After the Bell: Of banks, taps and death stars…

It looks like it’s a good time to be a banker.

Among the many changes we are seeing daily in South Africa is a huge increase in institutions that are offering to either look after your money, lend you money or just give you a shiny new card that you can flash around to feel rich on a Friday evening.

This morning Pepkor confirmed that it had received permission from the Prudential Authority and now “plans to establish a banking presence in SA”.

Of course, there are banks and there are banks.

Some are really just fintech platforms, and some are full-service, holding your salary while you pay your mortgage banks.

What is so interesting though is that the model of having one bank has been completely blown away.

The appetite is clearly huge.

Discovery Bank said it was breaking even earlier than planned, while African Bank confirmed yesterday it had gone from just 1.2 million customers in 2020 to about 6.3 million now.

This is massive. No wonder Pepkor is jumping into the action.

When I first heard this, I did wonder about the real money calculations behind the model. I mean, if more people have more accounts with more institutions it’s worth wondering if each bank might have more customers but is making less money for each of those customers than it did in the past.

In the cellphone industry it’s called ARPU – average revenue per user.

The answer to that seems to be no.

In fact, as African Bank CEO Kennedy Bungane said on The Money Show on Monday night, they’re making more money from each customer.

If you think about how often your parents moved money from one account to another and how often you do it, you can see how things have changed.

We all spend so much time on our banking apps – moving this there, buying airtime and electricity, sorting out that child and then wondering where it all went – that there are huge amounts of money to be made.

If you’re Pepkor and you have a very established customer base, there must be loads of ways to make more money through a bank.

But banks also don’t require any kind of physical presence.

TymeBank was the first to show this, through the presence of those ATMs that always remind me of Darth Vader.

Perhaps that’s because so many of us feel a bit like we’ve been attacked by the Death Star when we finally close our banking app.

And why the beep of those start-of-month debit order SMSes sounds a lot like the Imperial March.

The real driver for the changes to the way we bank is not deeply rooted in society. It’s not like we all suddenly have a lot more money to throw around. It’s all about technology.

I’m just old enough to remember spending my lunch hour in a bank queue trying to pay rent with a cheque. Trying to explain a cheque to a teenager is like asking them to use an old rotary dial phone.

Now, of course, everything is on your mobile. Which means that is surely the competitive advantage – you have to keep updating your app.

This is not as cheap as it might sound.

While African Bank is expanding its customer base, it’s also spending a lot of money. Its profits were lower mainly because its cost-to-revenue ratio is now 64%. That’s much higher than in the past.

Of course, they’re in the phase where you are putting money in, and then you wait for it to come out.

This reminds me a little of Capitec about seven years ago. You could tell where the Capitec ATMs were in a shopping centre because of the queues of people spending their Saturday mornings wondering if the lower fees were worth it.

Now, of course, Capitec is the bank every banker probably wishes they worked for. I’d say they’re literally printing money but most of their customers probably tap rather than use funny-coloured paper.

The headroom for growth cannot be limitless; there is only so much money for us to all push around.

And the competition is going to get incredibly stiff.

All of this should mean a lot more choice for you, from the no-fees Bank Zero model, to the full suite offering of Investec, with banks like Old Mutual and the Big Four somewhere in between.

Which means it’s not just a good time to be a banker; its also a good time to be a bank customer. DM