Challenger banks up the ante against big competitors
CHALLENGER banks in Africa are projected to storm ahead of their larger rivals, producing better returns as they target under-served markets.
The ability of these challenger banks to leapfrog through technology will cause a banking revolution on the continent, leaving traditional banks with a less forgiving future.
This is according to Andries Brink, chief executive of Andile Group Holdings.
“Banks increasingly view other banks – rather than non-bank entrants – as their main competitive threat,” he said.
“New challenger banks are now perceived as the leading competition,” Brink added.
He said there was also a growing acceptance that companies providing new financial technology could help banks alleviate competitive pressures.
However, traditional banks face challenges working with these companies, because their internal procurement process is a major hurdle to successful collaboration.
According to Brink, cheaper technology, the shrinking presence of international banks and a population demanding better financial services would cause a rise in African-based challenger banks that would take the lead from the continent’s more traditional banks and foreign competitors.
“Many don’t realise that an opportunity has arrived for African challenger banks that could spark a dramatic change in the established order,” he said.
For several regions, the 2009 financial crisis was a curse that brought heavier regulation to the finance industry. One of the consequences was a refocusing of international banks’ core assets, he pointed out.
“Due to regulation, they’ve been forced to look at how they allocate capital within their global banking operations,” Brink said.
As an advantage, challenger banks can be more agile and focus on specific services, which reduces their regulatory burden, according to Brink.
“They have the to move with small, markets.”
Large international banks, Brink flexibility yet active added, are sometimes too big to succeed in nuanced markets.
But “local challenger banks have the attitude, the grass-roots view and the ability to move fast”, as the challenger banks do not have the enormous legacies of established banks, he pointed out.
They can leapfrog competitors without the restrictive technical debt, Brinks said, adding that challenger banks were characterised by their ability to focus more closely on the customer journey.
“Their access to technology galvanises that advantage.”
Brink said challenger banks were not “a fad or a blip” as many were attracting significant investments, motivated by their nimble nature due to lack of technology legacy.
“This shouldn’t be understated: technology is arguably any financial institution’s biggest expense – even more than staff costs – due to the regulatory complexity that has to be navigated.”
According to the 2018 Temenos survey, banks cite challenger banks as their top competitive threat, which is higher than other incumbents and fintech start-ups.
Brink said as big banks focused their energies elsewhere, an entire continent with a booming population and many unbanked customers and underbanked corporates demanded attention. – CAJ News/African News Agency (ANA)