Newcomers to South Africa's banking industry, such as TymeBank, Discovery Bank, and Bank Zero, are cannibalising retail markets previously owned by traditional "big four" banks. TymeBank recently signed up its eight millionth customer, a feat achieved just four years after its 2019 launch. However, these challenger banks are not confining themselves to the retail sector in their quest for market share; some have started to launch business offerings in the latest threat to traditional, branch-based institutions.
South African consumers are more price conscious, no matter the income segment, making affordability a strong differentiator. The new banks offer savings on fees for deposits, withdrawals, and other transactions, as well as better interest rates on savings and deposits. TymeBank has managed to garner a sizeable portion of the consumer market by offering the best savings rates (up to 11%) on top of a cost-effective banking suite.
The drive towards better value for consumers in retail banking is now shifting to commercial banking, which is far larger than the retail segment in terms of revenue. Challenger banks have taken notice and are now starting to target this market, too. Bank Zero co-founder and executive director Lezanne Human said that business customers make up 12% of customer volumes, which is a higher percentage than traditional banks.
Much of the success that some challenger banks have achieved can be attributed to price differentiation, as these would-be disruptors usually take aim at the lower end of the market, where customers are price sensitive. The ability to deliver innovative products of value at low cost has proven to have benefits beyond attracting the intended target market.
Traditional banks are not blind to the threat posed by the digital-first banks. Over the years, they have responded with significant investments into their own digitisation efforts and introduced accounts with lower fees. Sanlam Fintech CEO Riaan van Dyk said it is difficult for legacy banks to transition from the old to the new paradigm but necessary to shield them from disruption by newcomers.
Some digital challenger banks are also edging into private banking, taking them into a potentially lucrative space. Although this may not bode well for the incumbents, it is likely that consumers will benefit from the disruption in ways similar to the mass market retail sector: with more choice and downward pressure on pricing.
