An uber-change bears down on SA’s banks

BANKING as we know it is about to be disrupted in the same way as the global taxi industry and hotel sectors have been changed by Uber and Airbnb, which use technology to make everyday tasks quicker, safer and, above all, more economical.

Former Barclays CEO Antony Jenkins, sacked earlier this year for not being aggressive enough in growing the group’s investment banking business, is warning that the industry, like so many others, is heading for its “Uber” moment.

Former FNB CEO Michael Jordaan, who led the bank to the accolade of “World’s most innovative bank” in 2012, has long warned of the threat to the industry from Google, Apple and even Facebook. They have customers, reach, trust and the know-how to create deceptively simple business models that could soon rival banks.

Banking in South Africa has so far been disrupted largely from within. Dentist-turned-entrepreneur Christo Davel first showed the potential of non-bank banks 15 years ago, when he launched 20Twenty, the online-only platform using the Saambou licence.

The local banking industry heaved a sigh of relief when it bit the dust after Saambou collapsed.

Since then, entry-level banking has been shaken up by the introduction of Capitec, and greater use of technology has made visits to branches — for the well-heeled at least — all but obsolete. There is more to come.

Discovery’s offering of the Apple Watch this week provides some clues to the way the insurer thinks about dealing with its customers. It is constantly using more carrot than stick, and there is nothing to suggest that it will treat banking differently.

The Apple Watch, for example, will be free to Vitality members — provided they meet their weekly fitness goals for 24 months. So, in exchange for a gadget, Discovery gets a healthier customer who is less likely to make a medical or life insurance claim — but continues to pay the premiums.

Discovery is in the process of applying for a banking licence and, although details of its offering are scarce, it has an opportunity to disrupt the local market.

For years, South African consumers have been satisfying the voracious appetite of banks for fees — in return for nothing much more than safe custody of cash, which gives banks cheap capital anyway, and a couple of transactions.

While banks have their mass market offerings largely intact, there is a tussle for upwardly mobile earners in the space dominated by Investec.

Like Discovery, Investec was able to build its consumer experience from scratch: its big four rivals have tended to bolt their so-called private banks to their existing ageing infrastructure.

It’s that market that Discovery is likely to tap into. Banks of the future are likely to be virtual and, if there was ever a need for a branch visit, Discovery already has a relationship with FNB through its card product, and that could easily be deepened.

The man building the banking business for Discovery has technology in his blood.

Barry Hore was a trusted lieutenant to former Nedbank CEO Richard Laubscher, who saw the integration of technology as pivotal to the future of banking.

A recent report by research consultancy McKinsey forecast that technology would wipe out twothirds of profits from things such as retail lending, car loans and credit cards. It means that anyone who can deliver products and services more cheaply will have an edge.

Banks are now throwing money at technology, but at best they may simply be postponing the inevitable.

Jenkins says big institutions must move fast enough to get ahead of the wave of change — or at least be in a position to catch it. Banks like Barclays are studying cryptocurrencies such as bitcoin and the Blockchain technology that underpins it in an effort to better understand the value of cybercurrency, not as a replacement for real money, but so that they can do transactions faster and cheaper.

When Discovery finally announces its plans, they are likely to be radical — possibly offering “free” banking.

“It has no banking fees to protect,” says Jordaan, who cautions, however, that it will take time for Discovery to navigate the regulatory process and to build an appropriate IT platform. But the shake-up is coming.

Whitfield is Sanlam financial journalist of the year