Sweeping changes in technology are forcing South Africa's major bank to realign their ICT strategies. After years of big investments in ICT to bolster profits by improving efficiency and productivity, they're now stepping up spending on emerging technologies to enhance customer service, strengthen security and open new markets.
The shift is vital. Disruptive technologies, especially digital services, data analytics and cloud computing are opening up the banks' markets to competitors, says Deloitte director Thys Bruwer. Companies can move into the banking business more easily and launch products quicker than ever before, he adds.
South Africa's banking giants boast huge financial reserves, extensive ICT resources, legions of customers and prominent marketing brands. But an array of contenders is jostling to get a foothold in new markets like mobile banking, online payments and peer-to-peer lending. Retailers such as Pick 'n Pay and Woolworths are expanding their banking operations, lifestyle services company Discovery is ramping up its wealth management business, while Capitec Bank is grabbing a big share of the retail banking market.
"The integration of ICT systems and processes is a massive struggle for the major banks," says Bruwer, who leads Deloitte's financial services business. In the past 20 years, all the big banks have grown through mergers and acquisitions and have inherited a wide range of different legacy systems, processes and networks. Keeping these disparate legacy systems running while also implementing new technologies crucial for future success is far from easy.
Customer demands
Delivering systems and services with high availability and resilience is one of the biggest challenges facing local banks, acknowledges Mo Hassem, CIO at FNB: "Technology, and the ways it is used, is becoming more and more complex," he says. Customers are demanding services they can access anywhere, at any time and they're unforgiving when systems fail.
But downtime is often a perception challenge. In recent months, Standard Bank has come under fire for system failures, yet the problem appears bigger than it is. According to DownDetector.co.za, the bank only experienced five notable outages in the past six months. Although this doesn't account for every outage, it's far below what many international banks are experiencing.
DownDetector CEO Tom Sanders agrees that legacy has a role to play, but it's more about overzealousness meeting inexperience: "This whole mobile banking thing is new to everybody. Just like Facebook and Twitter suffered major outages in their early days, so will banks."
He also raises a pertinent point: "I have yet to see a bank that put their client's interest first when they communicate about outages. I've seen them deny outages on Twitter, even though the outage had been going on for more than an hour, or they simply stop communicating at all."
Arthur Goldstuck, MD at ICT researcher World Wide Worx, suggests that many such interruptions may have been caused by attempted cyber attacks. "The reasons the banks give for some of the glitches just don't make sense. If there has been an attempted breach of a bank's security, it's sometimes best to bring the systems down until the threat has been resolved," he says.
Goldstuck adds that South Africa's banks currently don't have to disclose if their ICT systems have been compromised by a hacker. However, the new Protection of Personal Information (POPI) Act, due to be implemented soon, will force companies to divulge if they have lost client data through a cyber attack, he says.
The branch dilemma
Banks find themselves in a twilight zone. After resisting internet and mobile banking for years, the rate of converting to those platforms has been astounding. According to the British Banking Association (BBA), in 2013, UK consumers conducted over 18 million transactions a week through banking apps - double the rate of 2012. FNB managed to grow its app user base to half a million in less than two years since launching in 2011.
This raises the question of what will happen to the bank branch? Some have been quite bullish about its growing redundancy. Even the BBA mooted the decline in branch relevance: "When I told a bank chairman recently that I last visited a branch three months ago, he was surprised it was that recent and asked jokingly, 'Are you in financial distress?'," wrote BBA chief executive Anthony Browne.
But internet banking's role may be over-emphasised. A 2014 World Wide Worx study found that ATMs are overwhelmingly (90%) favoured for banking transactions and branches still attract over 80 percent of customer business - a number that has increased.
Online and mobile banking is growing, but by far the biggest uses include balance queries, notifications and buying airtime - generally either grudge transactions branches are glad to hand off or new revenue streams suited for digital channels.
Research by the CFI Group released earlier this year actually challenges conventional wisdom: footfall at branches is down, but customers still consider well-located bank branches as key to their choice of institution.
A major challenge remains the many people in lower LSM classes who do not engage financial systems. In recent years, this has seen a bit of an about-turn, yet reality still lags behind perception. From a continental view, up to 80 percent of the population are not using formal financial services, findings backed by both McKinsey & Company and the World Bank. Southern Africa fares considerably better, with roughly half of adult population holding formal bank accounts.
Reaching the unbanked
Several things inhibit the uptake of such services, including cost barriers for entry, basic financial literacy and geographic distances. The main weapon to fight this is mobile money, most commonly characterised by Kenya's hugely popular M-Pesa system.
Yet, mobile money in South Africa has been catastrophic: earlier this year, Vodacom admitted its flavour of M-Pesa, which it relaunched, fell far short of expectations. MTN Banking has had similar struggles. Roughly nine million South Africans use mobile money, but only three percent of those fall in the LSM 1-4 classes.
Some have put the blame on the convoluted regulatory landscape that requires a provider team up with a bank. In written responses to questions, Finmark Trust, which promotes financial inclusion of the poor, agrees that regulation is a factor, but adds that the availability of more sophisticated services is also an inhibitor.
"The existing financial infrastructure (sophisticated banking system), including bricks and mortar banks, ATMs, POS, retailer money transfers, etc., has reduced the need for mobile money solutions."
Can banks reach the poor?
It noted that the low use of even mobile banking among lower LSM classes is clear evidence that 'that technology does not effectively reach this market'.
Yet, the picture isn't entirely gloomy. The Finscope 2014 banking survey revealed financially included adults in SA have grown from 17.7 million in 2004 to 31.4 in 2014. People who rely solely on informal financial systems have dropped by nearly a million in that same period. That said, between 2013 and 2014, formal inclusion rates virtually stalled, while informal rates grew.
Despite strong pressure from government, the big banks have struggled to meet the needs of the ten million 'unbanked' South Africans. Successful solutions, says Chris Wood, head of emerging payments, strategy and regulation at Nedbank, will not provide typical banking services, but rather deliver new facilities, such as mobile payments and transfers, which provide value to people's lives.
Technology is not a silver bullet. Although new platforms have given banks some agility, the real barriers appear to be cultural, typified by poor communication and a lack of real product innovation. It seems South African banks are mainly benefitting from implementing strategies in other markets, such as apps and smart devices, and failing to properly localise other success stories like mobile money. The fault is not entirely theirs, but it does suggest a remedy beyond simply switching technology.
This article was first published in Brainstorm magazine. Click here to read the complete article at the Brainstorm website.
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