It is not only retail banking customers who stand to win as competition in the South African banking sector heats up. Businesses — particularly small and medium-sized ones — could also see cheaper offerings with the arrival of new banks, which have already started competing for individuals using lower fees and better interest rates.
TymeBank, which launched in February this year with its retail offering, is fine-tuning its plans for an account for small businesses. The product is being piloted this year, according to newly appointed chief executive, Tauriq Keraan, and will be launched next year.
Ultimately — together with a very low-cost, easy-to-use business account — TymeBank wants to begin advancing affordable working capital to small business.
The intention is to launch the business account and steadily enrich the functionality of the offering — for instance, through enabling one-to-many payments, Keeran said. Currently, a TymeBank customer can send money from their account to a cellphone number, which the recipient can then use to draw cash.
“We think the bulk-processing version of that function has particular appeal for SMEs [small and medium enterprises] because they can pay their workers in this digital manner … [and] not have the trauma of manual reconciliation, hard cash going around and the security risk that comes with that,” Keeran said.
But TymeBank is not the only newcomer planning to target business owners, particularly smaller ones, a class of customer that the traditional big four banks — Standard Bank, Absa, FNB and Nedbank — have overlooked.
Jan Meintjes, portfolio manager at Denker Capital, said the larger banks have struggled to make money from small businesses. “Similar to personal banking, the more profitable customers are the ones with three or four products and above average transactional volumes,” he said. “They have traditionally outpriced themselves at the very low level because it was not really worth it.”
An example is the process of card acquiring, said Meintjes, a service for which very small businesses were charged almost 5% on transaction values. “This was prohibitively expensive for these businesses,” Meintjes said. But, he said, with new technology and better data management, the costs of these services has dropped drastically.
Bank Zero’s co-founder and chair, Michael Jordaan, has in the past bemoaned the cost of bank services to businesses. In a recent update on its launch, Bank Zero punted the greater protections it will provide to businesses from internal fraudsters. This, together with lower banking fees, will “provide much-needed relief to the business and entrepreneurial segments of the economy”, the bank said.
Capitec, which built its business proposition around servicing low-income consumers, has bought erstwhile Portuguese bank Mercantile Bank. Mercantile provides business and commercial banking services, as well as a private banking offering. Although Capitec is still in the process of obtaining all the necessary regulatory approvals, the deal is expected to advance its growth in the business market.
“I think that Capitec is looking at the larger profit pool of a company,” Meintjes said, or, in other words, the ability to service the company and its employees. “The opportunity is bigger for them in a company with 10 or 20 employees,” he said. “[There is] less of an opportunity to bank a one-person business.”
TymeBank wants to target small, independent retailers in the fast-moving consumer goods space. The bank’s end target will be a point of sale device that can acquire different transactions, including card payments, as well as allow a small business to order and pay for goods electronically. The intention is to integrate the device into third-party systems — such as those of wholesalers or manufacturers — and allow for the electronic purchase of goods. “Because we will see the transactions on the point-of-sale device, we will be able to issue a merchant advance off the back of this,” Keeran said.
Although this is not a unique product, TymeBank will differentiate itself on the stock-integration leg, said Keeran. “If we can have line of sight of that supply chain … off the back of that, we can serve you up a prequalified working capital loan and you can take it up digitally.”
But he acknowledges that there is still work to be done. In this space, for instance, there are a lot of foreign-owned small businesses. The bank is working to develop a way to digitally “on-board” foreigners, in the same way that it does South African customers when they sign up for an account. Using third-party data — notably from the department of home affairs — opening an account at TymeBank takes less than five minutes.
“You’ve got the SME sector, which is the future creators of real employment, and will, more likely than not, be the lead creator of net new jobs,” Keeran said. “And as a country we keep talking about [supporting] SMEs … We are going to be following through”.
In its inaugural report into the financing needs of small businesses, FinFind — an online platform that matches businesses looking for finance with funds — found that the credit gap for small businesses in the formal sector was between R86-billion and R346-billion. After startup capital, money for buying equipment and funds to expand businesses, working capital was the fourth-largest funding need.
How does Keeran feel about the competition? He says this is “not dissimilar to our consumer offering: we will compete aggressively on price in the SMEs space because we are lower in cost”.
The bank also aims to begin unsecured lending. As with its sign-up process, the way it intends to make loans will include credit scoring methods that rely on third-party information beyond credit bureaus.
This includes data from its mobile app, municipal data and purchasing information from Pick n Pay’s Smart Shopper programme, which it may use for lending purposes.
“That provides us with much richer view of a customers’ ability or willingness to repay the loan,” Keeran said.