Banking on the wind of change
The advocates of “radical economic transformation” often claim that the economy of SA is a closed system that maliciously and deliberately excludes “the majority”. They should open their eyes. The most obvious current refutation of this baleful theory is the banking industry.
In two days, two major and seemingly unrelated events have hit the headlines of the business media.
On Wednesday, Capitec announced its interim results, noting it now had 9.2-million customers and this number was growing at about 100,000 a month. The bank, which began from nothing 16 years ago, is now the second-largest by customers and fourth by market capitalisation.
From a governance and banking stability point of view, a huge number of countries root their system in a four-pillar approach. The idea is that having four dominant banks meets the contradictory needs of providing customers with sufficient competition and the banking system with sufficient stability. Capitec’s growth has confounded that theory in SA, as have several upstart banks around the world.
The bank will always face some criticism that it fleeces unsophisticated customers with overly burdensome debt. But it would argue it has hugely improved access to banking facilities for those previously outside of the system with cheap, simple banking and high interest rates on credit.
In fact, SA’s “big four” banking system has long been confounded by another upstart: Investec. While Capitec won customers by wooing the poor, Investec has elbowed its way into the system by wooing the rich — and customers as a whole, rich, poor and inbetween, have benefited. Thursday brought the announcement of another innovation: the granting of a banking licence to TymeDigital, the first full banking licence the Reserve Bank has awarded in 18 years.
The bank is ironically a fully owned subsidiary of one of Australia’s “big four”, the Commonwealth Bank of Australia, although it has a crucial 10% local shareholder in Patrice Motsepe’s African Rainbow Capital.
It’s impossible to know how the bank will perform, but good luck to it. The advent of a new kind of bank constitutes an unmistakable component of the wind of change blowing through the industry. The “digital” suffix is crucial, because global trends in banking are being very obviously disrupted in unpredictable and exciting ways by that other global disrupter, the cellphone.
Yet it is much too early to count out the existing players, who are all too aware of this new threat. While cellphone banking has thrived in some countries, in SA, existing banks have been very alive to the threat and have provided many innovations of their own.
In some ways, the emergence of cellphone banking in countries such as Kenya was a consequence of peculiar circumstances: a generally poor, geographically spread population that is difficult to serve profitably by building a large physical branch network. Yet aspects of digital banking can and have been implemented (even in comparatively wellbanked countries), such as new security measures that require confirmation of transactions on cellphones.
This is not even to mention more outlandish innovations, such as open-ledger systems pioneered by cryptocurrencies. Banking experts are now working on the basis that openledger systems will happen; the only question is who will own and control them.
Two-and-a-half centuries ago, Adam Smith described coins as an earth-bound highway, whereas bank money offered a “wagon way through the air.
The internet supercharges that wagon way — and the route banks will take is, as yet, uncharted.
GLOBAL TRENDS IN BANKING ARE BEING DISRUPTED IN UNPREDICTABLE AND EXCITING WAYS