Three digital newcomers set to disrupt the South African banking industry

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Reuters reports that three South African digital banks- Discovery Bank, TymeBank and Bank Zero, are betting on aggressive pricing and data analytics to attract tech-savvy, price-conscious consumers when they launch next year.

The $30 billion South African banking industry has not faced competition since the early 2000s, when Capitec Bank muscled into a sector dominated by Absa, FirstRand, Nedbank and Standard Bank.The three mobile banking newcomers will have substantially lower cost-to-income ratios than the big five lenders, giving them scope to disrupt the pricing of retail banking products in South Africa.

Chief Executive of TymeBank, Sandile Shabalala told Reuters that “we are here to shake up the status quo. Much the same as Uber did in the taxi industry”.

Elsewhere in Africa, 350 million people have no form of bank account and lenders such as Standard Chartered and Ecobank are testing the waters with digital banks. However, South Africa presents a different challenge, as it is a market where over 80 percent of the population already have bank accounts.

The South African digital banks hope to attract customers by offering fees as low as zero, higher rates on savings and cheaper credit. This will be made possible because the banks can operate with fewer employees, lower administrative expenses and less need for costly back-office technology.

All three companies declined to put a figure on their expected cost-to-income ratios, but four industry executives who spoke on condition of anonymity said they had worked out efficiency ratios of 25 percent to 30 percent, compared with nearly 60 percent for the brick and mortar banks.

Best known for turning FirstRand’s retail banking operation into the most profitable in South Africa, Michael Jordaan, Bank Zero’s co-founder said “I have been dumbfounded at how low the cost can be. Our technology cost is 1 percent of 1 percent of the annual tech budget at one of the big banks”.

TymeBank has said it will launch officially next year, Bank Zero is aiming for early 2019 and Discovery Bank is due to launch in March.


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