The Retail Banking Landscape in South Africa
The retail banking sector in South Africa has historically been an oligopoly, (which means a market structure that consists of a small number of firms, who together have substantial influence over a certain market), consisting of the five major banks of South Africa. They are Nedbank Ltd, Standard Bank Ltd, Amalgamated Banks of South Africa (ABSA), First Rand Bank Limited (FNB), and Capitec Bank. Collectively they hold more than 90% of the market share (Banking Enquiry Report, 2008).
Although strategic communication and interaction between oligopolies’ is independent of outright collusion, (as is the case of the banks in South Africa) it refers to the scenario where companies can predict and use each other’s market behavior without, either party specifically or explicitly entering into an agreement or understanding, to coordinate each other’s behavior (Banking Enquiry Report – 2008). They do, however, shadow each other’s strategies, and although focused on maximizing their profits, are careful not to engage in a blatant price war, assured that once a customer is acquired, the probability of them switching is very low.
Due to the strong market power of the ‘Big 5 Banks’ in South Africa today, and the pressure to maintain profit margins, CRM strategies are seen as fundamental components to segmenting customers and catering to their financial life-cycle stage, to keep them satisfied and loyal.
South Africa, fortunately, has a well-developed and regulated banking system, which complies with international compliance standards. Banks play a definitive role in the economy of a country. According to the PWC report (2015), South Africa’s economic sector, which includes finance, real estate, and business services, together were positioned as the largest contributor to the country’s GDP, at around 20,6% of the value being added to the economy. In the latest PWC Report (2018), the major banks combined results have shown continued resilience and reflect a remarkable trajectory in performance, and again contributed around 20% to South Africa’s GDP for 2017.
Most banks separate their Retail Banking segment (which caters to the personal lending market) and their Business Banking market (which serves Business clients). It is important to note that banks in South Africa classify their business banking into different segments and offer a differentiated customer value proposition per segment.
According to Amoakoh (2012), banks generally offer 5 main types of services, namely:
- Accessibility of Cash
- Security of Assets
- Different types of Money Transfers (where funds are moved from one account to another, locally or internationally)
- Financial Advice
Funds need to be accessible to clients, as and when required, through various local and international mediums. Banks also provide security of assets to their customers via safety deposit boxes and the security of the money deposited.
Despite the regulatory and capital requirements required to open up a new bank, the South African banking sector has seen 3 new entrants; namely Bank Zero, TymeDigital (whose parent, the Commonwealth Bank of Australia, contains a higher market cap than all four SA banks placed together), and Discovery Bank. All the foremost banks grossly underestimated the impact of relatively recent newcomer Capitec Bank (Business Live – 2018).
According to PWC’s Strategy document on the ‘Future of Banking’ (2018), the advent of these new players is creating a ‘marketplace without boundaries’. Supply-chain integration, digital solutions, and low-cost operating models have also given non-traditional players in the financial services industry an opportunity to provide their customers with in-house banking solutions.
Responding to the growing threat in the retail banking sphere, the ‘Big 5 Banks’ (Absa Bank, Standard Bank, Nedbank, FirstRand Bank, and newcomer Capitec Bank) are forced to look at innovative ways of staying relevant in the market, and maintain, or grow their market share. A decided advantage for these big banks is the benefit of already having a sizeable customer base. To maximize this advantage, they need to develop new solutions to better meet their customer needs, and strong data analytics capabilities, to improve efficiencies.
Based on PWC’s Strategy document on the ‘Future of Banking’ (2018), the 3 major trends affecting profitability in the South African Banking Industry are:
- Emergence of low-cost players in the digital solutions sphere e.g. Discovery Bank
- Sector and Industry-specific banks, that have integrated supply-chains being introduced by non-financial services players e.g. the South African Post Office launching Post Bank
- The ‘Big 5 Banks’ (Absa Bank, Standard Bank, Nedbank, FirstRand Bank, and Capitec Bank) enable the ongoing transformation to address the evolving customer, regulatory and technological needs.
By unlocking powerful insights gained through CRM, banks can look to the future by moving staff to higher-value work such as deploying artificial intelligence (AI) and digital labor (PWC Report – 2018).
According to Kavitha and Palanivelu (2012), banks have historically been guilty of 5 recurring issues which effective CRM Strategies could easily address, namely:
- Inability to cross-sell and up-sell
- Unnecessary queues and the bank’s internal bureaucracy
- Poor service culture
- Lack of product knowledge
- Lack of empathy for their customers
Given the importance of the major banks, the threats of new entrants, and the key trends affecting profitability, banks have had to work harder at finding levers to increase profitability. This has been increasingly difficult, especially with the volatility in the global market.
By harnessing their data and analytical abilities, banks can now predict their customer needs. Having a trump card, via customer insights, and a dynamic Customer Relationship Management (CRM) strategy, would give banks that competitive edge required to stay ahead of technological and architectural enhancements being made in the financial sector.
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