South Africa’s new banking entrants – Discovery Bank, TymeBank and Bank Zero – all expect to have substantially lower cost-to-income ratios than the big five lenders.
According to a new report by Reuters, this will help them stand out in an industry dominated by the current ‘big five’ of Capitec, Absa, FirstRand, Nedbank and Standard Bank.
All three newcomers will have fewer employees, lower administrative expenses and less need for costly back-office technology – with the aim of wooing customers with no fees, higher rates on savings and cheaper credit.
While the new banks declined to put a figure on their expected cost-to-income ratios, four industry executives indicated to Reuters that they had worked out efficiency ratios of 25% to 30%.
This number is closer to 60% for the current ‘big five’.
“I have been dumbfounded at how low the cost can be,” said Bank Zero’s co-founder Michael Jordaan.
“Our technology cost is 1% of 1% of the annual tech budget at one of the big banks.”
“There’s anxiety in executive committee meetings about what’s about to happen,” an executive at one of the big banks said. “Your regular bank will be happy with a cost-to-income ratio of 50%.”
These concerns have been compounded by Capitec’s ‘aggressive pricing model which has resulted in it doubling its client base in the past five years, Reuters said.
“While we haven’t disclosed yet what our pricing structure will be, the name Bank Zero should give you a very strong hint of what the banking fees should be,” Jordaan said.
“Once we launch, there will be many more things that we think we can do to revolutionise banking, not just in South Africa, but also other emerging markets,” he said.