The South African banking industry’s digitisation of financial services will sustain its trajectory, as more smartphones become readily available at a price point most South Africans can afford.
This is according to First National Bank (FNB) CEO Harry Kellan, in an interview with ITWeb after the bank last week announced its financial results for the year ended 30 June.
“Digital acceptance of doing financial services is going to grow continually, and we love that because everything we do, we incentivise customers to digital,” he said.
“If you consider what the South African Reserve Bank and banking industry are doing with services like PayShap…what you want to do is make low-value transactions faster and cheaper. You also want to give customers the convenience of making payments.”
Over 20 million South Africans bank digitally, and the country’s digital banking market is projected to grow by a steady -0.53% between 2024 and 2029, resulting in a market volume of $0.74 billion in 2029.
In SA, big-four bank FNB has 8.6 million active retail customers, of which 7.5 million are digital (across mobile phone, online and USSD channels), according to Kellan.
The CEO noted the bank’s customer base on digital sits above 85%, but there’s still room for growth, highlighting continuous innovation as the manner in which to do this.
“Innovation must be about knowing what customer needs are and being able to service those needs.”
Virtual cards revolution
Key among FNB’s growth priorities is continually improving customer experience, including encouraging customers to switch to virtual bank cards.
According to Kellan, the use of virtual cards isn’t as high as the bank wants it to be.
“People are still using physical [cards],” he said, commenting that he barely remembers his PIN because he has switched from physical to virtual cards for payments.
FNB introduced its virtual bank card in 2020, as part of its strategy to expand its digital payments ecosystem.
A virtual card is a randomly-generated card number linked to a payment account.
The completely digital bank card, which has a separate card number from the physical card, is accessible through the FNB app and the RMB Private Banking app, and on wearable devices for contactless payments, where it can be created and topped up with cash on an ongoing basis.
It can be used on any e-commerce site, including international platforms, and at brick-and mortar merchants. Additionally, it is more secure than physical cards because the details are not physically visible to criminals and the CVV continually changes to avoid fraud.
In 2022, the bank said it was seeing increased adoption of this alternative form of payment among Millennials (born 1981 to 1996) and Gen X (born 1965 to 1980). Gen Z, those born between 1997 and 2012, were the third-highest users of digital payments at 12%, with Baby Boomers (born between 1946 and 1964) lagging in the adoption of virtual cards.
Kellan explained there’s no specific target in terms of the percentage of customers the bank would like to see use the virtual card option, but it wants to boost the penetration rate.
“We started digital banking years ago, and we never said we want to get to 80% or 90% or 100%; we just want more and more customers. We recognise that physical cards will be there as well, but the less physical cards we have, the better the security for our customers.
“People put in the details of their physical cards with the CVV online…whereas with the virtual cards, your CVV lasts an hour – your risk is an hour and a bit.”
GenAI reality
Kellan said generative artificial intelligence (GenAI) is “live” within the bank and alluded to GenAI-driven solutions in the pipeline.
A 2023 report by global consulting firm Boston Consulting Group, in partnership with Microsoft SA and Wits Business School, anticipates GenAI will become a transformative technology in SA, benefitting the financial sector, among others, the most.
The research found GenAI can expand financial inclusion by supporting under-banked people through a conversational chatbot, and expedite the drafting of legal documents.
Furthermore, it has the potential to enable engagement with clients in their native languages, helping them gain access to essential financial literacy and services.
In April, FNB chief data and analytics officer Dr Christoph Nieuwoudt told ITWeb TV that the bank is building a vector database to support GenAI models.
Kellan said the reality is that FNB has a lot of people working on AI and GenAI, as this is a continuous feature.
“We started at level one, whereby we used data, [then] moved to level two, which is using data plus some intelligence. I think we are [now] at level three of GenAI.”
He noted FNB has “solid skills”, with thought-leadership and people in the business whose duty it is to eat, sleep and dream AI.
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