How SA’s ‘legacy’ banks stay relevant in the digital age

Because money is so central to our lives it is little wonder that these predictions have covered that topic in detail. We have heard everything from the demise of paper money to the demise of money itself.

Where does that leave you if you’re a traditional bank?

In South Africa, we lived, for a long time, with four big banks (Standard, Nedbank, Absa and FNB). While some spectacular specialist bank successes (Investec, RMB) made life a bit more interesting, the reality is that these four players with their colour-coded marketing dominated the financial sector.

Recent years have seen two major disruptions to this cosy pie chart. First, the rise of Capitec Bank, which understood the mass market in a way the others had missed, and is now the second-largest bank in the country. And second, indeed, is the impact of digital.

There are now 19 registered banks in the country – and some, like TymeBank and Discovery Bank – are heavy digital plays. By which I mean they use technological superiority, customer experience and a digital-age message to position themselves.

But this undersells the complexity of the picture. From a service offering perspective, banking includes four main areas: home loans, vehicle loans, savings/credit and commercial banking. However, the consumer sees banking or financial services more broadly to include anything to do with money – wherever money is spent, invested, borrowed or exchanged.

This opens the field to many non-banking players. In Africa, a lot of money is exchanged via cellular – data. Services such as PayPal, Zapper and Apple Pay – while not directly challenging banks – change the way money flows and capture some of the fees along the way. And on the most radical end of the spectrum are new currencies such as Bitcoin, Ethereum and (perhaps) Facebook’s Libra, which are trying to re-invent money without the need for banking (although they cannot replace the most profitable part of banking, which is credit).

With this as background are traditional banks doomed?

Well, let’s circle back to that word again. When it comes to money nothing matters more than trust. It’s a cliché but it’s also baked right into the concept: money is, after all, a pretend way to store value based on the trust that that pretence will be believed by whoever you are handing the money to in exchange for non-pretend things. And trust is earned, slowly and with difficulty. What the big banks have – and one must include Capitec on this list now – is the trust of banked South Africans. You give the bank your money, they’ll look after it and give it back when you want it. That’s no small thing. In fact, it’s everything.

Capitec was able to succeed because it brought many people who were not banking into the circle of trust. On the back of that, they were able to start pillaging other banks for customers. It’s worked but it’s no easy matter to repeat this. It’s little wonder that one of the main challengers is Discovery – a company that is, although a love/hate brand for many, at least established.

There is no doubt that we have become more trusting with our money in the digital era. E-commerce was once thought to be a bridge too far for most consumers. And indeed, online transactions have opened up a wealth of new fraud options and scams. But in the end, this has not deterred millions of people from transacting on the internet and making companies like Amazon, global super-corporations.

But trusting a merchant to deliver a product is different to trusting someone to hold, grow, look after and manage your money. The 2008 financial crisis showed just how cavalier some of these institutions were with people’s trust (and their money) and plunged a lot of countries and their populations toward a fiscal precipice.

South Africa was largely shielded from that particular crisis and overall enjoys an incredibly healthy, well-run and trustworthy banking sector. We have progressive banking legislation and excellent institutions.

Does this mean they are immune from disruption?

In the short term, yes. South Africans are not big risk-takers with their money and it would take a catastrophe to shake the trust these banks have spent decades building.

However, in the longer term these are three things I believe South African banks need to do to be able to stay competitive:

• Customer experience: The fact that a number of the major banks still have websites, apps or products that are frustrating, confusing, slow and feature a poor customer experience (even compared with each other) is a self-inflicted injury. While we all know there are complex systems that sit in basement server rooms still running COBOL that are mind-bogglingly hard to integrate with, great customer experience design does not depend on new-fangled SAAS systems. It does require the right kind of mindset and teams unencumbered by bureaucracy and corporate politics.


• Organisational redesign: Our banks are large corporates that struggle with organisational structures that have become unattractive to the smartest, most innovative employees. They pay great salaries but that will only get them so far. It may seem insurmountable to re-invent the organisational model of decades-old business with tens of thousands of employees but it’s been done – and it needs to be done. Otherwise, the talent will go to the start-ups and other sectors.


• Trust 2.0: Most important, big banks should be asking themselves how to take the one thing they have a massive advantage in – the trust of the consumer – and bake that into new products and services designed for the emerging digital age. This requires a shift in their self-belief – not seeing themselves as traditional but as trusted – and re-invigorating a pride in these South African brands.