The global banking market is undergoing no small number of changes as advancements in technology impact the way it does business, and who its competitors are. Banking alternatives such as Facebook, Amazon and Apple are putting pressure on the traditional banking model and technology is bringing disruption across accessibility, connectivity, forms of payment and security. While the South African banking sector may not be on the edge of collapse with the influx of tech and competitors, its vital role in the country begs the question - how can banks afford not to pay attention? Disruption is guaranteed to lie around the corner and the unprepared are likely to become the underdog.
"Banking alternatives could soon become the norm as technology companies scramble to fill a gap in the market, especially where banks are unable to service the social media generation thanks to constraints in legacy infrastructure," says Frank Rizzo, Data & Analytics leader, KPMG. "The question as to whether banking alternatives like Facebook or ApplePay would reach South Africa is the topic of extensive debate by banks, especially how they respond to these disruptors."
For now, the South Africa E-Money Directive issued by SARB is preventing any of these solutions from operating in South Africa unless a bank is involved. The legislation was established to ensure the safety of the National Payment System and is very much putting a damper on disruption from these giants. For now.
Reinvention
Carmen Whateley, MD, Accenture Digital, South Africa, says: "Banking alternatives are already having an impact in South Africa if you consider that they pose a challenge to banks. These players are leaders in the C2B business and set market standards when it comes to customer engagement, and they set new expectations on the quality of the digital experience. In the local context, this is more of a threat than the financial service offerings these alternatives provide."
Of course, there are threats within the borders that are just as much a concern for the financial sector as Amazon swooping down with its new payment solutions. Capitec, African Bank, Banc ABC and a new bank incoming from Discovery are readying their positions within the digital banking space of South Africa and they are not bogged down by the challenges of legacy infrastructure and rigid internal systems.
"These banks are more able to reinvent themselves as part of positioning themselves for the future," says Craig Leppan, Business Development director, Ovations. "As a local bank, I would worry more about what is coming out of the startup and innovation communities than Amazon and Facebook."
Some banks have sat up and paid attention. Standard Bank recently launched the Pathfinders Challenge, which seeks out disruptors in the financial services and banking industry, FNB launched its own mobile network in 2015 and is continually adding new functionalities to its award-winning app, and ABSA has create a new predictive alert service that is tailored to customer preferences. The reality is that, if the banks don't disrupt their own services, someone else will.
"With the changing landscape and the pressures of keeping up with technology, banks are looking to tap into capabilities and creativity outside their own environment," says Vuyo Mpako, head of Digital Channels and eCommerce at Standard Bank. "This has given rise to the collaborative efforts that see institutions working together with FinTech firms to create customer-centric, technology-enabled solutions."
Age of the customer
Mpako has hit the proverbial nail on the head. As banking products and offerings become increasingly commoditised, the new battleground rules are being set by the customer. The days of banks controlling footfall based on location and branch volume are rapidly declining.
The question as to whether banking alternatives like Facebook or ApplePay would reach South Africa is the topic of extensive debate by banks, especially how they respond to these disruptors.
Frank Rizzo, KPMG
"Banking has moved away from the age of distribution, where the number of branches or advisors guaranteed dominance in the market," says Oliwia Berdak, senior analyst, eBusiness & Channel Strategy, Forrester. "We've also moved away from the age of information, where leaders grew by mastering information technology to bring efficiencies to products that are intangible. We have now entered the age of the customer, and digital disruptors are often better than incumbents at using digital tools to serve customers."
The South African banking institution may not be facing immediate danger when it comes to alternative forms of payment, but many haven't grasped the full potential of digital disruption. Digital platforms such as Google are disruptive because they don't play by the rules. Instead, they use digital to deliver better or entirely new ways of meeting customer needs, often bypassing regulation and redefining a given industry in the process.
"Customers are demanding more when it comes to banking services and if they don't get it, they are willing to switch banks," says Paul Opie, Banking Field Marketing manager for Africa, Gemalto. "To maintain customer loyalty, they need to prove they are championing the digital revolution and offer clients smooth, secure and frictionless payment."
Disruptors are not welded to business models or focused on specific solutions. They are, instead, looking to how their digital experiences can solve customer pain points. Will the South African bank be torn down by alternatives? Not yet, maybe never. Banks will, however, be challenged and disrupted by the technologies and services created and delivered by those who ignore convention and redefine the financial services landscape.
"There are some very interesting thought leaders in the banking IT space who are saying, 'Let's work together as banking IT to make South Africa better'," says Leppan. "They are encouraging the use of local people, growing skills and putting a stop to our sending all our development to offshore companies. They are applying lean and agile to their own large organisations and are already seeing big improvements."
The blockchain
Blockchain technology has continued to evolve and develop as all sectors, including banking, recognise its value in security and authentication. In fact, the number of financial institutions sitting up and paying blockchain attention is growing rapidly, and there are a number of locally-based global banks that have investigated the use of blockchain. Citibank is one such bank and has developed a Bitcoin alternative called Citicoin and instituted three systems to deploy blockchain technology.
In 2015, Barclays partnered with Safello to test banking services on blockchain, and in April 2016, Microsoft struck a deal with the R3 Consortium to investigate and accelerate the use of blockchain technologies. The R3 Consortium consists of a number of international financial institutions, which include Credit Suisse, J.P. Morgan, Deutsche Bank and the Royal Bank of Canada, among many others. To add icing to the blockchain cake, Deloitte partnered with the World Economic Forum (WEF) to explore the technology alongside more than 40 other financial industry leaders, more than 100 technology innovators and six global workshops.
...digital disruptors are often better than incumbents at using digital tools to serve customers.
Oliwia Berdak, Forrester
"Building on the experience gained by WEF, the Singularity University, the Deloitte Cryptocurrency Community (DC3) and the MIT MediaLab Digital Currency Initiative, we set off on a journey to realise a series of artefacts that would ultimately become part of Deloitte Digital Bank," says Thys Bruwer, director, Deloitte Digital Africa. "We have developed unique artefacts that adhere to essential design principles such as currency-agnostic supports and near real- time processing of payment transactions."
Accenture Insights has found that blockchain can reduce processing fees by between 20% and 30%, payment processing can be improved on notification and settlement as they happen, simultaneously, in seconds. It allows for processing 24 hours a day, 365 days a year without the need for an intermediary and without the fee or counterparty risk associated with such transactions.
"With this level of potential, banks are experimenting to find the relevance," says Carmen Whateley, MD, Accenture Digital, South Africa. "Blockchain can be deployed for intra-bank process disruption and we find that many banks are delving into blockchain to test out the technology, gain practical experience and validate blockchain technology."
This article was first published in the July 2016 edition of ITWeb Brainstorm magazine. To read more, go to the Brainstorm website.
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