The rise of financial technology (fintech) has forced South Africa’s banks and insurance companies to look at their value propositions, to meet the demands of changing consumer behaviour.
A study by professional services firm PricewaterhouseCoopers (PwC) found that South African banks were continually reinventing themselves. Digital solutions, low-cost operating models and supply-chain integration have moved to the top of the banks’ business agendas, with non-traditional players pursuing various aspects of these trends, enabling them to provide their customers with in-house banking solutions.
Jorge Camarate, a partner in PwC’s financial services division, says the ability to launch offerings easily and quickly strengthens the need for the established banks to review the speed at which they launch products.
“The evolution of technology and increased customer expectations, combined with the emergence of disruptive competitors, are placing significant pressure on the banking industry to implement new strategies to remain relevant in the future,” Camarate says.
PwC says the following three trends could have an impact the banking landscape:
• The emergence of digital solutions with lower-cost models launched by adjacent financial services players – for example, Discovery Bank, which will be launched next year.
• The emergence of sector- and industry-specific banks, closely integrated with broader supply chains, launched by non-financial services players – for example, the South African Post Office.
• The ongoing transformation of the traditional banks to address changing customer, regulatory and technology needs.
Currently, Investec is the only bank in South Africa with a principally digital (branchless) offering, but it will be joined by Discovery Bank and potentially Tyme in 2018.
According to the Banking Association of South Africa, the South African banking sector currently comprises 17 registered banks, two mutual banks, 14 local branches of foreign banks, two co-operative banks and 43 foreign banks with approved local representative offices.
In recent years, life assurers have increasingly shifted towards banking. Examples include Discovery’s credit card facility, Old Mutual’s Money Account that doubles as a transaction and savings account, and MMI’s partnership with African Bank to offer needs-based credit to its customers.
PwC says at a time when the insurance industry is grappling with changing customer behaviour, technological solutions and business models, movements into new markets deliver noteworthy benefits for both consumers and insurance companies.
According to the 2015/16 World Economic Forum Global Competitiveness Survey, South Africa was ranked eighth out of 140 countries in financial sector development.
IMPACT OF DISRUPTION
The Centre of Excellence in Financial Services this month released a report that investigated the impact of digital disruption in South Africa’s financial services sector. It provides an analysis of fintech and digital adoption across core banking functions, investigates how financial institutions are responding to this, and considers the impact on regulations.
Mark Brits, the director of centre, says there is a sense that we are becoming more open to fintech innovation, but only gradually.
“In South Africa, the Fourth Industrial Revolution is seeing incumbent banks leveraging new technology to make things fast, smarter and less expensive for their customers, to enhance their existing offering,” Brits says.
The Centre of Excellence identified the following changes in these key banking functions:
• Payments. The report found that the development of smartphone payments through digital wallets and mobile banking apps was allowing customers to store card details digitally and transact using their phones.
• Deposits and lending. The report found that an alternative lending landscape was emerging in the credit market that provides ways of assessing credit and securing funding from lending products outside the banking system.
• Capital raising. Retail trading platforms are providing algorithmic trading capabilities, and “copy trading” allows less experienced investors automatically to replicate the trades of more experienced investors.
• Investment management. Robo-advisers are automating the guiding investors’ decisions by calculating risk profiles and providing a formulaic financial plan or investment portfolio.
ASSURERS 'BEHIND THE CURVE'
The South African life assurance industry risks suffering the same fate as the dinosaur if it does not rid itself of institutional complexity, says Michael Goemans, the chief executive of Investec Life.
“The potential for innovation in the South African life market is clear. While it hasn’t always been as client-centric as it could be, reduced complexity and increased levels of client personalisation, flexibility and technology will be what defines a more compelling proposition,” Goemans says.
Investec Life says change in the life assurance industry should be supported across the following three key areas:
• Simplification. Investec Life says its research shows that clients want less complex products, simpler ways to access products, and simpler ways to customise products to suit their individual needs across all life stages, at a reasonable cost.
• Personalisation. Investec Life says the sector remains focused on legacy models and products that do not meet the ever-evolving demands of client-centricity. Goemans says clients want solutions that can be integrated into their overall financial portfolio, and that give them greater choice and flexibility.
• Integration. Investec Life says new technology, combined with new processes, enables clients to get what they want, how they want it and when they want it. Furthermore, technology will be the key enabler of a truly great client experience.
BENEFITS OF DIGITAL INNOVATION
David Ranch, a data analyst at consultancy firm AlixPartners, says fintech offers consumers the following benefits:
• The growth of robo-advice, which helps consumers to optimise their use of financial products. Experts anticipate that, over time, robo-advisers will enable consumers to become more financially savvy.
• Personal analytics. The data consumers have at their fingertips gives them greater insight into their finances.
• Price comparison. Giving customers access to machine-readable files of their transaction data facilitates straightforward comparisons and enables customers to make better-informed choices about where they can obtain the best value.