South Africa’s Absa has acquired a 50 percent
plus one share stake in Woolworths Financial Services (WFS) as it
looks to establish a “consumer finance house” approach to consumer
banking. The bank, of which Barclays UK holds a 56 percent stake,
will pay around ZAR875 million ($109.5 million) if the deal
receives regulatory approval. It is also subject to a restructure
of WFS to include all existing financial service products at
Woolworths, a major food and clothing retailer.
plus one share stake in Woolworths Financial Services (WFS) as it
looks to establish a “consumer finance house” approach to consumer
banking. The bank, of which Barclays UK holds a 56 percent stake,
will pay around ZAR875 million ($109.5 million) if the deal
receives regulatory approval. It is also subject to a restructure
of WFS to include all existing financial service products at
Woolworths, a major food and clothing retailer.
The deal gives Absa the ability to distribute
cards at the point of purchase and increase its share of the
consumer finance market. It should be able to generate extra
revenue in the business by better using information on spending
habits and upselling store card customers on to credit cards. It
will also benefit from Barclays’ experience of the joint venture
model in the UK.
cards at the point of purchase and increase its share of the
consumer finance market. It should be able to generate extra
revenue in the business by better using information on spending
habits and upselling store card customers on to credit cards. It
will also benefit from Barclays’ experience of the joint venture
model in the UK.
As of December 2007, Woolworths had financial
services assets of ZAR5.559 billion. The WFS business, which has a
credit account base of 1.6 million customers, includes store cards,
personal loans and Visa credit cards, as well as insurance
products. Absa already has plans to launch new financial products
through Woolworths, including a premium Barclaycard offering, which
it has a licence agreement to issue through its parent company,
Barclays.
services assets of ZAR5.559 billion. The WFS business, which has a
credit account base of 1.6 million customers, includes store cards,
personal loans and Visa credit cards, as well as insurance
products. Absa already has plans to launch new financial products
through Woolworths, including a premium Barclaycard offering, which
it has a licence agreement to issue through its parent company,
Barclays.
Absa will provide the business with specialist
financial services in an attempt to speed up growth and consider
new funding arrangements. Its capabilities in funding, leading
credit risk and customer value management, as well as its expertise
in enhancing, were a factor in Woolworth’s decision to sell the
financial services unit. The deal is expected to be completed in
the third quarter of 2008.
financial services in an attempt to speed up growth and consider
new funding arrangements. Its capabilities in funding, leading
credit risk and customer value management, as well as its expertise
in enhancing, were a factor in Woolworth’s decision to sell the
financial services unit. The deal is expected to be completed in
the third quarter of 2008.
Doug Walker, Absa’s managing executive, head of
cards, told CI: “We believe that this model, i.e. transactions
between banks and retailers, will continue principally as a result
of the increasing complexity in the regulatory environment and the
level of expertise and skills required to successfully run a
financial services business.”
cards, told CI: “We believe that this model, i.e. transactions
between banks and retailers, will continue principally as a result
of the increasing complexity in the regulatory environment and the
level of expertise and skills required to successfully run a
financial services business.”
“Banks are generally better placed to fulfil
this role. This model allows retailers and banks to focus on their
respective competencies. The banks further benefit from increased
access to existing and new customers through the retail store
distribution channels.”
this role. This model allows retailers and banks to focus on their
respective competencies. The banks further benefit from increased
access to existing and new customers through the retail store
distribution channels.”
Absa has been looking into establishing joint
ventures with retailers for some time, a strategy most successfully
demonstrated by BNP Paribas’ consumer finance subsidiary, Cetelem.
It is an approach that is increasingly gaining currency in South
Africa. Standard Bank partnered with Edcon, one of South Africa’s
leading retailers, in 2005 and also works with another retailer,
Foschini Group.
ventures with retailers for some time, a strategy most successfully
demonstrated by BNP Paribas’ consumer finance subsidiary, Cetelem.
It is an approach that is increasingly gaining currency in South
Africa. Standard Bank partnered with Edcon, one of South Africa’s
leading retailers, in 2005 and also works with another retailer,
Foschini Group.
Magnus Matthewson, senior analyst at
stockbrokers Hitchens, Harrison and Co, said: “I would say Absa has
a competitive edge over other South African banks, which have been
operating in a more insular market, because it’s owned by Barclays.
It will have the experience of Barclaycard, which is important
coming into something like this. Barclays have done a lot of white
labelling in the past.”
stockbrokers Hitchens, Harrison and Co, said: “I would say Absa has
a competitive edge over other South African banks, which have been
operating in a more insular market, because it’s owned by Barclays.
It will have the experience of Barclaycard, which is important
coming into something like this. Barclays have done a lot of white
labelling in the past.”
“I think this is something we may see Absa do
more of. The joint venture model has been common in the UK for some
time; HSBC worked with Marks & Spencer, RBS with Tesco and
Barclays with Nectar, the loyalty scheme. It’s a business model
that has been developed and I would be surprised that having the
skill set in one market, Barclays would not look to transfer it to
another.”
more of. The joint venture model has been common in the UK for some
time; HSBC worked with Marks & Spencer, RBS with Tesco and
Barclays with Nectar, the loyalty scheme. It’s a business model
that has been developed and I would be surprised that having the
skill set in one market, Barclays would not look to transfer it to
another.”
African Bank’s takeover of furniture retailer
Ellerines is another example of the shift towards bank/retailer
partnerships, although it differs from the other deals because the
bank acquired full control of the business.
Ellerines is another example of the shift towards bank/retailer
partnerships, although it differs from the other deals because the
bank acquired full control of the business.
CI sources in South Africa consider the move a
major development – and top banks in the country and are understood
to be monitoring the move closely. They are interested to see
whether it is possible for a bank and a retailer to team up
effectively, and whether there is value in the sum of the
parts.
major development – and top banks in the country and are understood
to be monitoring the move closely. They are interested to see
whether it is possible for a bank and a retailer to team up
effectively, and whether there is value in the sum of the
parts.
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