There is a widely held belief that the entrance of Patrice Motsepe’s TymeBank, Adrian Gore’s Discovery Bank and Michael Jordaan’s Bank Zero will shake up SA’s banking industry and even make a dent in the dominance of the big five banking titans.

Granted, from a digital innovation and pricing of banking services perspective, the new banks are expected to be front-runners in a banking industry that has remained unchanged for decades.

More than 25 years since the internet opened to the public, the big five banks still distribute most of their banking products and services through brick-and-mortar branch networks. This is while the world is rapidly moving to digital banking and the Fourth Industrial Revolution, the favourite catchphrase of politicians lately.

In the next decade at least, SA’s big five retail banks – Absa, FNB, Nedbank, Standard Bank, and Capitec – will still dominate and rule the banking roost.

This is according to Kuben Naidoo, the deputy governor of the SA Reserve Bank and head of the Prudential Authority, which is responsible for regulating banks, insurers, cooperative financial institutions, and financial conglomerates.

The Prudential Authority is housed in the SA Reserve Bank.

Although Naidoo believes that the entry of TymeBank and the impending arrival of Discovery Bank and Bank Zero will promote competition and financial inclusion because their use of technology has the potential to drive banking costs down, he doubts they will challenge the dominance of the big five any time soon.

According to Prudential Authority’s 2018/19 annual report, SA’s biggest five banks collectively held 90.5% of all assets – such as the money advanced to consumers in the form of personal loans, vehicle, asset or business finance – as at March 31, 2019. Total assets in the sector reached almost R5.7-trillion by March 2019, an 8.7% increase on the previous year.

Naidoo said he is optimistic that the market share of SA’s biggest five banks (90.5%) will probably decline in the next 10 years, not to the 60% mark but between 75% and 80%.

“I am quite optimistic that newer players, with the right levels of economic growth and in the right regulatory environment, will begin to gain market share. We will see a more competitive sector,” he said at the release of the Prudential Authority’s report on Thursday 4 July.

Banking licence applications

But SA’s banking industry, in terms of a plurality of players, has reformed. When Naidoo was appointed as the registrar of banks, the SA Reserve Bank had not issued a banking licence in 11 years. Today, it has received four licence applications from banks, mutual banks, and co-operative banks. Of the four, two were approved by banking regulators, one was withdrawn, and one is in process. The one in progress is that of Bank Zero, said Suzette Vogelsang, the head of banking, insurance, and financial market infrastructure supervision at the Prudential Authority.

When including branches, representative offices, insurers, cooperative financial institutions, the number of licence applications swells to 27.

SA has not suffered a banking crisis since the early 2000s when a run on small banks resulted in the failure of Saambou Bank in 2002. At the time, the SA Reserve Bank ejected about 15 banks from the banking system.

SA Reserve Bank Governor Lesetja Kganyago said every banking crisis results in a concentration of banks in the sector. “Unlike other countries, we [SA] have not experienced a banking crisis and that has provided an opportunity for other players to enter. Whereas, there hasn’t been a new banking licence issued in the US over the past 10 years,” he said.

Growth plans of new banks

SA’s big five banks are still profitable. Their return on equity, a key metric for measuring a company’s ability to generate profits from its investments, has remained stable at about 16% over the past five years.

Naidoo said banks can withstand a degree of competition from new entrants. For now, the new banks are mounting their growth plans.

TymeBank, which has operated from kiosks at Pick n Pay and Boxer Stores since February 2019, has signed up more than 400,000 clients. It aims to have 500,000 clients by the end of July 2019 and to pilot unsecured lending products during the same month.

Discovery recently announced that its app-only bank will register 1,000 new customers per day from August 2019, inferring that it might have more than 350,000 customers in 12 months.

Meanwhile, Bank Zero, the mobile app-based bank, is yet to reveal its growth ambitions but has begun the final round of testing its retail banking transaction facilities before its launch in the second half of 2019. BM