With the high number of unbanked South African customers, the country’s newest low-cost branchless bank − Be Mobile Africa − should tap into the infinite opportunities presented by consumers’ huge appetite for digital-only banking.
This is according to research firms Africa Analysis and IDC, which believe the intensifying competition in SA’s digital-only banking space is healthy for the financial services sector, and is also good for financial inclusion in a country where cash is still king.
Digital-only banks − or neo banks as they are also known − are increasingly becoming attractive in SA, due to their approach of delivering innovative solutions at scale without the frictional processes of traditional retail banks, say analysts.
Canada-based neo bank Be Mobile Africa, which officially goes live in SA tomorrow, tells ITWeb it is targeting the estimated 23.5% of unbanked and scores of underserviced South Africans who are not catered for by traditional banks.
The high number of unbanked locals leaves roughly R12 billion in cash believed to be floating around outside of the formal banking system.
Multi-currency banking
Dr Cédric Jeannot, CEO and co-founder of Be Mobile Africa, is betting on the bank’s low-cost business model, which he says is cheaper than competitor rates.
The bank, he adds, has gained traction in the 30 African countries where it operates, which include Kenya, Nigeria and Togo.
Opening a Be Mobile Africa account will enable customers to hold, send and receive funds in multiple currencies, including USD and EUR, says the bank.
“Our main competitive advantage is our technology, which enables us to offer customers better turnaround times, cheaper than competitor rates and accessibility through the app.
“Although traditional banks are trying to reach and integrate the unbanked population, their legacy technology and systems are hindering their efforts. We have an accessible and affordable solution; so to us, it was a no-brainer to enter the South African market,” explains Jeannot.
Transfers through Be Mobile Africa are instant and free between its users. For cash in, cash out transactions between Be Mobile Africa and non-Be Mobile Africa customers, individuals will incur a fee based on the partner used, with a fee charged by the partner but no additional fee being charged by Be Mobile Africa.
Users will pay fees on value-added services, such as foreign exchange and upcoming lending services. The bank claims its savings product has among the highest interest rates in the world – offering 5% interest per annum in USD and EUR.
According to Finder’s Neobanking Adoption Report, digital-only banking is set to boom in SA, with nearly a quarter (24%) of surveyed South African adults expected to bank with a branchless bank by 2023.
Sparking a revolution
Over the past three years, SA’s retail banking industry has been revolutionised by the rise of digital-only banks, with the launch of TymeBank, Discovery Bank and Bank Zero.
The key differentiator of these new branchless banks is that they ensure competitive rivalry in the local banking sector, through agile offerings and lower costs.
This has seen traditional banks accelerate their digital-first strategies and aggressively reposition their platform-based model, to offer customers innovative financial products and services.
TymeBank has amassed five million customers in its three years of existence, with over 100 000 small businesses.
Discovery Bank says it has seen strong growth since its public launch in 2020, garnering over one million bank accounts, held by over 470 000 clients. Bank Zero in October told ITWeb it had seen a rapid uptake in customer sign-ups, although its numbers were not disclosed.
Andre Wills, MD of Africa Analysis, points out that while competition in the local market is intense, the growth of existing branchless banks demonstrates there is appetite for using such services.
“Digital-only banks enable the unbanked population to access banking services. This is a significant benefit, as it creates financial inclusion for this group of people who then benefit from a wide variety of banking and payment services.
“Branchless banks are able to service any customer in any location around the clock, provided there is some form of connectivity (eg, banking apps on mobile phones).”
Factors that will play a crucial role in the growth of Be Mobile Africa, adds Wills, are: a service differential to demonstrate why it offers a better service; education of its target market around offerings; establishing a relationship with agents/ambassadors that will assist customers, particularly in rural areas; and forming relationships with companies in the micro financial services space.
Jon Tullett, associate research director at IDC, believes SA and the broader Sub-Saharan Africa are good markets for branchless banks, as they are able to reach a broader set of customers, through delivering innovative financial solutions at scale without the encumbrance of existing infrastructure.
“That combination of agility and scale means achieving a lower cost of business and therefore being able to reach a broader set of customers, without excluding the possibility of introducing high-value services alongside them,” explains Tullett.
“Be Mobile is taking a relatively straightforward approach, targeting specific customer needs (mobile access and cross-border exchange) to get going; undoubtedly, the product portfolio will grow over time. It’s a Canadian company making a platform play, so I would expect that to be the strategy.”
Discussing challenges ahead, he warns customer acquisition is challenging in banking, as even when a bank has an innovative product to sell, it’s up against strong brands with tremendous market awareness; so carving out a niche requires a clear value proposition.
“Also, regulation and compliance aren’t areas where you can cut corners, so the process overheads of banking apply to everyone, digital or otherwise,” adds Tullett.
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