TymeBank expands digital footprint as South Africa’s online-only lender

Four years after bursting into an industry dominated by the country’s “Big Four” legacy banks, South Africa’s TymeBank became the first ever digital lender on the continent to break even. That helped the $965mn-valued institution — ranked 21st in this year’s FT-Statista list of Africa’s Fastest Growing Companies — get closer to its aim of being one of the top three fastest-growing banks in Africa’s most industrialised economy.

Backed by billionaire Patrice Motsepe, chair of African Rainbow Capital — TymeBank’s majority shareholder — the lender initially raised eyebrows by launching in February 2019 with a slogan designed to appeal to younger, digital-savvy customers: “You’ve got this”. Having scooped up 9mn of them since then, it was able to go from a loss of about R860mn ($47mn) in the first half of 2023 to a first monthly profit in December.

This year, with operations also running in the Philippines and Vietnam under the Tyme Group umbrella, the challenger bank hopes to raise at least $100mn to expand further, says chief executive Coen Jonker.

“In South Africa, we want to be the fastest-growing bank,” he explains. “We want be in the top three in customer numbers and from a return on equity perspective. Initial engagement with investors [has] encouraged us to consider raising a larger round, to enable the group to accelerate the pursuit of further attractive opportunities that we currently see in the industry.”

The Johannesburg-headquartered bank began by offering a zero-fee debit card and transactional bank account that offered — on paper, at least — up to 11 per cent interest on annual savings. That has opened up the banking sector to large swaths of the population in a country where a fifth of its inhabitants — about 11mn people — are unbanked or underbanked, according to Stellenbosch Business School.

Then, in 2022, the company acquired Retail Capital, a fintech loan company. Among TymeBank’s other services are health and funeral insurance. Customers can open an account in minutes online or at “self-service” kiosks in a range of retail locations including Pick n Pay, the second-biggest supermarket chain, popular discount store Boxer, or the Zion Christian Church. The success of that strategy is reflected in deposit growth of R800mn in year-end 2023.

“They’ve done well in gaining account openings in a lower income demographic,” says Kokkie Kooyman, head of global financials at Johannesburg-based Denker Global Financial Fund.

“Coming in with just one product and a very user-friendly app, the biggest thing they got right was technology that allowed them to onboard clients very quickly. The challenge — and it is now starting — in that market segment is not only to have people open accounts, but also to make them your primary bank account.”

Another challenge for businesses targeting residents in townships is allowing for high unemployment and fluid living arrangements. Investment analysts suggest that TymeBank needs to start carving out a strategy to reach wealthier segments of the population.

“My concern is how do they attract not just people signing up but actually attract transactions,” says David Shapiro, a veteran analyst at investment firm Sasfin Wealth.

Jonker says addressing these issues is a key focus and a priority is launching products that will open lending to clients at less risk of defaulting. “We’re working an app refresh to reposition the brand as a more aspirational brand,” he says. “So, over time, we will get to a point that there’s literally nothing that you can get from your old school bank that you can’t get from Tyme.”

Tyme will face competition on multiple fronts. A strategic focus for legacy banks has been to grow their digitally-active clients, and the total number of these at South Africa’s top four banks — which have a head start given their established customer bases — rose by almost 9 per cent, to 18.5mn, in 2023, a PwC report found.

There is competition, too, from fintech lenders. MTN, which reported a 32.2 per cent increase in digital payments last year, also finalised a deal with Mastercard that valued its fintech arm at $5.2bn.

Even in providing credit for small businesses, where TymeBank can be competitive, there are risks. It offers short-term loans that do not require collateral, with borrowers instead paying back via a daily percentage of card swipes. Analysts say it will have to prove the resilience of this model over time. “A lot of people have shaken that tree and failed on the micro lending side,” Shapiro points out. He cites years of economic stagnation and unemployment rates of 30 per cent as the key concerns.

Debt defaults in South African households soared in 2023, as businesses and consumers were squeezed by rises in the cost of living — in particular, hikes in electricity charges amid a power crisis. Households had almost R2tn in outstanding debt, with R25.8bn being in default, according to data from the Experian Consumer Default Index.

High interest rates on loans among legacy banks are “simply because those who do pay are making up for those who don’t pay”, says Shapiro. “It’s a very risky place to run credit. We haven’t got a culture yet of taking risk in this country — that’s why our banks are doing so well.”

Jonker says TymeBank has confidence in its loan underwriting, which its Retail Capital business has relied on for over a decade. The model has been “battle-tested . . . in the South African market, withstanding severe shocks such as the Covid lockdown”.

Its next objective, after shaking up South Africa’s cautious banking sector, is more expansion in the Philippines, given its young, fast-growing population. In 17 months, just over 3mn customers have signed up, making the lender the fastest-growing bank in the Philippines as of April.

“In the Philippines, about 70 per cent of the population is unbanked, so it’s one of those markets that is extremely fast growing, with a massive opportunity,” Jonker observes. The next big milestone would be to reach profitability in the Philippines, demonstrating that the model used in South Africa could be replicated in similar markets, he says.

Kooyman thinks it is possible: “In the Philippines, where they’ve done similar to what they’ve done in South Africa, they can learn from each other and cross-pollinate ideas.”