Another day, another new bank. South Africans are spoilt for choice when it comes to new banking services. But can the new ventures snaffle enough viable market share away from the established players to endure?
Previously, new banking ventures — however well intentioned — have mostly come to a sticky end or been absorbed into the mainstream.
Last week, life assurance giant Sanlam told investors it is targeting between 2-million and 4-million banking clients by 2030 through its partnership with digital bank GoTyme. It will soft-launch on November 1 to staff, intermediaries and select clients, before a broader rollout in the first quarter of next year. With retail conglomerate Pepkor also set to launch its bank in April next year, subject to regulatory approval, have consumers ever had more choice of loan and savings accounts?
The bulk of the banked population is with the big five — Capitec, Standard Bank, FirstRand, Absa and Nedbank. GoTyme (formerly TymeBank) is edging closer with more than 12-million customers at last count. Then there are specialists such as Investec, Bank Zero, African Bank, Finbond and Bidvest Bank — which is up for sale again.
But this is not the first time South Africans have been treated to an abundance of banking services.
From the late 1970s to the early 1990s, consumers could choose from building societies such as the Perm and NBS and the components of what is now Absa: Volkskas, United Building Society, Allied Building Society and Trust Bank. There were also regional players — think Boland Bank, Cape of Good Hope Bank and Mercantile Bank — and short-lived niche players such as Prima Bank, Cape Investment Bank and Alpha Bank.
The late 1990s brought an “A2 banking boom” on the JSE — a reference to the credit ratings of the smaller lenders, which ranked below those of the top institutions — and the rise of “bancassurance”, in which banks and insurers cross-sold each other’s products. Absa aligned with Sanlam, FirstRand with Momentum, Nedbank with Old Mutual and Standard Bank with Liberty Life.
While enthusiasm for bancassurance waned, the A2 boom provided far more intrigue. With the then big four — Standard Bank, FirstRand, Absa and Nedbank — considered staid, smaller specialist banks started popping up on the bourse. These included The Business Bank (headed by former Nedbank MD Piet Liebenberg), Fulcrum Science & Technology Bank, Real Africa Durolink, Future Bank, New Republic Bank, Regal Treasury, Unifer and African Bank. PSG, Gensec and Brait also secured banking licences.
By 2002 the party was over. The first warning came in early 2001, when Unifer, a microlender controlled by Absa, raised its nonperforming loan provisions. The crisis began in earnest when Saambou — then South Africa’s seventh-largest bank — suffered a run on deposits and was placed under curatorship in February 2002. Contagion spread to other smaller banks, most notably Board of Executors (BoE), which was ushered into the protective custody of Nedcor (now Nedbank Group).
Will it be different this time? Capitec, which opened its doors in 2001 as the A2 crisis was building, showed that a better, faster, friendlier and cheaper model could woo clients from the traditional banks.
Kokkie Kooyman, executive director at Denker Capital, says Capitec was fortunate to have had an exceptional management team in its formative years. “They were disciplined in introducing new products, securing profitability before moving onto new initiatives.”
He says most new local offerings are mono-lines — single products, usually pitched at the lower-income market. Technology and data, Kooyman says, mark the key difference to previous banking waves.
“Technology has changed two key issues — the cost of technology and the cost of operation … Banking is no longer as human-intensive as in the past.” And, he notes, “the data that is available on consumers today can reduce bad debts”.
He reckons a new banking venture “can be scalable if you get your technology right”.
The challenge remains building fully fledged banks. “In the end the big (and established) handful of banking models have a real cash cow in their corporate banking services, which enables them to pull through tougher times.”
He says smaller banks reliant on lending — and perhaps even overlending — are vulnerable when interest rates rise and bad debts compromise the business model.
