South Africa’s banking sector is increasingly moving towards a ‘marketplace without boundaries’, shaped by the fast-approaching entry of new digital players challenging the status quo in the market, and driving unprecedented levels of innovation.
In response, the ‘four universal banks’ (Absa, FirstRand, Nedbank and Standard Bank) have continued to pursue large-scale transformation programmes aimed at improving customer experience, digital transformation, and new ways-of-working and enterprise-wide cost reduction. These are some of the key highlights from PwC’s Strategy & on the future of banking analysis in South Africa this month.
“Unlike their challengers, the four universal banks have the principal advantage of being able to serve a sizeable share of South Africa’s retail and corporate banking customers. To maintain this advantage, and meet the challenge posed by fast-paced entrants, the four universal banks will need to develop clear innovation strategies and operating models. Further, they will need to embed a culture that supports agility and measured risk-taking.” Jorge Camarate, Strategy & Partner in PwC’s financial services division said.
PwC says in 2017 it identified three trends developing in the market that could impact South Africa’s local banking sector. They included the emergence of digital solutions with lower-cost models launched by adjacent financial services players, the emergence of sector and industry-specific banks, closely integrated with broader supply chains, launched by non-financial services players and Ongoing transformation of the four universal banks to address changing customer, regulatory and technology needs.
‘’The past year has confirmed our view on the changing nature of the banking sector, although the pace of change has in some instances slowed down’’
‘’A number of new digital players are also being encouraged by the friendly regulatory environment promoted by the local banking regulator, the South African Reserve Bank (SARB). These local developments are in line with trends already at play in other countries, and are likely to result in more participants entering the local banking market.’’
The report puts forward a number of proposals for consideration by universal banks in order to compete with new digital entrants. “We believe that the four universal banks can, and will rise to the challenge posed by new digital entrants, by learning and employing the same tactics that have made digital banks a real threat to their traditional counterparts,” Chantal Maritiz Strategy & Partner in PwC’s financial services division says.
The first step for the universal banks to compete on an equal footing with fast-paced digital entrants is to develop a clear, enterprise-wide innovation strategy and operating model. Our experience suggests that the most effective organisations employ a hybrid model, using a variety of innovation vehicles in a structured manner to pursue core, adjacent and disruptive innovation concurrently. An enterprise-wide innovation strategy also needs to be underpinned by a supportive culture to achieve its desired effect.
“The future of banking in South Africa is dynamic and exciting. Agile new entrants with a differentiated value proposition and a business model focused on the monetisation of customer insights will compete head-on with universal banks reinvigorated by new innovation strategies.” Maritz said.
Not all banks will succeed in this new environment, but those quickest to adapt will benefit and capture a disproportionate share of the future banking market.
