Auditing and consulting firm PwC sums it up as the birth of "a marketplace without boundaries": South Africa’s retail banking industry was shaken like never before in 2019.
Discovery Bank and TymeBank opened their doors to much fanfare in March and April this year. Discovery Bank already had 50 000 people signed up to become its customers, way before they even knew what its offering would look like. The group’s 2019 integrated report, however, shows that by September 2019, the bank only had 22 000 clients who collectively had 50 000 active accounts.
TymeBank which started from scratch, with no client base, managed to attract over a million customers. Roughly 40% of them transact on a regular basis.
Then came African Bank, launching its shareable MyWorld account in May. Sasfin, the small specialist bank that predominantly serves business owners, also entered the consumer banking segment when it partnered with Hello Group to transform Hello Paisa from a money remitting business to a bank.
Non-banking players, from insurers who have partnered with the likes of RCS and DirectAxis to lend to their client bases, to those who have teamed up with niche players like Grobank to receive deposits, are also intensifying competition for consumers' money.
And then there are retailers, mobile network operators and new fintech payment providers, who have made sure the unbanked market will cope well without a bank account.
Nedbank CEO, Mike Brown, warned earlier this year that if traditional retail banks don’t boost their digital capabilities, these disruptors will capture more of the banking value chain. Of course, most incumbent banks have reacted, launching new accounts and many digital firsts.
But are 'disruptors' changing anything?
It’s still early days for new competitors to change the composition of SA’s retail banking sector in terms of assets and customer numbers. Prudential Authority’s latest annual report shows that Standard Bank, FirstRand, Absa, Nedbank and Investec still dominate the sector in terms of assets, and when it comes to customer numbers, Capitec remains the biggest.
PwC, which published a report analysing performance of local banks on Wednesday December 18, says in the first six months of 2019, new entrants have changed the operating landscape, and the changes we’ve seen so far are an indication of more fierce competition ahead. The auditing firm says increased competition has shifted banks' thinking, and most now focus on "customer-first" strategies when designing products.
"This context of increased competitiveness in the domestic banking market represents exciting opportunities for South African customer, who stands to benefit from ongoing customised and fit-for-purpose banking," said PwC in its analysis.
The PwC’s observations echo those of Solidarity, which published its annual bank charges report earlier in December. Solidarity’s report also showed that new competition has helped to lower banking charges, especially on entry-level accounts. But it also forced banks to provide more value across their retail offerings.
Shifting competition gears
While lowering fees dominated banks’ competition strategies in the past year – Nedbank, FNB, Standard Bank and Capitec slashed fees on some of their offerings – the value-adds Solidarity is talking about, and tailor-made banking, will likely to be the focus going forward.
Most of the incumbent banks have earmarked billions of rands to improve their digital offering. For instance, Nedbank, the only one to publicly put a number to it, said it would be spending R2bn per annum for the next few years.
African Bank said it is an army of 29 data analysts who were being trained at its Cape Town academy in 2019 will join the business in 2020 to help it achieve its ambition of offering the best digital experience.
TymeBank is incrementally adding new functions to its digital accounts which will allow it to track from consumers’ shopping baskets if they’ve had life changing events – think of someone who’s suddenly buying nappies or chlorine every month when they never used to.
It’s probably safe to say that even those who have played their cards close to their chests have something up their sleeves too. Bottom line; banking will be an industry to watch.