The banking industry has been a concentrated sector for a while with the five major banks representing approximately 85% of total banking assets, writes PHELELANI MPANZA
Despite the solid set of results for the end of June 2018, the major banks will definitely be impacted by movements within the industry as well as the wider economy. A more competitive environment between the banks and the continued transition of customers to digital channels became increasingly visible on the combined major banks’ results, in the form of lower transactional fees and commissions in retail banking, competitive pressures in deposit pricing and depressed margins in the trading businesses.
Traditionally, South Africa’s banking sector has been dominated by the ‘big five’ banks (First National Bank, Standard Bank, ABSA, Nedbank and recently Capitec), which somewhat tended to stifle competition as there are relatively high barriers to entry in the banking sector.
The banking industry has been a concentrated sector for a while with the five major banks representing approximately 85% of total banking assets. This competitive state has largely been unhindered however will soon feel some competitive rivalry through the entrance of new disruptors in the market (Discovery Bank, TymeDigital Bank, and Bank Zero).
These new disruptors in the sector are expected to stiff competition and transform traditional banking with innovative products offering through technology. Access to capital to set up banking infrastructure has become irrelevant excuses, improvements in technology or rather financial technology (fintech) brought down the barriers to entry and most of the new banks will use the digital era (banking without branches) for their operations. The new banks are targeting consumers across the market from the high-end to the unbanked.
The Discovery Bank, which is expected to open to the public in March 2019, is built on the fundamentals of its Vitality incentive-and-rewards programme. As part of the launch next year, Discovery intends to allocate 10% of bank shares to black bank depositors. Discovery Bank pivots on behavioural economics – it has used the Vitality programme to cultivate key learnings of what drives human behaviour.
Discovery’s medical aid with the Vitality programme has shown that by linking rewards to improving health, they have altered how members behave. This model of reward-based banking is an innovation similar to FNB’s ebucks system which not only rewards consumption but also consumer behaviour.
TymeBank which is owned by Patrice Motsepe through his investment holding company African Rainbow Capital is a new kind of bank that’s digitally smart. The Bank is positioned as a digital-first bank and promises no monthly account fees and competitive interest rates. The bank has signed up 1,800 clients since its soft launch last week.
Bank Zero is the first ever South African only application –driven bank. In essence, the Bank services will only be accessible to business and individual customers with smartphones. In an app-driven bank like Bank Zero, all functionality is designed with the app in mind. Interestingly, Bank Zero is a mutual bank, which means that its customers can become shareholders. Currently, Bank Zero is 45% black-owned and 20% women-owned.
Just over an above, the new entrants in the market, some banks have repackaged their offering. Capitec Bank, reveal its plans to venture into business banking, and African Bank is planning to launch transactional banking products to compete with the major banks. Furthermore, the Post Bank is planning to extend its services to become a full-service bank that can accept deposits.
With all these developments in the banking sector and the looming forth industrial revolution platforms fintech innovations, the competition in the banking is set to intensify at a rapid pace, watch the space.
Mpanza is a Director of Rethink Business Group and Ph.D. candidate at the University of the Witwatersrand, School of Economics and Business Sciences. He also served as the Finance Minister in the Model BRICS Summit 2016.