In banking, is purpose possible?

Shenin Singh, Absa

---

A recent Accenture report asks: “Is banking about to have its electric car moment?” With this comparison, the professional services firm is suggesting that banking sector incumbents could very quickly lose ground to the pioneering innovations that bring the latest technologies and a strong sense of purpose to the table. But is purpose really important when it comes to banking?

Belinda Rathogwa, head of digital and e-commerce for personal and private banking clients at Standard Bank, describes purpose-driven banking as a modern competitive advantage. “In a world where everyone is offering high service levels and the latest digital platforms, a purpose-driven strategy can easily become a differentiator.” Innocent Dutiro, financial services lead at Accenture, agrees. “The shift towards purpose-driven banking helps banks differentiate themselves in a saturated retail banking landscape,” he says.

Much in the same way that factors such as provenance and sustainability are increasingly influencing consumers’ retail choices, purpose could become a characteristic that determines which banks grow and thrive in a world of abundant options.

By attempting to address critical issues, banks have a unique opportunity to expand their reach, says Tijsbert Creemers, MD and a senior partner at Boston Consulting Group (BCG). A recent BCG survey of 360 senior executives from 40 banks across 33 countries, including South Africa, found that institutions that prioritise “socially conscious standards” generate higher total shareholder return and lower cost of capital.

“When the client grows, the community around them grows too.”

For Shabhana Thaver, CIO at Investec Specialist Bank South Africa, the rise of purpose-driven banking represents a shift in focus away from delivering short-term profits for shareholders and towards developing strategies that unlock value for stakeholders, one of them being society. Thaver references Investec’s participation in an initiative by the Johannesburg Roads Agency (JRA) and the Sandton Central Management District to ensure traffic lights at two major intersections in the area – Grayston Drive and Rivonia Road; and Grayston Drive and West Road South – continue to operate during loadshedding. The bank’s generators are being used to power these intersections during loadshedding, alleviating congestion and commuter frustration.

She says purpose-driven strategies look different from one bank to another. “Most are trying to do something, but everyone has different priorities and a different approach to addressing different challenges,” says Thaver.

In Bangladesh, Grameen Bank serves as the poster child for purpose-driven banking. Founded by Professor Muhammad Yunus, a social entrepreneur, banker, economist, civil society leader and winner of the 2006 Nobel Peace Prize, the bank’s grassroots approach to microcredit and microfinancing has provided billions in loans to those who do not qualify for commercial lending, the majority of which are women. According to Shenin Singh, managing executive for customer value management at Absa, what makes the Grameen Bank business model so special is that it met the needs of customers on the ground. “It did so by offering microcredit and unsecured lending when no one else would and by radically forgoing the traditional, urban banking branch in favour of low-cost, simple format rural branches, which are far less intimidating for people to walk into,” she says. Lending money to women was also a major differentiator.

In action, says Rathogwa, purpose-driven banking demands that banks move away from only having transactional interactions with a client and really start building a trusted relationship with the customer by helping them achieve their financial goals. In line with this, she continues, it also means that banks need to stop looking at their clients in isolation, but, rather, as individuals who live in, and contribute to, a broader community. “When the client grows, the community around them grows too.”

Here, she highlights the role of technology in enabling financial inclusion. Not only do digital technologies make it possible for customers to access financial services irrespective of where they are geographically, but it also reduces the bank’s cost to serve. “As an example, if a client lives in a rural area and needs a loan, they don’t have to take a day off work, pay for a taxi to drive them to the nearest town and then have a meeting with the bank manager. They can just log onto their banking app, apply for a loan and get a response straight away.”

When the right technologies are used, these tools also empower banks to serve their customers more strategically. But it’s not just about the tech, says Singh. Purpose driven strategies will fail at the first hurdle if we don’t also prioritise financial literacy. “Banking tends to be quite complex. For the average consumer, particularly those in lower income segments who don’t earn a regular income, it’s understandable that they prefer cash because it’s far easier to use.” But, as we all know, cash is risky, she adds. “Here, banks have a massive responsibility to deepen our understanding of our customers, as close to an individual level as possible, so that we know what is the best way to educate them and the best way to serve them. Ultimately, if we want to make sure that South Africans are using our products in the best way, we have to prioritise financial education,” she says. When the bank takes the time to teach people about the ins and outs of credit, for example, repayment behaviour improves. “It’s a win-win.”

So, can banks do good and still make money? Rathogwa says it’s not an either or conversation. “It’s entirely possible,” she says. “Banks exist to serve our clients and solve the problems our clients face. When we solve real-life problems in a way that is meaningful, we earn their trust and loyalty, which only stands to benefit the commercial side of what we do.”

While many see the value of using purpose as their pathway to growth and profitability, some incumbent banks are still reluctant. Accenture highlights the following reasons for this:

• There’s no burning need

Many banks feel that wide-scale disruption of the market is still far away. This is partly because they are comparing themselves mostly to other banks rather than to the digital players that will threaten their business models in the very near future.

• They prioritise shareholder returns

Purpose-driven banking confronts banks with a dilemma: do they sacrifice some of their existing revenue for the good of the business in years to come, or do they continue profiting from today’s practices, but run the risk of falling out of alignment with the future needs of the customer? For banking executives, the worry is that purpose-driven strategies will distract the bank from delivering shareholder returns.

• It’s a big change

To become a truly purpose-driven business, banks must rewire their operations from top to bottom. It’s not a simple journey, will likely span several years and demands that the bank find a happy balance between managing everyday change programmes and driving a purposedriven agenda.

• They are waiting for mandates

Banks invest a lot of time and money every year to comply with ever-evolving laws and regulations. The absence of regulations that mandate them to deliver more transparency, simplified products and a keener focus on customers’ financial health may deter some banks from actively prioritising purpose-driven strategies.

For any business – be it a bank or a bakery – to claim it’s a purpose-driven operation means that their strategic objectives are underpinned by their purpose, says Itumeleng Nomlomo, business solutions manager, SAS. Citing a Harvard Business Review article, Nomlomo argues that any truly purpose-driven organisation should answer yes to the following five questions:

1. Does purpose contribute to increasing your company’s growth and profitability today?
2. Does purpose significantly influence your strategic decisions and investment choices?
3. Does purpose shape your core value proposition?
4. Does purpose affect how you build and manage your organisational capabilities?
5. Is purpose on the agenda of your leadership team every time they meet?