New banks take on the establishment
Last week, Discovery said Discovery Bank was scheduled to launch in March. “It’s going to be a proper bank with physical branches, call centres and a digital platform, but it will be mobile-led,” said Discovery chief executive Adrian Gore at the launch in Sandton. Discovery is not alone. TymeBank and a revamped African Bank are due to be opening soon.
Former FNB chief executive Michael Jordaan’s Bank Zero is scheduled to open next year as is the Young Women in Business Network (YWBN) bank. Postbank is due to launch about the same time as Discovery Bank.
“Our intention is to disrupt the market,” says TymeBank chief executive Sandile Shabalala.
“As is the case with any business, as soon as something different comes onto the market, the existing businesses must adapt. We wanted to offer customers something different that doesn’t come with all the legacy systems and the high fees - a product customers would embrace.” On Bank Zero’s website, Jordaan says Facebook, WhatsApp and Twitter are the new normal for societies, adding “Why shouldn’t banks also innovate in this era of wider connectedness?”
Independent analyst and long-time banking expert Chris Gilmour said banks were terrified by all the changes.
“They are putting on a brave face but it scares the living daylights out of them.”
Will the start-ups force banks to become more competitive? Will that translate into lower fees?
Banking on change
South Africans have been dissatisfied with the banking industry for some time.
The 2018 South African Customer Satisfaction Index (SAcsi) gave Capitec the highest consumer satisfaction score in banking for the fifth year in a row.
“All across the world, banks have demonstrated an exquisite inability to compete. They just don’t know their customers very well,” Gilmour said.
Nedbank analyst Jones Gondo said the race would mostly be for the slickest digital offering, to compete with innovators such as Bank Zero and TymeBank.
“They’re not sitting lax. They’ve all invested quite heavily in tech, so the real competition will be a race to the best digital experience rather than just the lowest fees or more rewards points.
“Young people are the majority in the country and that kind of offering will matter to them.”
Will it mean better prices for consumers? Analysts seem to think so.
“Yes, it will affect fees,” Gondo said. “For any financial institution, new entrants are the biggest threat and potential disruptors. It will affect fees because we have such a poor savings culture, so it’s not like any banks are sitting on a huge amount of deposits.
“You need to be careful and look at what really matters to people - and what matters to people is low transaction costs and low monthly fees.
“Banks of the future can bring these fees right down with their in-app digital solutions.”
Avior Capital analyst Warwick Bam said cost-savings would depend on certain factors.
“For example, with Discovery Bank, it depends on the savings pull Discovery or the other banks end up giving, if they offer the best fixed deposit rate and such. But since Discovery will not reveal its fee structure yet, we just don’t know.”
Fellow Avior analyst Harry Botha disagreed.
“You won’t see fees changing, at least at first, but you will see loyalty programmes change. Banks will try to make their loyalty programmes more in line with Discovery Bank’s shared value model.”
Time is on the old guard’s side for now, it seems.
“There is a market structure that exists in banks where the top five dominate,” Gondo said.
“These guys have established market dominance, it’s not the most competitive sector, and it’s regulated to be that way. And so, with new entrants, it typically takes time.”
Gilmour said: “You would think that all this would be enough for a wake-up call for the banks, but they haven’t changed yet.”
Take Capitec for example. In 2016, it announced it had a 25% market share among people earning below R10000 a month and 11% among those earning more than that. That seemed almost unimaginable when it launched in 2001.
And with the likes of businessman Patrice Motsepe and Michael Jordaan behind the new banks, there’s nothing to suggest that they won’t make a similar dent.
Bank on change in the form of slicker in-app service from your bank and, eventually, lower fees.
Or join the new kids on the block now and see what happens.