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Banks battle for relevance in the platform era

Standard Bank’s strategic update last week suggested that its digital era, which spanned the past decade and saw the bank’s ageing system overhauled to make room for more modern technologies, is over. 

A new era, South Africa’s biggest bank declared, has now begun: Standard Bank’s platform-based model will see it creating an Amazon-like marketplace and partnering with fintechs, retailers and other competitors. 

The 158-year old bank’s strategic shift comes as its competitors are vying for a share in the traditional digital market — a market that analysts say has become overcrowded with the entrance of new, more nimble, players.

Standard Bank’s new business model, detailed in a report released earlier this month, will allow it to act as a platform for other products and services as it aims to increase its client base from 15-million to over 25-million by 2025. Rival First National Bank has been pursuing platform-based banking since as far back as 2018.

“The banks have been talking about this for a number of years,” said Patrice Rassou, the chief investment officer at Ashburton Investments. “FNB has been way ahead of the curve … and now Standard Bank is following with similar thinking.”

Banks are turning to the platform strategy in an effort to avoid disruption by fintechs, Rassou explained. “So the banks want to partner with developers who offer additional services so that they keep their customers in their ecosystem, rather than allowing customers to leave the ecosystem and go and find services elsewhere.”

Standard Bank’s new direction, announced last Friday, comes as the country’s big four retail banks have relinquished some of their market share to newer competitors. 

A recent banking market share study by Consulta showed that most banks’ market share declined in 2020, except for Nedbank and Capitec. Nedbank maintained its market share, while Capitec, which launched in 2001, grew by 4%. 

Turf losses by the legacy banks have come even as they have poured billions of rands into their digital businesses.

Capitec and newer entrants such as TymeBank and Discovery Bank have heated up the battle for market share, Rassou said. “Choice has increased, definitely. Choice is plentiful. Now it is a question of who offers the best service. People used to bank at the branch that was closest to them. That is not relevant anymore.”

As part of its future plans, Standard Bank is aiming to cut head office and branch space by as much as a quarter by 2025. But it is also opening branches in select Pick n Pay stores, a move that puts it in TymeBank’s crosshairs.

In March, TymeBank, which is owned by Patrice Motsepe’s African Rainbow Capital Investments, declared itself “one of the world’s fastest growing digital banks”, after bringing on board three million customers in only 25 months.

“When a new entrant comes in, you’re obviously going to watch and see what they are doing. Without a doubt, each time a new competitor comes in, the banks have to watch and see what they are doing and how they are able to do something more efficiently than you are,” Intellidex senior banks analyst Nolwandle Mthombeni said of Standard Bank’s Pick n Pay move. “Sometimes they will copy and paste and sometimes they will find even better ways of doing it.”

Though new entrants have kept their bigger counterparts on their toes, Mthombeni said some banks, like Standard Bank, “aren’t focused on them as much”.

“If you look at what Standard Bank is doing, they are creating a completely new way of banking. They are worried about big tech, like Amazon — those sort of global competitors. That is who they feel they are competing with, as opposed to new entrants.”

“The new entrants will get market share that is at the fringes, with the exception of Capitec, which has been a big force in the game. But it’s very hard to come into this market and do what Capitec is doing now.” 

Mthombeni noted that digital-only banks have an advantage over the bigger banks because they are not encumbered by legacy systems. “But that isn’t an absolute advantage that will last forever,” she added.

“The big banks are investing now to make the change to new technology easier … So the competitive advantage that newcomers have is there now, but I think it will become much smaller over time as banks invest more and more into their systems.”

The market for smaller digital-only banks has become overcrowded, Mthombeni said: “In South Africa, the majority of adults already have a basic bank account. So it is not as if, in South Africa, we need more banks.

“You have to be very specific about who you are catering to. I think that is how you differentiate yourself … Once you have covered the basic need of having a bank account, I think you have a little bit more depth to your strategy as opposed to just dealing on the fringes.”

A week prior to Standard Bank’s strategy announcement, a new, long-awaited player made its way onto the scene. Bank Zero’s launch came three years after its cofounder, Michael Jordaan, announced the idea for the no-fee bank.

“Traditional banks in South Africa are highly sophisticated and offer great functionality on both the internet and on apps,” said Jordaan, FNB’s former chief executive.

“However, their fees are still much too high and a lot of their functionality still requires a visit to the branch; like changing business banking mandates or opening a new business account. Bank Zero has been designed for a mobile only, paperless world which is the future of banking.”

Jordaan said Bank Zero expected the bigger banks to try to emulate its offerings such as QR payments, card subscriptions control and protection against phishing and rogue debit orders. “But I think they will struggle to do both that and make mobile banking free, as we have — and as it should be.”

But Bank Zero has not made the kind of splash it may have been expecting after a three-year wait. 

“It is difficult to be last to the party. That is the bottom line,” Rassou said.”

New entrants to the market have to offer something new, Mthombeni said.

“We’ve seen it all by now, so it is very hard to come into this market now and offer something different, especially when our economy is still very cash-based. And that’s the problem.”

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Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.

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