The South African banking environment is starting to feel quite cluttered with its mix of big incumbents, fast-growing upstarts, and new generation fintech players all vying for customers .
It’s a great time to be a customer. Prepare yourself to be courted and tempted away from your current service provider. The best bit is that, for the first time, you may have greater negotiating power on fees, rates and service levels as fintechs properly challenge the incumbents.
And they only just got started.
Billions is being spent on developing and growing new businesses despite the low growth South African environment. There will inevitably be casualties, takeovers and a couple of great success stories.
Right now, it’s hard to tell who will fly and who will crash and burn. What is most telling is that risk-averse bankers are currently going against the popular view that South Africa will remain a low growth economic wasteland.
South Africa is dominated by a handful of banks and is ripe for disruption. Capitec, one of the few survivors of the early 2000s financial crisis, has grown in leaps and bounds using a deceptively simple business model to attract more than 10 million customers. It has done its fair share of damage to the so-called big four. What’s happening now is even more revolutionary. We are seeing a growing number of start ups entering the market. After years of promises, they all seem to be hitting the market at the same time.
By the time it begins operations, Discovery Bank would have cost R7 billion plus to set up. Tyme is frantically signing up customers through Pick n Pay branches, whereas Bank Zero, backed by a squad of ex-FNB bankers, is feverishly coding in Bryanston, and is yet to show its hand.
This week sees another new rival.
Cross-border money transfer specialists Hello Group have teamed up with Sasfin targeting the unbanked segment of South African society, putting it head-to-head against Tyme and possibly Capitec. All’s fair in love and war, Capitec is going after Sasfin’s core entrepreneurial market through the purchase of Mercantile Bank and will be fighting for SME business too. There is clearly a new dynamic building in the local banking sector. Even Bidvest Bank is developing a shiny new office right next door to Discovery’s new HQ.
It all feels very Year 2000 when banks were springing up all over the place using the licenses of the big brands to tap specific markets.That boom ended in tears, as joint ventures and crazy schemes collapsed.
For all of its staid self-assurance the SA banking environment is actually very dynamic.
In the 70s, for example, when Investec started out as a lender of R10,000 a time to graduate professionals, mostly doctors and lawyers, the funds were used mostly to buy cars. It held lofty ambitions of being Africa’s answer to then high-flyer Salomon Brothers. It had big rivals at the time. Barclays, later FNB was large and foreign owned and Standard Chartered still called the shots at Standard Bank. Investec, like its local peer group, is still heavily dependent on its SA base, but is now an international player across banking and asset management and its loan sizes are considerably larger, but it has kept its focus on its core customer base.
The SA banking environment has expanded and contracted many times in recent decades. Corporate action saw the creation of Absa. Volkskas merged with Allied Building Society and United Building Society to form Absa in 1991. A year later, Absa took over Bankorp, acquiring Trust Bank, Senbank and Bankfin in the process.
Nedbank over the past 40 years required two bailouts, most recently in the early 2000’s during the last banking crisis that swallowed all but a handful of banks, including Saambou and BOE. Then Old Mutual recapitalised the group and only last year unbundled most of its controlling stake to shareholders.
During this time Barclays made a return foray and bought control of Absa in 2005. It too has subsequently chucked in the towel.
All the while, the local environment has flexed and adapted to an ever changing market. Just like it is now.
Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.
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