The battle of the banks continued this week when African Bank launched its zero monthly fee account, becoming the third bank to do so.
The new banks entering the market with competitive banking fees and interest rates — TymeBank, Bank Zero and Discovery Bank — have sparked a banking war, with consumers reaping the benefits.
African Bank’s new digital product offers low fees and competitive interest rates in an increasing cutthroat climate that is set to improve South Africans’ access to quality services.
The bank was in tatters five years ago, but has recovered to become one of the trendsetters of 2019.
African Bank’s offering of interest of 5.5% a year on money in a transactional account is the highest, and clients will receive 6.5% interest from the savings account. The transactional account is current; the savings account requires one month’s notice.
Until this year Capitec was South Africa’s low-fee king, not only offering a low banking tariff, but also a high interest rate. Capitec clients could earn 5% on money in a transactional account and up to 5.6% on savings that are not fixed.
TymeBank, however, promises the best interest rate on savings at 10% a year, with conditions.
African Bank’s no-fee offering comes after TymeBank introduced its “no fee” account at its launch at the end of February. At that time TymeBank, with its cheap banking fees, ruled the roost, according to trade union Solidarity’s Bank Charges report, released in October.
But now African Bank has again usurped the “cheapest bank” throne, based on monthly banking fees.
When Solidarity published its report, none of these new banks was yet in business and African Bank’s transactional banking offering, MyWorld, only launched this year.
Discovery Bank, which targets a more affluent market than MyWorld, plans to grant the public full access to its products in July, but chief executive Adrian Gore has said in interviews that the bank planned that its Vitality savings account would have zero fees, a “dynamic” savings rate, and loyalty card cashbacks.
Discovery Bank would offer interest rates of about 5%, but up to 6.5% if the client was a healthy member of Discovery’s Vitality scheme.
Bank Zero, co-founded by former FNB chief executive Michael Jordaan and former FNB head of IT and retail banking Yatin Narsai, will be an app-only bank with “cash-out facilities” at big retail chains and no fixed costs. It will not extend any credit and have no branches. How much interest it will grant to depositors is yet to be revealed.
African Bank chief executive Basani Maluleke said this week that when African Bank compared itself to Solidarity’s Bank Charges report methodology, MyWorld was now the cheapest transactional account in South Africa.
The three new banks are upping the ante, luring new customers with lower fees, better interest rates for savers and transparent, simpler products.
Capitec, South Africa’s fifth biggest bank, started eating into the market of the big four — Absa, FirstRand (FNB), Nedbank and Standard Bank — a decade ago with its low-fee model. It has built a solid customer base over the years by attracting lower-income customers with its easy credit, low banking fees and generous interest rates.
Capitec has said on numerous occasions that it welcomes competition because this will improve South Africa’s banking sector. Its chief executive, Gerrie Fourie, hinted at the release of its results in March that it will also release competitive new digital offerings.
Nedbank was one of the first of the big four to give in to pressure when it introduced no-fee accounts six months ago.
Standard Bank this week also publicised its lower-fee account, which can be opened online even with no monthly income. Named MyMo, fees are only R4.95 a month. MyMo also offers free mobile data or airtime for transactions.
Capitec’s 2019-2020 fees charge R5 a month on the Capitec Global One account, while an Absa Transact Account costs R5.30. Old Mutual’s Money Account charges clients R4.50 a month. FNB’s Easy account charges R5.75 while Bidvest’s Bank Grow Account costs R6, Bidvest reducing this fee by 72.7% after charging R22 last year.
Apart from its free monthly banking fees, TymeBank also charges no fees from its own ATMs, situated in partner retailers Pick n Pay and Boxer stores. These kiosks allow customers to open accounts and transact.
Tyme charges R8 for every R1 000 withdrawn from other ATMs and R4 for a deposit at the ATM. Apart from its free day-to-day transactions at the kiosks, it pays 10% interest on its GoalSave plan, depending on how long the money is kept at the bank.
Sandile Shabalala, chief executive of Tyme Digital, said at the bank’s launch that it was not targeting one segment of society, but wanted to create value for the majority of South Africans.
African Bank’s MyWorld charges R6 per R1 000 at an ATM and R2 for a withdrawal at a till point. Capitec charges R6 per R1 000 at its own ATMs and R8 at others.
Maluleke said at the MyWorld launch that banking fees are a controversial talking point in South Africa, but that African Bank wants to attract clients with the “cheapest transactional account of any bank out there”, challenging both the big four banks and the new kids on the block.
“MyWorld provides exceptional value and convenience at the cheapest price compared with what is currently available from other banks,” she said.
Markus Borner, the head of investor relations at African Bank, said that MyWorld is set to disrupt banking in South Africa by competing with the big banks.
African Bank hopes that the bank’s 1.2-million loan customers will be a substantial base for this retail product, but also intends to gain customers from other banks. “People in our current base typically have extended family obligations and will find the functionality beneficial,” said Maluleke, adding that the new digital offering had signed up 12 000 members since its inception in February.
MyWorld is unusual in South Africa because it is based on a shared banking approach where families and groups can share bank accounts, which they can all access, with the principal account holder determining whether members have just viewing rights or full banking capabilities. It allows customers to open up to five linked accounts with separate bank cards for their families at no monthly fee.
Borner said African Bank is not competing directly with the likes of Discovery’s new bank. “Our target market is customers whose salaries are in the region of R5 000 to R30 000 a month. Our research indicates that shared accounts will be favourably received with that market.”
The bank is turning its 392 branches into service hubs for customers who don’t have access to the internet. MyWorld operates on African Bank’s new Omni-channel platform, which allows accounts to be opened and managed through the bank’s website, app, cellphone, its branches and the contact centres.
Capitec, banking’s biggest disruptor in previous years, had retail deposits of R71.9-billion compared with the R1.1-billion deposits of African Bank. “But we are increasing our deposits, and we are highly competitive in that we currently offer the best interest earning rates in South Africa in terms of loans — the best in the market,” said Borner. “We have to be competitive. We have to get in there.”
The competition between the banks to lure customers and offer better value will certainly make it an exciting time for consumers, Borner concluded.