The table has been laid for the big banking fee war. In recent months, four new banks have launched to challenge the established big five — Absa, Standard Bank, Nedbank, FNB and Capitec.
This week, African Bank launched its first transactional bank account, MyWorld, joining a list of upstarts. It’s a major competitive shift, since the new banks are either scrapping monthly charges, like TymeBank, or offering a compelling loyalty programme, like Discovery Bank. And it seems to be capturing the public’s imagination: within a few months, TymeBank alone has opened 250,000 accounts.
So, which of the incumbents stands to lose the most? And which is the most insulated from the new wave of competition?
FNB is the best placed to fend off competition, say analysts. The reason: it has traditionally been one of the quickest to implement innovative technologies.
Wessel Badenhorst, a banking analyst at 36One, says FNB has, by far, the best rewards programme of the incumbent banks in its eBucks product.
Nedbank has also moved quickly to protect its market share. Last month, it scrapped monthly fees on its pay-as-you-use account — an account which has proved to be a hit with customers across all income segments. And Nedbank has also launched two other zero-fee accounts in the past six months.
Badenhorst says three factors will determine how well banks can retain customers: the size of their fees, whether their rewards programmes offset bank charges sufficiently, and whether they have competititve rates on current account deposits.
Absa and Standard Bank have the most to lose, says Badenhorst — a view echoed by other analysts. "They do not have a leading position in any of the three aspects."
By contrast, Nedbank and Capitec have reasonably competitive fees on entry-level accounts. Capitec also offers good rates of interest on its savings account — 5%-5.6% — though African Bank has now beaten that with interest rates of 5.5%-6.5%.
Karl Gevers, head of research at Benguela Global Fund Managers, also thinks Capitec is best placed to handle the onslaught.
"The banks that still have a high monthly bank fee — the big four — would be the biggest losers should they cut fees to remain competitive. The reality is they also have to try protect their revenues, so they will be hesitant to cut across the board," he says.
Most likely, they’ll probably offer a specific type of account with more attractive fees.
This relative strength of the big banks is reflected in their share price gains over the past year. Capitec has risen 56% over the past year, while FirstRand has gained 7.5%. By contrast, Absa has hardly moved, while Standard Bank has fallen 3.7%, and Nedbank has shed 10.6%.
Avior Capital’s Harry Botha says while he expects all banks to lose customers to the upstarts, the banks growing the fastest will feel it the least. In other words, Capitec, FNB and Nedbank. "The banks that will probably lose the most are Absa and Standard Bank," says Botha.
Which means these banks have to act, fast.
Cowyk Fox, Absa’s head of everyday banking, says the bank is already doing a lot of work to regain the market share it lost during the years when it was owned by British bank Barclays. "The fact that we are behind our peers is a reflection of the past, but it’s actually an opportunity to improve," says Fox.
Barclays’ decision to quit Africa in 2018 proved a blessing in disguise. "Being part of a global bank constrained us. Those constraints are now gone and that will allow us to compete a lot stronger than we did in the past," he says.
Fox says Absa’s new strategy revolves around strengthening its private banking segment at the top end, and its personal loans at the bottom end.
Once SA’s largest retail bank, Absa’s market share in deposits, loans and advances shrunk from 24% to 20% between 2008 and March 2019. Absa also relinquished its crown as a leader in the mortgage market, with its share slipping from 31% to 20%. In the personal loans segment, Absa’s market share is only 11%.
Most banks see room for growth in personal loans — short-term loans typically for between two and 84 months, often granted at high interest rates.
Absa could take a leaf out of FNB’s book, which, rather astoundingly, advanced 62% more personal loans to its premier customers last year. FNB has shown it’s possible to expand personal loans beyond the poorer mass market.
Standard Bank’s strategy to counter the upstarts is far from convincing. It says it plans to "simplify and digitise" its operations to lower costs, while it hopes initiatives like "mobile instant money" and SnapScan payments for small business will help. Says spokesperson Ross Linstrom: "We offer options like cash back at the [retail checkout] till rather than the ATM, free digital banking rather than using a branch, and the ability to transact using digital wallets, even without a bank account."
The very obvious problem for Standard Bank, however, is that all its rivals are offering those things too. If it has no other tricks up its sleeve, Standard Bank may be hit the worst.
The new banks are arguably even further down the digital path, using artificial intelligence. TymeBank, for example, is building a "financial fitness coach chatbot".
But if Standard Bank is on a hiding to nothing when it comes to its SA customer base, it does have one thing going for it at least: the amount of profit it generates outside SA.
Says Botha: "Profitable growth outside SA is an important differentiator for Standard Bank compared with the rest of the major SA banks." He expects Standard Bank’s business in the rest of Africa to deliver stronger revenue growth than SA over the next two years.
Perhaps Standard Bank is hoping to ride out the initial fee battle, before assessing what action is needed to mitigate the damage to its customer base. Whether this strategy works better than Nedbank’s prompt move to slash fees remains to be seen. Either way, experts expect the big banks to take a knock — it’s just the size of the knock that’s unclear.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.