New banks will drive down the cost of banking for everyone in South Africa: PwC

PwC has released a new analysis focusing on South Africa’s major banks in 2018.

While the majority of the analysis looked at the banks’ outlooks and financial considerations, it also focused on internal responses, new technology and regulatory changes the banks are currently dealing with.

“Strategically, the major banks continue to comment on many of the themes we have noted previously – including digitising and integrating legacy processes through robotic process automation efforts, and channel and product innovation to deliver richer customer experiences,” PwC said.

“At the same time, they are also taking steps to get ahead of regulatory changes – including embedding IFRS 9 from 1 January 2018 (for those banks with December year-ends), and initiating programmes to deeply analyse the prudential reforms collectively referred to as ‘Basel IV’.”

However, arguably the theme that resonated most strongly in the banks’ results announcements for the current period was their continued focus on building their digital strategies, said PwC.

“It is evident from the results that the banks have continued to spend considerable time and cost on their digital strategies, refining and simplifying products and enhancing their loyalty programmes to continue to reward clients – all in a focused effort to attract a greater share of customer wallet.

“We have also noticed a drive to digitisation beyond the back office, including risk and compliance areas.”

New Competition

While a number of these changes are being driven by internal and regulatory factors, PwC said that competition in the banking market is clearly on the rise as the major banks cautiously observe new entrants – particularly those with fully-digital orientations.

“The competitive domestic banking market landscape, and the continued transition of customers to digital channels, has become increasingly visible in the combined major banks’ results,” it said.

“This has manifested in the form of lower transactional fees and commissions in retail banking, competitive pressures in deposit pricing, and depressed margins in the trading businesses.

“These competitive pressures are set to increase in the next few months, as the market anticipates the launch of new entrants and wider product offerings from existing banks,” it said.

Discovery Bank announced in September that it will acquire FirstRand’s effective and economic interest in the Discovery Card loan book and has indicated its intended public launch in the fourth quarter of 2018.

In addition, indications are that TymeDigital, Bank Zero and Postbank are drawing closer to their public launches, having recently obtained banking license approvals, while African Bank also announced its intentions to move further into the transactional banking space.

“At the same time, in recent weeks we have seen growing interest in the banking market from non-bank financial services players,” PwC said.

“Old Mutual highlighted the growth it has achieved in the transactional accounts space and also commented that there are opportunities to compete in the transactional banking market.”

Read: South African banks face ‘chicken or egg’ dilemma

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New banks will drive down the cost of banking for everyone in South Africa: PwC