Investec is gunning for greater market share in the corporate midmarket segment in South Africa and the UK to bolster profitability and return on equity.
The bank will be tapping into its existing private and wealth management clients as part of its entry into commercial banking, where it plans to increase its corporate midmarket client segment to 10,000 in South Africa and 1,000 in the UK by 2030.
Delivering the corporate midmarket strategy, Investec CEO Fani Titi said on Thursday the expansion was part of the group’s DNA and will pave the way for a private bank service style to the corporate midmarket. “We are not looking at hundreds of thousands of clients or millions of clients, because you can’t offer this level of customisation and flexibility if you go mass market.”
The entry into commercial banking will see Investec grow its existing deposit base while diversifying from wholesale deposits. The group aims to offer transactional banking services and use competitive platforms, coupled with technology, to tap into the growing market.
What will always differentiate our offering is that at the end of the line, you can talk to a human being, a very qualified human being who can solve your problem. We get stories of our clients having issues at midnight in New York, and can get their issues solved by calling into our client support centre.
— Fani Titi, Investec CEO
“What will always differentiate our offering is that at the end of the line, you can talk to a human being, a very qualified human being who can solve your problem. We get stories of our clients having issues at midnight in New York, and can get their issues solved by calling into our client support centre,” he said.
Also unpacking the strategy, the head of Investec’s South African mid-market business, Nick Riley, said Investec needed 5% market share to win, which meant tripling its current 3,000 customers.
The execution of the strategy was expected to more than double the segment’s revenue from R1.7bn to R3.8bn. “Similarly, more than doubling our profit, representing compound growth of between 18% to 20% over the five-year period to 2030,” he said.
The expansion was a natural evolution for Investec, he said, and it was building off an established base with a history of successfully servicing selected client segments in a highly competitive environment. “In a segment traditionally underserved, we will for the first time be able to offer the full product capability with differentiated services.”
Titi described the midmarket as unlisted entities with a turnover of between R30m and R1.5bn. It excludes the small and medium enterprises segment, which is experiencing fierce competition from traditional banks and new entrants.
The midmarket was attractive given the R79bn in revenue and R620bn in loans disbursed annually, Titi said, adding that Investec believed its niche was companies with turnovers of R100m and R1.5bn, representing an opportunity set of 220,000 clients. “We’re underrepresented in this market and are well-positioned to gain market share.”
Rival banks have between 20,000 and 50,000 clients, which makes it difficult for them to replicate the high-touch and tech-enabled Investec client experience.
Radebe Sipamla, co-portfolio manager at Mergence Investment Managers, said FNB dominated the corporate midmarket segment along with Standard Bank, while Absa was vulnerable because its pricing was not competitive, as it had not innovated like its counterparts.
Sipamla said the entry of Capitec with aggressive pricing strategies was shaking up the market, offering transparency, although it was not targeting areas that Investec was focused on. “Investec is targeting an area which has a lot of competition, but is not as contested as the area Capitec is playing in. They are tapping into their existing private client base.
“There is good organic growth without them doing much work because a lot of clients with private banking services would want to easily switch over,” he said.
Chances of Investec winning were high as they were targeting a niche area, Sipamla said. “I think Investec on service — it’s very hard to compete with them because they understand client service more than other banks. It is already in their DNA, it won’t be hard to compete."
Business banking is contested because of high returns. Fintech BankZero is partnering with Lesaka Technologies, while TymeBank is also entering the business banking space.
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