More bank for your buck

Four new banks are expected to be launched in South Africa in 2018 – TymeDigital, Discovery Bank, Bank Zero and the new Postbank – and all are expected to be operational by this time next year. 

Nobody is expecting these new upstarts to shoot out the lights in 2018; attracting clients in the banking sector where customer inertia is a huge factor will be tough. 

However, the success of Capitec, which has grown rapidly since its launch in 2001 to become the country’s second-largest bank by customer numbers, has already shown consumers that greater competition can result in cheaper and better services. 

Traditionally, competition in the banking sector has suffered due to the high barriers to entry, such as the costs involved in rolling out branch and ATM infrastructure and the large amounts of capital required to secure a licence, says Helen Kean, senior economist at Econex. 

The digital revolution has turned all of this on its head, with technology reducing the impact of these barriers to entry.

The adoption of mobile money, for example, has reduced the reliance on cash and the roll-out of expensive ATM infrastructure and is a “stepping stone for those developing innovative banking products”, economists Trudi Makhaya and Nicholas Nhundu wrote in a 2016 policy brief for the Centre for Competition, Regulation and Economic Development (CCRED).

Experiences from other countries suggest that mobile financial services and agency-based or branch-less banking has the potential to deliver services to lower income segments at much lower costs, they wrote.

Value proposition

The good news for consumers, says Kean, is that the four new banks will bring the cost of banking down. 

In addition, an analysis of social media, as published in the 2017 South African Banking Sentiment Index, shows that people are not ecstatic about the service they receive from their banks, which indicates that there is scope for new entrants to lure customers with an attractive value proposition.

While customer satisfaction is one dynamic in the local market, the value proposition of the new entrants is going to be a key driver of take-up. 

Capitec has already shown that a simple, affordable product can find traction in the South African banking market.

However, Shingie Chisoro, an economist at the CCRED, who is currently researching competition issues in the South African banking sector, warns that it will take a while for the new banks to be able to compete.

The 2016 CCRED policy brief shows that Capitec took a number of years to make an impact on competition in the sector, with branches actually declining between 2003 and 2005. 

“Only from around 2008 did Capitec’s growth in terms of branches and clients accelerate significantly,” states the brief.

It also quantifies the impact of Capitec’s entry into the market, measuring the benefits in three categories: customers who now have access to banking; lower bank charges for customers who switch from the incumbents to Capitec; and lower prices for incumbents’ clients as their banks react to Capitec.

The brief suggests that in the last two categories, R20bn was saved by consumers in 2014 as a direct result of Capitec’s entrance into the market.

From a consumer perspective, Kean says the banks in South Africa have historically provided very little information about their banking services, which makes it difficult for customers to make an informed choice. 

This is changing, she says, and consumers have more information with which to make smarter financial decisions.

While Kean believes the new entrants will only see strong take-up of their services in years five to 10 after launching, she maintains that they will be able to steal market share away from all the big banks.

“If someone is unhappy with their bank, they now have new alternatives to look at,” she says.

TymeDigital

TymeDigital, which was originally spun out of a Deloitte consulting project for mobile operator MTN, has been active in the money transfer space, and already has over 200 000 customers serviced through a long-term partnership with Pick n Pay and Boxer stores.

Bought by the Commonwealth Bank of Australia (CBA) in early 2015, TymeDigital announced in September last year that it had been granted a licence to launch a new digital bank. 

Patrice Motsepe and former Sanlam CEO Johan van Zyl’s African Rainbow Capital (ARC) have since bought a 10% stake, with the option to purchase a further 5%.

Tyme, which stands for Take Your Money Everywhere, is headed by Sandile Shabalala, a former head of business banking at Nedbank. 

The bank plans to launch its basic offering – a savings/transaction account – in June, and then to roll out additional services as they are ready.

“We are going to offer simple products,” says Shabalala. “We are not going after the wealth segment, the top end of the market.”

The initial focus will be on the individual banking consumer, but TymeDigital will also look to service the under-serviced small, medium- and micro-sized enterprise (SMME) segment of the economy. 

The strategy will not be to target the “unbanked” but the segment of the population “where banking products are underutilised”, he explains.

“There is space for TymeDigital,” says Shabalala. “All our research shows that there is some very superficial use of bank accounts in South Africa.” 

The bank’s financial products will come with embedded financial education so customers can understand the benefits of the services, he says.

“We are stretching the concept of a digital bank. We are not just offering an app that we built; we are going to build an open platform around our customers through partnerships with like-minded companies,” says Shabalala. 

