Shoprite banks on billions in profits

Supermarket giant Shoprite has serious banking ambitions. The group reckons that within a decade as much as half of its profits could come from its fledgling banking venture.

Shoprite’s new bank account will carry no deposit fees, a flat R5 withdrawal fee, and will pay no interest. This makes Shoprite the only South African retailer to operate a fully regulated bank. The Money Market Account already has basic features aimed at the mass market, and a full debit card option with broader functionality will be available within a year.

At present, customers make transactions using the group’s Xtra Savings loyalty card, which is free to use in Shoprite, Checkers and Usave stores. Soon, those accounts could be linked to debit cards that work beyond the group’s ecosystem, though with fees attached. It doesn’t offer features like PayShap (a digital payment to send and receive instant payments between participating banks) — but that might change.

The move isn’t unprecedented. Pep and Pick n Pay have made forays into banking and Shoprite itself first floated the idea 25 years ago, under then CEO Whitey Basson. At the time, the board chose to focus on groceries and general merchandise though it approved money transfers, gift cards and savings stamps — which became the foundation of its financial services arm.

Now, with banks retreating from physical branches and cash still entrenched in South Africa, Shoprite sees its stores as a natural bridge. The “bank where you shop” model is gaining ground worldwide as retailers provide convenience. Many are trusted consumer-facing brands — and they have insights into spending behaviour through loyalty cards, point-of-sale data and digital platforms.

“The cheapest way to deposit cash today is often at a retailer,” says Jean Olivier, Shoprite’s GM for financial services.

“Today the biggest irony is that everyone speaks of cash digitisation but if you have a look at how much it costs to turn physical cash into a digital currency it is ridiculous.”

 He says ATMs and bank branches are more expensive. “That’s why cash remains so prevalent in South Africa — it can be cheaper to hold than to digitise. For the mass market, bank branches are unaffordable to go and drop cash.”

Shoprite’s offering is sponsored by African Bank, which emerged from a troubled past under Reserve Bank oversight. “What we liked is that the Reserve Bank owns 50% of African Bank. That gave us and our board a lot of comfort,” Olivier says.

Shoprite had started the sponsorship journey with Grindrod Bank, which was bought out by African Bank in 2022.  Also, deposits up to R100,000 are insured, and most of their customers fall within that profile.

For now, the account functions as a low-cost, entry-level product taking in grants, wages and salaries, and customers withdraw most of the money — though increasingly they leave more behind and spend more in stores. “I think the reason for that is it’s a free account, so they’re not scared by banking fees.

“I think where previously retailers have got it wrong is they’ve taken the short cut. They wanted to come into banking but didn’t really want to take it seriously. That’s the difference between what other retailers are doing and what we’ve done. We believe we have a very good chance of making a success out of it compared to retailers in the past.”

Shoprite is confident it can build profitably on existing infrastructure, avoiding the high setup costs of traditional banks. Olivier refers to it as a “self-funding model” and says the product is already profitable.

“Most banks don’t want customers to come to physical branches because it increases the cost to serve. We love customers coming to stores because it increases the chances of them also buying groceries.”

The Shoprite Group has just over 4-million customers already using products from its financial services and it’s been a fairly low-key initiative without much above-the-line fanfare.  That “mass market” segment will be Shoprite’s priority over the next 12 to 24 months. The focus is on individuals earning R10,000 or less.

Credit cards aren’t on the table yet, but Olivier says this doesn’t mean they might not be in future.

Our targets are ambitious. We believe in the next 10 years we’ve got an opportunity to unlock at least 30%-50% of group earnings 

—  Jean Olivier

He says a typical individual in the lower mass market is someone who earns a wage or a grant and shops at Usave and Shoprite stores. Then there are the mass-market people who earn a regular income, sometimes supplemented with a grant.

CEO Pieter Engelbrecht revived the banking dream, pointing to Shoprite’s success in money transfers and its trusted brand, and put this to the board.

Part of what has changed is the group has heavyweight banking expertise on its board, including chair Wendy Lucas-Bull, former Absa chair (who’d held executive positions at Rand Merchant Bank and FirstRand), and Dawn Marole, who worked at African Bank and was on the board of The Development Bank. Graham Dempster was on the board of Nedbank and Eileen Wilton has been on the board of Sasfin Bank.

 The long-term target is for financial services to deliver 30%-50% of Shoprite’s earnings. The one condition from Engelbrecht, says Olivier, is to not copy the way other banks do it, but to do it “the Shoprite way”.  

“Our targets are ambitious. We believe in the next 10 years we’ve got an opportunity to unlock at least 30%-50% of group earnings,” he says, adding that this happens in other parts of the world. Olivier believes R3bn-R5bn is achievable, driven by transaction fees outside the group and interest on deposits.

Globally, retailers from Alibaba (though its Ant Group) to Mercado Libre (the largest e-commerce and fintech company in Latin America, referred to as “the Amazon of South America”) have moved aggressively into financial services, leveraging strong brands, data and daily customer touchpoints. Last year, eBay teamed up with Liberis to launch a revenue-based financing product through eBay Seller Capital. These retailers have availability of cash, ability to pay, recurring customer strong brand and a one-stop shop — as does Shoprite.

Olivier, who used to work at Mastercard and prior to that at Standard Bank and Barclays, says banks typically make 60%-80% of their earnings out of credit and make their remaining part of their earnings from transaction fees and value-added services.

The Shoprite Group’s Xtra Savings Rewards programme was recently named South Africa’s best retail loyalty programme, for the fifth year running. It has more than 33.7-million Xtra Savings Rewards customers.

“Will we be the bank of the future for the wealthy and affluent? No, we will not.  Will we be the bank of the future for the mass market and a part of the upper mass market? Absolutely. I think we’ve got a huge job to do there,” says Olivier.

Pep, through parent company Pepkor, first ventured into banking in 2005, when it partnered with Absa to launch Pep Bank — a low-cost transactional banking offering aimed at lower-income consumers. The offering struggled to gain traction and by 2006/2007 the Pep Bank brand was phased out, with Absa absorbing the customers under its own name.

Pepkor later returned to financial services with a different strategy, focusing on affordable credit, insurance and prepaid products — often delivered in partnership with banks rather than by running a bank itself.

Pick n Pay has taken a different route. Instead of creating a bank, it has forged partnerships with more than 11 banks including FNB, Absa, Standard Bank, Capitec and TymeBank. Through these tie-ups, customers can deposit cash, withdraw funds and make transfers at checkout points in more than 1,400 stores nationwide. This makes Pick n Pay one of the most accessible in-store banking networks in South Africa.