Pros and cons of greater banking competition
The recent PwC analysis of South Africa’s major banks following their results for the reporting period to June 30 shows increased competition has “manifested” in lower fees and commissions in retail banking.
“The competitive pressures are set to increase in the next few months, as the market anticipates the launch of new entrants and wider product offerings from existing banks,” says PwC in its report.
The new entrants include TymeDigital, Bank Zero and Postbank, who are drawing closer to their public launches, having obtained banking licence approvals.
African Bank - which spun out of African Bank Investments (Abil) - also announced its intentions to move further into the transactional banking space.
Discovery Bank is set to launch following its acquisition of FirstRand’s interest in the Discovery Card loan book.
A non-banking player, Old Mutual, has a “growing interest” in the banking market and has highlighted the growth it has achieved in the transactional accounts space.
Quinton Pienaar, head of customer engagement at PwC, says the most important issue when people are choosing a financial service provider is trust.
This trust entails authenticity (will they do what they say they will do?); empathy (will they care about the experience they offer and the outcomes they deliver?); and communication (will they communicate clearly so you know what they expect from you and what you can expect from them?).
Wildu du Plessis, head of banking and finance at Baker McKenzie, says competition is good for consumers.
“The more entrants in the market, the more choice there is for consumers. The downside of having more options, however, is that it means consumers could potentially choose a business that is not a responsible player.”
He refers to the dramatic collapse of VBS Mutual Bank (originally Venda Building Society).
“Consumers assume that banks that are allowed to operate in South Africa are properly regulated and capitalised, but there is still a chance that the bank could be undergoing serious problems.”
He refers to Abil, which was placed in curatorship, and Saambou Bank, which closed its doors a few years ago.
Du Plessis says there is a strict regulatory framework in which banks must operate.
“As such, consumers must ensure they are picking a player that is properly regulated and licensed.
“However, they also have the responsibility to ensure they choose a player with a proven track record as an honest and ethical player in the financial services sector,” he says.
Kerin Wood, associate director at PwC, says the introduction of the Financial Sector Regulation Act, which was signed into law in August this year, ushers in a new era for financial services regulation in South Africa.
It adopts the so-called twin peaks model, aimed at creating a stable financial system (the responsibility of the Prudential Authority) and strengthening the regulatory approach to consumer protection and market conduct (the responsibility of the Financial Sector Conduct Authority).
“The new framework is intended to impact the industry positively through heightened transparency and greater recourse for consumers in the event of unfair treatment, with banks being held to account for delivery on certain outcomes for the consumer,” says Wood.
PwC says in its report that while resolving key policy issues remains a potential obstacle to fixed investment, business confidence and overall economic growth, the banks appear to have an appetite to grow “judiciously, while being mindful of competitive pressures”.
PwC’s analysts conclude that there are, both locally and globally, a range of economic, competitive and wider social challenges that lie ahead which may directly impact the banking industry.
However, they maintain that leading banks will continue to focus on simplifying operating models and “becoming more deeply connected to the customer and the community”.