South African bank battle heating up

The battle to win over customers in the South African banking sector is intensifying between the country’s traditional banks and new digital entrants.

However, according to a Sunday Times report, these new banks, such as Bank Zero and TymeBank, appeal to the South African public by offering products with very little to no fees, something bigger banks struggle to do.

These new entrants appeal to price-sensitive consumers, the younger generation, and those who don’t make many transactions per month, Aeon Investment Management research analyst Shaakir Saalie told the Times.

Their ability to minimise capital and operational costs primarily involved partnerships with retailers for cash withdrawals instead of rolling out ATM infrastructure, Saalie said.

However, he added that the “brand and balance sheet strength” of South Africa’s major banks, which include FNB, Absa, Standard Bank, Nedbank, and, more recently, Capitec, will make it difficult for newer contestants to gain market share.

He said focusing on convenience, superior customer service, and targeted value propositions will be key to disrupting the big four, as was proven possible by Capitec.

Bank Zero CEO Yatin Narsai said that unlike other major banks, which advertise accounts without any fees and then charge for debit orders and EFTs, Bank Zero is able to keep its promise of zero fees.

This is primarily due to Bank Zero not having the underlying cost structures that bigger banks do.

“This means that customers are often sceptical about us offering real zero-fee accounts,” Narsai said.

“The only way we can show how we differ from them is over time — it’s now the fifth year in a row that we have shown our commitment to that.”

Similarly, Tymebank chief strategy officer Rohit Subramanian said that the company keeps its costs low by having only a digital presence and no physical branches.

This allows the banks to offer “a lot more at a lower cost” to consumers.

Subramanian says the bank, which has just surpassed 11 million customers, was also the only one to offer PayShap. The payment solution allows users to make and receive instant payments using a registered cellphone number.

Bank fees comparison

A recent MyBroadband analysis showed that Bank Zero offers the most affordable fees of the three prominent digital banks in South Africa: Bank Zero, TymeBank, and Discovery Bank.

Using a basket of monthly transactions, we compared the total cost charged by each bank.

Bank Zero had the lowest total basket cost, which was R14 less than the next-most affordable option, TymeBank.

Discovery Bank was the most expensive by a large margin, at R108.90, which is R65 more expensive than Bank Zero and R51 more than TymeBank.

When comparing Bank Zero and TymeBank’s total basket costs, the primary difference is TymeBank’s slightly higher point-of-sale withdrawal, SMS notification, and prepaid recharge fees.

Discovery Bank was much more expensive than the other two digital banks, primarily because it was the only one of the three to charge a monthly account fee of R30.

It also charges for external debit orders and digital payments, which the others do not.

Absa’s head of pricing, Jean van Rooyen, argued that while digital banks are aggressive on day-to-day pricing, customers must consider the full banking relationship.

Van Rooyen said new banks do not have an established ATM network, branch network, and the full range of financial products and services customers require at specific life stages.

He said Absa offers all the products and services a consumer needs in one place and rewards them for a full relationship through Absa’s rewards programme.

Mutsa Chironga, managing executive of Nedbank’s consumer segment, said they also uses their group rewards programme to offer a high level of cashback, which helps attract and retain customers.