South Africans love to hate their banks. Many consider the banking industry to be aloof and hate the long queues that causes acute and a sudden onset of FOMO (Fear Of Missing Out in Generation Z speak). Luckily the banks know this. Many are developing digital platforms as a solution.
Some are being left behind
Because of the digital transformation, most banks have closed or downscaled their branches significantly. Many have also drastically cut the number of ATMs available. In fact, drawing actual physical cash has become an expensive enterprise.
If you did not know what FOMO stands for, chances are you are of the age where navigating the life through your phone difficult. It also requires a smart phone and data. This makes it inaccessible to those who cannot afford such a phone and those who are physically disabled.
There is good news, though!
Thanks to changes in legislation the Big Brothers of the Banking Brotherhood no longer has a monopoly. This has opened up opportunities for competition and innovation. In recent years, we have seen a slew of new banks. And yes. There was the tragic scandal of VBS bank. And yes. We are still waiting for justice for the millions of pensioners who lost their life savings. But this is one out of many that are doing really well!
Big Brothers of the Banking Brotherhood putting on a brave face
“New Banking talent is welcome,” says FNB. “It will keep us on our toes and keep us innovating.” It sounds like a positive attitude, right? In reality, though, their normalized earnings decreased by 21%. In the same period a year ago, the decrease was 38%. Traditional banks are under pressure.
Who are the new kids on the block?
SA has welcomed Tyme, Discovery, and Zero into what is becoming a crowded space. It begs the question – is there enough pie to keep everyone well fed and happy? Of course, the Spin Doctors of each entity will tell you what is best about their bank. Here is what they have to say:
- Tyme has partnered with PnP and is a fast-growing emerging bank. They share a sandbox with Africa Bank.
- Discovery crows about the 287 000 new clients who collectively have 540 000 bank accounts.
- Zero does not charge ATM fees (they have none of their own ATMs!) no minimum balance fees, and no annual membership.
- Capitec argues they are the largest bank with 15 million clients. I like the quality and speed with which their branches serve clients.
- Standard Bank argues their conglomerate has the highest asset value.
- FNB argues they have the best digital footprint.
Nedbank, Standard Bank and ABSA will report back during the next few weeks. No doubt, each will play up the stats where they have grown most. Standard Bank has already indicated that their earnings per share are 45% lower than in 2019. Absa is concerned about a possible 55% drop in profits.
SA GDP and Regular Joes needing to jump ship
During 2020 the SA GDP shrunk by an astounding 7%. It is the highest shrinkage in decades. It triggered mass unemployment, and no bank will come out unscathed. Clients are looking for ways to stretch their Rands in order to survive. High service fees and lack of easy access to their money does not bode well for loyalty.
New Banks are competitive on the entry-level packages. While costs are low, many packages offer limited flexibility. Some of the Big Brothers are doing their best to muscle in on this territory with various degrees of success.
According to this Author, it is time to consider the people in the middle and to create more pathways to wealth creation. Many banks focus on debt, rather than wealth creation.
Digitisation in from the Banking Sector’s perspective
While Digital banks can keep costs down, digitisation has its limitations. Tyme bank is experiencing several teething problems with its model. During March of 2020 (blame Covid for slowness in the release of a more current survey), PWC Banking survey reflected on these trends
- The Mobile banking app emerges as the channel of choice as technology drives change
- Regional African operations contributed up to 33% of some banks income streams
- Costs remain high despite efforts to reduce these ratios
- Capital and liquidity ratios remain above the minimum required by regulations
- The Risk Landscape is strengthened as Banks cut costs further while reducing their debt book.
- Domestic competition intensifies
In a nutshell, this means that the banking industry is being disrupted and digitisation is the order of the day.
Digitisation in from the customer’s perspective
The South African Consumers Satisfaction Index surveyed 15 000 SA banking customers. This is what consumers said in 2020:
- African Bank has the happiest clients
- Capitec moved down to second place for the first time
- Nedbank came next
- FNB followed
- ABSA took fifth place overall; and
- Standard Bank reflected close to the bottom. Standard Bank has to get its value proposition resolved. They appear lost at times. The mass closing of brick and mortar branches and their cumbersome telephone support system has left many customers unhappy.
Whom to trust? Ask Peter
HelloPeter keeps a summary of comments on SA banks and creates a trust index based on consumer comments. Investec has first place, followed by Capitec. According to their scoring system, the higher the number, the higher the ranking. They also only report the top five banks:
- Investec 5.3
- Capitec 3.1
- Africa Bank 2.6
- Westbank 2.5
- Discovery 2.1
In his recent budget speech, Tito Mboweni, the South African Minister of Finance, chose to prop up the economy by giving us a tax break. The news may bode well for the banking sector.
What are you looking for when you choose your bank?
Despite being of the generation that do not know what FOMO means, the author wants a digital platform that can keep him as far away from visiting branches as possible. During the past year, he needed to make one visit to his branch. It took two hours to pick up a sim card!
I run a business. NFS makes use of four different currencies to operate. It is important that my bank is able to accommodate that seamlessly. I do not have time to pop in and out of branches for every transaction. However, maybe you like chatting to Teller no.5 and catching up on the neighbourhood gossip?