Shoprite has steadily developed its banking capabilities in recent years, with it looking to dominate money transfers between clients before mounting a full challenge to South Africa’s established banks.

The company has long had a presence in the financial services sector, with its Money Market account launched in 1998 and evolving into a fully-fledged bank account in 2020.

Shoprite claims this is the most affordable entry-level bank account in South Africa, with the offering having attracted four million customers since 2020.

The bank account is effectively a digital version of the services offered by Shoprite’s Money Market counter, which is available in most of the company’s stores, including Checkers outlets.

This is a financial services hub where customers can pay bills, receive grant payments, send vouchers and cash, and buy airtime, data, and prepaid electricity.

More recently, Shoprite has begun offering funeral and pet insurance at this counter through a partnership with OUTsurance.

A major driver of the growth of Shoprite’s financial services business has been money transfers between individuals through its bank accounts and Money Market counters.

Shoprite head of financial services Jean Olivier explained that the biggest challenge for many of the company’s consumers is the safe transfer of money to family or friends within South Africa or across borders.

Many of these customers do not have traditional bank accounts, making this extremely difficult and risky through current avenues.

Olivier explained that the transfer of money between individuals is the primary use case of Money Market counters and bank accounts.

This makes a powerful avenue to attract unbanked or underbanked South Africans into Shoprite’s financial services network and build a client base that can rival traditional banks.

With over 2,800 retail stores in South Africa that serve as send and receive points for cash, Shoprite also has an immense physical footprint to distribute financial services products.

Olivier explained that Shoprite’s store footprint also means that in many small, remote communities, the company’s outlets are often the only safe payout points for people who rely on money sent by family working elsewhere.

These transfers, from account-to-account or counter-to-counter, form the backbone of Shoprite’s financial services offering and are the base from which it plans to push into banking.

Shoprite has long held its banking cards close to its chest, with it only recently outlining plans to compete directly in the sector and leverage its immense distribution and customer base.

“You are going to see us enter the banking world. We already have a banking account, which we have not started marketing,” Shoprite CEO Pieter Engelbrecht said following the company’s latest results.

“The account will be the only zero-cost bank account in the country. We are definitely going to enter the financial services area more aggressively.”

Financial services are a key part of Shoprite’s future growth as it looks to unlock alternative revenue outside of typical retail sales.

This is potentially highly lucrative for the retailer, with fintechs and banks enjoying significantly higher margins than traditional retailers.

It will also give Shoprite access to the spending data of its clients, which can be used to enhance product offerings and tailor services to the client base.

“We have been building and rolling out low-cost digital and financial services, focusing on the unbanked and under-banked population,” Shoprite said in its latest integrated annual report.

“Through these services, we have become a one-stop shop for customers who can conveniently undertake various financial transactions, both in-store and online.”

Shoprite said the main income generated for the company from these services is in the form of commissions, with it also seeing benefits in terms of increased footfall and brand loyalty.

This secondary benefit has been driven by the retailer making transactions within the Shoprite group of companies free.

Its Money Market account, launched in 2020, is a fully-fledged bank account that charges no monthly fees and has zero transaction fees. Shoprite only charges a flat R5 fee for cash withdrawals.

The only such offering from a retailer in South Africa, it has grown immensely to provide services to four million banked and unbanked customers.

Over the past financial year, the client base using the Money Market account grew by 4.1%, with increased activity resulting in over 653,231 transactions using the account per month.

From September 2023, grant beneficiaries in South Africa have been able to switch their payments to the account free of charge.

The retailer has steadily expanded its offering to include funeral cover and pet insurance, slowly creating a substantial financial services business.

“We already see a lot of grant recipients using that account. That part of the business is still small and in its infancy,” Engelbrecht said.

Engelbrecht has said it is not looking to challenge Capitec’s dominance, but may partner with the bank in the future, as there is a large overlap of customers between the two companies. (Daily Investor, but headline rejigged)