“Our partnership with Pick n Pay and Boxer is just one example – now people can bank while they shop.”

The plan is to refresh the existing kiosks in these stores and offer more banking services through them, he says. 

This will give TymeDigital 710 points of presence throughout the country.

“Customers will be able to open a full Fica-ed bank account in 10 minutes,” says Shabalala. This is done using technology that was tested by CBA in Indonesia and is being deployed in Australia and New Zealand too. “They will be able to get a card immediately, with their name on it.”

Discovery Bank

The healthcare giant’s new banking offering will be “disruptive” and established players in the banking sector should be worried, Discovery CEO Adrian Gore promised late last year in an interview with Forbes Africa.

Discovery received its banking licence in October last year and it is expected to launch in 2018, although it remains tight-lipped about its plans. 

What is known is that Discovery has been working on the bank for over two years now and have reportedly spent over R2.1bn to date on the project. 

This has gone towards building the right team, platform and product offerings.

The new bank will be headed up by former Nedbank and South African Revenue Service (Sars) executive Barry Hore, who is understood to already have a team of seasoned bankers around him.

Gore said at the time that Discovery’s joint venture with FNB on the Discovery credit card had been very successful and was being used as a launchpad to a full financial services offering. 

Discovery also offers life, car and home insurance as well as investment products.

The fact that Discovery will not have to maintain a network of branches and ATMs is expected to give it a competitive edge in the market. 

Analysts speculate that the new bank is likely to be card-driven. 

Many also suggest that Discovery Bank is the new entrant that the big five banks are most concerned about, arguing that Discovery has a proven track record of innovation and disruption.

Econex’s Helen Kean says that if Discovery can leverage its existing customer base, it would give it a huge competitive advantage.

Gore told Forbes Africa that Discovery Bank will target the “mass affluent market” in South Africa, and it will offer customers across all LSM groupings a value proposition. 

“It is simple – if you meet people’s needs, they buy your products.”

Postbank

Postbank has been in existence for many years, but historically served as a savings bank rather than a fully-fledged banking service provider. 

A change in legislation has allowed it to apply for a licence.

Shaheen Adam, acting CEO of Postbank, says the vision for the bank is for government to enable itself to deliver services. 

The payment of social grants is one example of what can be done, he says.

From 1 April, Postbank will be responsible for distributing social grants to millions of South Africans. 

“We already have Postbank cards in the market for grant recipients and people can come in and open a Postbank account already.”

In addition, Postbank is looking at a digital banking offering and to better leverage its geographical footprint. 

A tender was issued in late January for the design and construction of a banking app, targeting LSMs 1-5, Adam explains. 

He believes Postbank’s geographical footprint presents an opportunity, as there is always a need for both cash and a physical banking presence in rural areas. 

“There is a post office in nearly every little town,” Adam says. 

Postbank plans to allow consumers to make cash deposits, cash withdrawals and other transactions at these post offices.

“There is a real opportunity in the rural areas,” he adds. “There are lots of informal businesses and small to medium-sized enterprises that are being under-serviced or not serviced at all.”

With government as its shareholder, the new bank’s objective is not purely commercial, Adam says.

Bank Zero

The latest bank to announce its planned launch in SA is Bank Zero, the brainchild of former FNB CEO Michael Jordaan, who is the new bank’s chairman, and his former colleague at FNB, banking innovator Yatin Narsai.  

Bank Zero was awarded a provisional banking licence in January and is expected to launch in the fourth quarter of 2018. 

It is promoting itself as the “new frontier of banking” by embracing smartphones and digital banking.  

Customers will be issued with cards that work in the current payment system and ATMs and will be able to draw cash at big retail store partners. 

There will be no branches, and all communication will be app-driven or via email. 

Bank Zero is different from the other new entrants in that it is a mutual bank, which can only take deposits and not extend credit. 

This means the bank can be set up at a low cost and with less capital requirements than a retail bank. 

These cost reductions will be passed on to customers, Bank Zero said in a statement.  

“We certainly hope to come up with a very competitive structure,” Jordaan told Moneyweb in January. 

“We do realise that we have certain disadvantages – we don’t have branches and we won’t have lending products – so we’re going to have to make an impact in the areas where we’ll play, being deposits and fees structures.”

Jordaan promised that Bank Zero will introduce cutting-edge technologies that minimise admin and have state-of-the-art security.

Bank Zero will be 45% black-owned, although the full shareholding has not been disclosed yet.

This is a shortened version of the cover story that originally appeared in the 15 February edition of finweek. Buy and download the magazine here.