Capitec under fire for restricting crypto payments amid cost controversy

Oluwatosin Racheal Alabi -

Key Points

  • Capitec, co-founded by Michiel Le Roux, is facing backlash for restricting EFTs to crypto exchanges, citing fraud prevention.
  • The bank urges customers to use its more expensive Capitec Pay app, which raises transaction costs by 1% to 1.4%.
  • Critics argue the move is a revenue-boosting strategy, while competitors like TymeBank position themselves as more crypto-friendly.

Capitec Bank, co-founded by billionaire Michiel Le Roux, is facing widespread backlash from South Africa’s cryptocurrency community following the introduction of new restrictions on electronic fund transfers (EFTs) to cryptocurrency exchanges. The bank defends its actions, citing a need to protect customers from increasing risks of fraud. However, Capitec is also urging clients to switch to its Capitec Pay app for crypto transactions, a move that has drawn sharp criticism over its higher transaction fees.

While the bank claims the restrictions are in customers' best interests, many in the crypto industry view them as a business-driven maneuver that raises concerns about both consumer rights and market competition.

Costly changes anger crypto users

Crypto enthusiasts and financial analysts have reacted with frustration, highlighting that Capitec Pay charges fees ranging from 1% to 1.4% of each transaction—much higher than the more affordable EFT option, which has been restricted. For frequent traders and investors, these costs can quickly add up, making Capitec a less appealing option for crypto transactions.

Farzam Ehsani, CEO of crypto exchange VALR, acknowledged that fraud prevention is a legitimate concern, but he emphasized that Capitec’s new restrictions have disproportionately increased costs for everyday customers. Many argue that while fraud protection is necessary, the restrictions are simply an opportunity for the bank to earn more from crypto users.

The discontent has not gone unnoticed, with competing banks like TymeBank stepping in to position themselves as more crypto-friendly. TymeBank’s openness to cryptocurrency transactions has added pressure on Capitec to reconsider its new policies as customers explore more affordable alternatives.

Fraud concerns or revenue strategy?

Capitec maintains that its decision is primarily driven by concerns over rising fraud risks in the crypto space. The bank points out that online fraud is on the rise globally and that these restrictions are part of a broader effort to shield its customers from potential losses. However, critics have countered this narrative by stating that most crypto-related fraud occurs within the traditional banking system, where phishing scams and unauthorized withdrawals are more prevalent, rather than through regulated exchanges.

Capitec’s reputation, built on providing affordable banking services to South Africans, is now under scrutiny. The bank, known for its disruptive low-cost banking model, risks alienating a growing base of tech-savvy and crypto-literate customers. Some industry insiders speculate that Capitec's new policy is a strategic move aimed at tapping into additional revenue streams from the burgeoning crypto market.

Exchanges like Luno and AltCoinTrader, major players in South Africa's crypto ecosystem, have quickly adapted to the change by integrating Capitec Pay to continue serving their clients. However, many users are seeking alternatives, exploring other banking options to avoid the higher fees associated with Capitec Pay. For smaller traders or those making regular transactions, these additional costs represent a significant burden.

Shifting dynamics in the banking and crypto sector

Capitec's move comes at a time when South African banks are navigating the complex and fast-evolving relationship between traditional financial services and the rapidly growing crypto market. While the South African Reserve Bank (SARB) has taken a cautious approach to regulating cryptocurrencies, financial institutions like Capitec are having to balance security concerns with customer demands for greater financial freedom.

The broader crypto community sees Capitec's decision as a potential step backward, especially given the global push for crypto adoption and innovation in fintech. As more individuals and businesses integrate crypto into their daily operations, banks face the challenge of adapting their services without alienating customers or stifling technological progress.

Capitec now finds itself at a crossroads. On the one hand, its fraud prevention efforts could bolster security for a customer base concerned about the risks of digital financial transactions. On the other hand, its apparent reluctance to embrace cheaper, more accessible payment methods for crypto users may leave it vulnerable to losing market share to more crypto-friendly competitors.

What lies ahead for Capitec?

The coming months will be critical for Capitec as the backlash from crypto users continues to grow. The bank will need to strike a balance between protecting its customers from legitimate security threats and addressing the concerns of those who feel unfairly penalized by the new restrictions.

As competing banks begin to offer more crypto-friendly solutions, Capitec’s customer base could shift toward those alternatives unless the bank revisits its fee structure or offers clearer, more convincing justifications for its approach. If Capitec hopes to maintain its position as a leader in South African banking, it may need to rethink its strategy to remain competitive in a rapidly changing financial landscape.