Fintech Startups Face Challenges from Established Banks Like Capitec

Capitec, now the largest bank in South Africa, is significantly impacting the fintech startup landscape, according to a report by Daily Maverick. Chris Zietsman, Capitec's head of payments, emphasized that operating a margin business is not sustainable, echoing Jeff Bezos' philosophy.

Capitec has expanded beyond traditional banking into hardware manufacturing, mobile network operations, and cybersecurity, leveraging their in-house development capabilities. Their innovative approach includes custom-built self-service kiosks using Raspberry Pis, which has reduced hardware costs by over 50%, as stated by Blessing Mgaga, Capitec's executive for branch and client experience.

Capitec's merchant services have skyrocketed from 30,000 to 95,000 in just one year, with Zietsman declaring that payments are no longer a product but rather a feature embedded within broader financial services.

This strategy poses a significant threat to many payment gateways and aggregators that rely on higher margins to thrive. Capitec is also developing variable recurring payments tailored for services like Netflix and has integrated seamless payment options for international retailers like Shein.

The bank is building advanced fraud detection systems internally, preventing R300 million in fraud this year alone, as noted by Nicholas Harris, head of financial crime at Capitec. Furthermore, Capitec is innovating in identity verification, allowing clients to complete Smart ID applications in under five minutes at their self-service terminals.

The overarching strategy showcases Capitec's intent to create a super-app ecosystem, where they control hardware, software, payment rails, and security layers, effectively sidelining startups. Zietsman indicated that while Capitec is open to collaboration through APIs, this open banking model operates entirely on Capitec's terms.

For fintech entrepreneurs, this landscape demands a pivot away from building businesses based on features that can be quickly replicated by Capitec. According to Graham Lee, Capitec's CEO, the focus is on innovation with purpose, aiming for simplicity and affordability for clients while consolidating their market power.

As Capitec looks towards global expansion in the next five to ten years, the implications for the fintech ecosystem could reshape how banks and startups interact moving forward.