Where the finance and retail banking sector is venturing


Banks must keep up with disruptive technologies and new players, writes Charles Edelstein, CFO of Executive Placements.

South Africa’s four biggest banks – Absa, Standard Bank, Nedbank and FNB – may account for the lion’s share of the banking market, but they can’t afford to be complacent. Accelerated by the pandemic, there are sweeping changes influencing the finance sector, including the emergence of new players and disruptive technologies.

Rise of digital banks
A major trend in banking is the entry of low-cost, digital banks. According to a recent PwC report on the future of banking, recent players in other industries, including insurers such as Old Mutual and Discovery, are diversifying by offering digital banking solutions at a significantly lower cost. Examples include Old Mutual’s Money Account, Momentum’s partnership with African Bank and the launch of Discovery Bank.

TymeDigital is another new entrant that allows its customers to access funds via their cell phones. This digital bank has the bold goal of disrupting the industry by extending lending to previously excluded customers, such as low-income youth and women, and previously cash-only businesses.

These entrants are not afraid to explore new opportunities and are hungry to capture customer-specific data by growing their client base. Armed with this data, they can improve their loyalty programmes and track customer behaviour better, as well as cross-sell financial services products. In this way, they are challenging the Big Four and shaking up the status quo, making banking a marketplace whose borders are continuously expanding.

Emergence of industry-specific banks
Another prevalent trend is the rise of industry-specific, non-financial players that have their own supply chains. Examples include the SA Post Office’s PostBank and PEP Stores’ debit card, PEPplus. These new players are taking advantage of their large customer bases to identify gaps in the market and to offer better, more personalised banking solutions. In addition, due to their extensive footprint of physical stores, they are able to grow their banking offering at very low distribution costs and can offer products of value to their customers.

The abovementioned PwC report suggests that other retailers may follow suit by launching their own banks, including Pick n Pay and Shoprite Checkers, in a similar manner to how they have ventured into the mobile phone market.

Growth of digital technology
For established banks and new entrants alike, digital technology presents opportunities to extend beyond traditional value chains and unlock untapped revenue streams. Many bricks-and-mortar bank branches closed their doors during the pandemic, requiring even the most reluctant customer to embrace digital channels. According to an Accenture Strategy Report, advances in digital technology will reduce costs, increase agility and allow new products to go to market much more rapidly.

Artificial intelligence (AI), real-time analytics, automation and blockchain technology are set to drive the democratisation of financial services, with new products emerging at a fraction of the cost. This will mean significant changes to CFO jobs, with fintech skills becoming even more highly sought-after. The technology may even shift some players away from a former focus on products, leading to more user-friendly customer-centric models, asserts another PwC report.

In order to remain competitive, banks will have to further digitise their customer interactions and boost digital sales, while cutting back on support functions and branch infrastructure. This will force them to upgrade their outdated legacy technology and shift to cloud computing, as well as requiring that they upskill their employees in these dynamic new areas.

According to Charles, cash flow and the high cost of product development, search engine optimisation, sales and marketing are concerns for most high-level directors in the financial space. “The delay in return, so that a technology company can forge ahead, always needs to be weighed up. Then, are you considering the benefits of bootstrapping versus the trepidation of raising venture capital? Both options come with their own risks, rewards, challenges and headaches,” he advises.


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