The South African financial services landscape is likely to become unrecognisable in the near future as many new banking entrants and fintech platforms challenge both existing business models and the status quo.
Sim Tshabalala, chief executive of the Standard Bank Group told a GIBS forum he anticipates dramatic changes in the way banks operate and the products they offer to customers across their retail, commercial and investment platforms.
“I cannot yet tell you what the bank of the future will look like in five to ten years time,” Tshabalala said.
Digitisation and the future of banking
Widespread digitisation across industries has meant consumer expectations of what banks deliver is largely determined by technology, Tshabalala explained.
Fintech platforms and new entrants to the payments space such as Facebook’s Libra will have interesting consequences for the global and South African financial services industry: “They are all our competitors now, not just the other banks. It is a brave new world we are entering.”
While the competition for retail customers driven by new technology offerings has received much attention, it is, in fact, the revenues in the corporate and investment banking space, as well as insurance and asset management that are most under threat from fintechs and big techs, Tshabalala said.
“I am terrified of big tech and fintechs in that space. As new entrants, they are disruptive and are creating new value propositions that are attractive to clients,” he said.
However, while Tshabalala conceded these new forces will change the financial services industry, he argued that the incumbents have yet to respond fully and that when they did, they would be very difficult to compete with. “I have confidence in the banks. They will be here in five to ten years time. They will look different, but the will be in existence. It is the way that things are done that will change.”
Tshabalala said the winners in the new banking environment would be those banks that are able to respond appropriately to the new product offerings. Banks need to find ways to make sure that their customer experience, systems and products are as good as those provided by platforms, and at the same low price point.
“New entrants into the banking space will force greater competition, which is good for customers and good for society,” he said. Standard Bank’s response to new technologies and entrants is to partner with fintechs and develop products that will enable them to remain relevant and competitive. Tshabalala explained the bank is “spending a lot of time and money to put ourselves in a position which will enable us to compete” by entering into collaborations to develop cloud, blockchain, robotics, and AI capabilities.
While these shifts will have profound implications, Tshabalala said he doesn’t believe banking jobs will be decimated, but that rather different jobs would emerge. “Entirely new job categories are being created all the time, and banking is fundamentally a human industry. We will still need people with empathy.”
He added that there was an urgent need for a dialogue between government, business, labour, and the universities to determine what skills the country and corporates need, as many skills such as IT were still being imported, rather than sourced from among local graduates.
“We are still importing so many skills, while Johannesburg and Cape Town are quickly becoming leading fintech hubs that are able to compete with the likes of London and Berlin.”
There is not much to differentiate a platform and a bank at present, as both have large networks. However, banks are regulated in terms of liquidity and capital adequacy requirements, rules that do not currently apply to fintech and big tech as they don’t have banking licenses, Tshabalala explained.
“Fortunately, the approach of the South African Reserve Bank is to regulate on the basis of activity, so if you are a deposit taker, you are expected to have a banking license, and if you enter the payment system, there are certain requirements that you are expected to meet. But, there are loopholes in South Africa and massive loopholes in Africa that can be exploited,” he said.
Furthermore, he warned: “a lot of these entities introduce risks into the system which is disproportionate to the benefits that they bring. My argument is that if it behaves like a bank, it needs to be regulated like a bank.”
Facebook’s Libra payment system poses potential risks to the value chain, Tshabalala argued: “My earnest hope is that it gets regulated properly and appropriately as it is a formidable partnership.”
Tshabalala described Standard Bank as “a company with resilience” that decided to focus on becoming a regional player after the 2008 financial crisis by disposing of interests outside of the African continent.
With a presence in 20 countries on the continent, the bank’s operations outside of South Africa now contribute a third of the company’s revenue. “Our competitors don’t have our network on the ground, and it cannot be easily replicated,” he added.
However, big tech and platform players are in South Africa, and “are thinking very carefully about what to do here and on the continent. South Africa is a great base off which to exploit the opportunities here and in Africa, and the opportunities are vast,” he concluded.