Transforming the South African banking landscape: Eight emerging trends (Part II)

Following on from yesterday’s article, EY’s eight identified megatrends will reshape the SA and African banking sector, compelling them to reassess business models and adapt to new realities.

These trends have global implications but are influenced by local nuances. Banks must confront these challenges to survive, as transformation becomes crucial.

Understanding these trends and finding solutions will be essential for banks to thrive in an evolving society.

Innovate for what’s now, or innovate for what’s next?

Here are the remaining four significant trends:

5.     Digital assets challenging the status quo

6.     The broadening scope of regulations

7.     High operating costs affecting competition

8.     The challenge of seamless cross-border payments

5. Digital assets offer brave new world for the banking sector.

Incumbent banks face challenges from fintech companies and challenger banks, leading to the need for adaptation and innovation to remain competitive.

The rise of digital assets presents new opportunities and challenges for the banking sector, with a projected market worth of $27 trillion by 2027. Banks must understand different technologies, redefine business models, work with regulators, and invest in proof of concepts to become trusted custodians of all assets.

Key questions for banks include understanding customer needs, talent requirements, growth strategies, necessary technologies, and the impact of Central Bank Digital Currencies (CBDCs).

Ultimately, banks that successfully manage this transition will see a seamless interaction between digital and traditional assets and a radical shift in client engagement.

6. Technology helps banks manage expanding regulatory perimeter.

New regulations addressing climate change, cybersecurity, and financial stability are expanding the regulatory perimeter for banks.

Technology, such as generative AI and digitisation, helps banks navigate this landscape, ensuring compliance and seizing opportunities for innovation.

It streamlines compliance processes, enhances risk management, improves reporting accuracy, and uncovers new growth opportunities.

Despite the challenges, technology enables banks to adapt, cut costs, and build robust regulatory frameworks.

7. Traditional banks battle embedded costs as nimble new entrants make hay

Fintech start-ups and digital-first banks disrupt the banking sector with low operating costs, while traditional banks face challenges due to legacy operations.

South African banks struggle with high costs compared to emerging markets. To compete, traditional banks must transform their infrastructure, learning from the technology approach of new entrants.

Comprehensive process mapping, simplification, and organisational redesign can reduce costs, improve customer service, and increase agility. Cost reduction is crucial for remaining competitive in the future.

8. Africa’s cross-border payments challenge remains a massive opportunity for banks.

Achieving frictionless cross-border payments is crucial in Africa due to its diverse currencies and regulatory frameworks.

The traditional system of intermediaries and correspondent banks leads to delays and high fees, especially for small businesses and individuals.

Although mobile money and digital payments have grown, a seamless and affordable cross-border payment system is still needed. Banks have an opportunity to extend their reach and customer base by creating a comprehensive solution that addresses accessibility, affordability, and trust.

This unfulfilled need for genuinely frictionless payments presents a significant opportunity for banks looking to enhance their operations.

To crack this puzzle, they should start by truly understanding the needs of their customers and tailoring a solution accordingly.

In summary of the series, it is evident that banks that are best prepared to adapt to industry trends will be the ones that thrive in the future, experience successful transformation, and maintain relevance in our rapidly evolving society.

Click here to download a PDF of the full series.

This EY insight series is authored by Marius Van den Berg, EY Africa, Africa Banking and Capital Markets Advisory Leader; Gail Moshoeshoe; EY Africa Financial Services Partner; Clemence McNulty, EY Africa Climate Change and Sustainability Services Leader; Brian Wilson, EY Africa Core Banking and Temenos Alliance Leader; Sean Berrington, EY Africa Technology Partner; Kavi Pather, EY Africa Advanced Analytics and AI Leader; Michelle Kotze, EY Africa People Advisory Services Leader, Natasha Diakides, EY Africa Learning and Development Leader and Claude Joshua, Business Payments Engineer, EY Consulting