Big Blue turns to Africa as competition intensifies at home

Banks traditionally earn margins on the spread between deposits and loans. But non-interest income — fees from payments, cards, insurance and transactional services — has long been a disproportionately large revenue driver in South Africa, historically accounting for 35%-45% of earnings.

This premium reflects a system shaped by limited competition, where incumbent banks built highly profitable fee-based ecosystems around everyday financial activity. The model carries clear advantages: earnings less tied to credit cycles, lower capital intensity and greater stability. It also helps explain why South African banks have historically been viewed as more resilient than many global peers.

That structure is now under pressure. Regulatory shifts and the rise of digital challenger banks like GoTyme, Discovery, Bank Zero, Old Mutual and Pepkor are intensifying competition — particularly in payments and transactional banking, the very segments where fee income has traditionally been most concentrated.

Against that backdrop, Standard Bank is looking beyond its home market. At its recent capital markets day, management made clear that the biggest growth opportunity lies in the rest of Africa.

The logic is twofold. First, economic growth across many African markets is expected to outpace that of South Africa. Second — and equally important — these markets remain far less penetrated by formal financial services. As businesses open accounts, payments digitalise and trade shifts into regulated channels, Standard Bank can replicate the fee-based revenue streams that have long underpinned its South African business and, in the process, grow revenue faster than the underlying GDP.

With operations across 21 countries and roughly half its earnings already coming from the rest of the continent, Standard Bank believes it is better positioned than most domestic peers to capture this opportunity. As CEO Sim Tshabalala put it during the presentation: “We are by far the largest African universal bank. It has taken several decades to build our Africa-wide network of businesses — almost all with their own balance sheets, all with deep local expertise and all connected into an integrated group.”

Importantly, once the infrastructure is in place — especially in payments and digital platforms — financial services income offers strong operating leverage, with revenue able to scale faster than costs.

The composition of that non-interest income varies across Standard Bank’s divisions. In personal and private banking, non-interest income is increasingly driven by insurance and wealth products, which carry higher margins and offer more recurring annuity-style revenue. In business and commercial banking, the model is transaction-led, with significant income from payments, cash management and services embedded in clients’ day-to-day operations.

In corporate and investment banking (CIB), non-interest income is generated through foreign exchange, trade finance and custody and advisory services — activities that are more complex, relationship-driven and harder to commoditise. Complementing this is the group’s insurance and asset management division, which adds a further layer of stability through underwriting income, savings products and investment management fees.

At the same time, competition is intensifying. Fintechs and digital challenger banks are targeting the same revenue pools, particularly in payments. Their lower cost structures and simpler models are already driving structural fee compression, especially in low-value, high-volume transactions. South Africa is seeing this through cheaper instant payment systems; similar trends will likely play out across the rest of Africa over time.

Standard Bank’s response is pragmatic. It accepts that basic transaction fees will come under pressure but argues this will be offset by lower costs and higher volumes as more activity moves into the formal system. More importantly, it is shifting focus towards areas where pricing is more resilient — cross-border payments, foreign exchange, trade finance and other value-added services.

One of the most significant opportunities lies in Africa’s structural transition, particularly in energy, infrastructure and the critical minerals that will power the global shift to new energy systems

—  Luvuyo Masinda, corporate and investment banking CEO

This is where its continental footprint becomes a competitive advantage. Facilitating trade and capital flows between African countries — and between Africa and the rest of the world — is not easily replicated. It requires licences, infrastructure and deep client relationships. The bank’s moat is not merely scale but also the underlying systems. And with trade flows across key corridors already exceeding $1-trillion and growing at 4%-10% annually, the opportunity is substantial.

Here, Standard Bank’s partnership with Industrial & Commercial Bank of China provides another advantage. It gives the group a direct link into one of Africa’s most significant trade and capital corridors, allowing it to channel funding and facilitate flows between the two regions.

Through this relationship, Standard Bank can support Chinese corporates investing in African infrastructure and resources, provide renminbi funding and cross-border financing solutions, and intermediate trade between African exporters and Chinese importers. It also strengthens the bank’s ability to originate and execute large, complex transactions, where advisory and structuring capabilities are key.

The focus on non-interest income does not mean the group is stepping away from lending. Balance sheet growth still matters, particularly where it supports larger structural trends. As CIB CEO Luvuyo Masinda put it: “One of the most significant opportunities lies in Africa’s structural transition, particularly in energy, infrastructure and the critical minerals that will power the global shift to new energy systems.”

The continent’s energy funding needs are estimated at $130bn-$170bn a year, with infrastructure requirements of a similar scale. Meanwhile, investment in critical minerals such as copper and cobalt is creating additional demand for financing and advisory services.

Underpinning the group’s overall strategy is a multiyear investment in technology. Standard Bank has modernised its core systems, migrated much of its processing to the cloud and expanded its digital capabilities — contributing to improved cost efficiency, greater system stability and rising client adoption. AI is being deployed across the business, from customer service — where conversational AI handles a growing share of queries — to credit processes and internal tools.

The financial targets strike a balance between growth and discipline. The group is targeting headline earnings growth of 8%-12% and a return on equity of 18%-22% over the medium term — strong by global standards and underpinned by faster growth in the rest of Africa. Like most South African banks, aside from Capitec, it has an undemanding valuation and trades on roughly 10 times earnings.

However, the high returns come with higher risk. Many of the markets driving growth are inherently more volatile, with greater exposure to currency swings, political uncertainty and external shocks. The war in the Middle East and the resulting pressure on energy prices are a reminder of how quickly those risks can surface.

As Masinda acknowledged during the Q&A, over a prolonged period higher oil prices would be “quite detrimental”, pointing to the knock-on effects of rising inflation and tightening foreign exchange liquidity.

Ultimately, Standard Bank is betting that the rest of Africa will not only grow robustly but that more of that growth will flow through the banking system — and that it can capture a disproportionate share, particularly through non-interest income.

It’s a strategy that builds on what has worked in South Africa while recognising that the competitive landscape is shifting. Whether it delivers will depend less on the macro backdrop — which remains broadly supportive, aside from the risk of a prolonged oil shock — and more on execution in markets that are as complex as they are promising.