Business Day

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.


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