How SA's big banks plan to tackle digital newcomers
South African large banks say they are paying close attention to the new digital banks that have recently entered the market.
Market watchers believe 2019 will see the rise of digital banks, with the launch of TymeBank, Bank Zero and Discovery Bank.
Co-founded by former First National Bank (FNB) CEO Michael Jordaan and banking innovator Yatin Narsai, Bank Zero launched last year and is described as "a unique and fresh approach to banking without any legacy systems", and is expected to offer added control and transparency, as well as a fresh take on banking.
TymeBank, which bills itself as SA's first digital-only bank, wholly-owned by billionaire Patrice Motsepe's African Rainbow Capital, launched to the South African public in the second week of November.
During the same month, insurer Discovery unveiled what it describes as the "world's first behavioural bank", a fully digital bank that anyone with a smartphone can join, starting operation from March 2019.
ITWeb interviewed the incumbent banks (Absa, FNB and Nedbank), asking how they will take on the digital newcomers in the market. One of the big four banks, Standard Bank, could not be reached for comment by the time of publication.
"It has been a competitive market for some time, with all of the large banks vying for market share. We have known for some time that there will be new competitors, especially in the digital space, and we have been planning for this," says Absa.
"Last year, our retail and business banking team set out a new strategy with respect to growth and ambition. 'Digital' was at its core and this extends not only to new products and services but also to our efficiencies in areas such as our back-office processes."
Absa notes that although digital entrants seek to play in transactional banking, big banks can offer mortgages, vehicle and asset finance, and insurance alongside that, and in other aspects that are capital-intensive.
"We've also looked carefully at our rewards programme. We now offer a very rich rewards programme to our customer base; probably one of the best in the market.
"We've also looked extensively at our holistic offering to customers and brought in new talent to improve our offerings. To this end, we were pleased to be first to launch chat banking on WhatsApp last year. We also launched Samsung Pay as well as Timiza in Kenya."
Absa believes the real key to success lies in providing excellent service, and this is a big focus area for improvement for the bank.
Fred Swanepoel, Nedbank's chief information officer, says the bank welcomes more competition in the market.
"It is healthy for our business and is good for South Africans in general. Our focus with or without competition is to deliver excellent service and value to our clients."
Swanepoel notes that this is not the first time Nedbank is facing new competitors. "Our business has survived and thrived in the face of existing and new competition. We are, of course, paying close attention to the new banks that are entering the market. Their initiatives will embolden us to continue to enhance our own offerings from a product, experience and delivery perspective."
He points out that digital innovations are not by themselves a threat or opportunity, but Nedbank is interested in how it can leverage innovations to deliver value for its customers and SA.
Swanepoel adds Nedbank's digitisation process has already allowed it to deliver services faster and at lower cost to clients.
"One of the key objectives of our digital strategy is to ensure Nedbank leads the rest of the market, being competitive and gaining market share as a result. We can do that by using technology to enhance the client experience and improve our efficiency and service levels to deliver to clients."
Benefit of doubt
Christoph Nieuwoudt, CEO of FNB Consumer Segment, is of the view that while new banks are likely to have the benefit of doubt until they are fully operational, incumbent banks have the network effect of huge data sets and ability to interconnect customers.
He adds that incumbents have established brands and reputation to leverage. "This is by no means a scale that new entities can replicate overnight, regardless of the perception of lower barriers to entry by being digital.
"Broadly, if we look at the South African consumer market, our country is unique with real structural and economic nuances that existing banks have been navigating for years, with relative success."
For instance, he explains that while the current top five banks have compelling digital offerings, most of their sales, of especially transactional accounts, investments solutions and insurance products, are still heavily skewed towards assisted service channels, mainly branches and a private banking suite.
"Digital, of course, plays a very important role in providing access to banking services and remains the most cost-effective and safer channel for customers in the long-term. Hence, new banks will believe they have a chance to scale much faster as they don't have legacy infrastructure and other systems.
"In our view, there's still a need for a multi-channel strategy for long-term viability. While infrastructure carries a relatively heavy cost base, the smart use of such infrastructure can become a competitive-edge for a bank and FNB is a case in point.
"We are increasingly seeing the impact of smart deployment of infrastructure and other resources on our growing base, many of whom regularly use our branches for assisted or self-service for a range of services. We explain this through the adage: 'Digital when you want it, but human when you need it.' In this context, the role of front-line staff evolves from performing transactions for customers, to helping and advising customers on money management."