. It will also enable the group to accept retail deposits, thereby providing a cheaper source of funding.”

Headquartered in Cape Town, Old Mutual is now banking on its unsecured lending solution which is a strong contributor to the company’s profits.

Additionally, the group boasts existing lending and transactional solutions – an unsecured lending product and the Old Mutual Money Account – with the latter handled through a partnership with Bidvest Bank.

BusinessTech reports that Old Mutual confirmed that it is building transactional capability using the latest technology that will allow enhanced servicing and personalisation.

“This, together with a cloud-based technology stack, will enable us to deliver cost-effective, flexible, and scalable solutions to our customers,” continued the group.

“In line with the business case, we have incurred costs of R830 million for the current period and approximately 10% of these costs were capitalised.

“As the capability matures post-break-even, the return is expected to be significantly above the target return of 4% in excess of the cost of equity. We are currently working on our application under Section 16 of the Banks Act for the registration of the bank.”

In terms of financing the planned build, Old Mutual explained that the approved expenditure to complete the build of the transactional capability is valued at a staggering R1.75 billion.

As the company awaits all the necessary Prudential Authority approvals and details, the group said the launch is planned for the second half of the year 2024.