Big South African banks to face competition from smaller players

07 December 2018 Consultancy.co.za

As South Africa’s banking sector makes its way towards digital transformation, Strategy& predicts that the country’s four biggest banks will have to contend with multifaceted disruption in the near future, stemming from specialisation, digitalisation and proliferation of smaller players in the sector.

While most sectors across the globe are currently undergoing rapid digitalisation, the banking and financial services industry is perhaps among those most directly affected by the advancement of technology. This scenario holds particularly true for the South African market.

South Africa has one of the fastest growing Fintech markets in the world, and the Big Four banking institutions across the country have been doing their best to keep pace with this rapid rate of advancement. These include Standard Bank, Absa, FirstRand and Nedbank, all of which have rapidly growing returns on equity across the sector.

Big South African banks to face competition from smaller players

According to Strategy&, however, these banks are set to face a number of challenges over the next few years. The first is competition from purely financial services firms that develop low-cost and digitally advanced solutions for financial transactions such as borrowing and money transfers.

In addition, the sector is set to face competition from smaller but more specialised banks that are emerging to cater to one or more specific industry. These banks offer services that are more compatible with large supply chains. Lastly, the banks are facing pressure from a rapidly shifting regulatory environment.

“Unlike their challengers, the four universal banks have the principal advantage of being able to serve a sizeable share of South Africa’s retail and corporate banking customers,” explains Jorge Camarate, a Strategy& Partner in the financial services division at Big Four accounting and advisory firm PwC.

“To maintain this advantage, and meet the challenge posed by fast-paced entrants, the four universal banks will need to develop clear innovation strategies and operating models. Further, they will need to embed a culture that supports agility and measured risk-taking,” he adds.

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Customer centricity is now the differentiating factor amongst South African banks

15 April 2019 Consultancy.co.za

While regulatory and technological disruption have received much attention as the biggest challenges to the banking sector in South Africa, Quinton Pienaar of PwC South Africa believes that having a comprehensive customer service strategy is another key priority for financial services firms in the country.

Pienaar is the Lead for Customer Engagement & Salesforce at PwC and has offered his take on the current challenges for South Africa’s financial services firms. Much has been said of the developments that the sector is undergoing, primarily in the digital domain where the rapid growth of Fintech has pushed banks to transform their operations. 

Banks are engaged with digitalising their operations, while simultaneously navigating an increasingly stringent regulatory environment due to the global emphasis on data protection and cyber security. Pienaar suggests that as most banks move in the same direction, customer service will become a key differentiating factor.

One way of achieving a unique customer relationship framework is to invest in getting to know the customers. According to Pienaar, most customers are currently prioritising a human connection, and need to know that their issues will be handled by the bank squiftly and efficiently.

Customer centricity is now the differentiating factor amongst South African banks

Customer-centricity is crucial in this regard, given that providing a truly personalised experience requires the tailoring of services to specific needs of customers. Such a strategy is increasingly essential for the larger institutions, given that smaller FIntechs are emerging and are more able to connect with the customer. 

“By investing in strong platforms, educating personnel and aligning to customer experience objectives, financial services organisations can refocus time and effort to grow the business, while building capabilities to improve customer value. Investing in customer-centric business models to speed up access to underserviced communities makes business sense,” says Pienaar.

Regarding the challenge from FIntech, Pienaar acknowledges the gravity of the disruption, but suggests a more collaborative approach to these organisations as the solution to tackle this issue. Innovation is a crucial part of the South African economy at the moment, and collaborating with smaller players is the best way to remain ahead of the curve.

“Adopting effective growth strategies and integrating with fintech businesses will be essential for traditional players to go into partnership for innovation. Compatibility between the two can be further supported by the growing emergence of start-up incubators and accelerators set up by the traditional players to explore the spectrum of fintech possibilities,” he adds.