The retail banking industry in South Africa is a highly competitive market. The depressed credit market coming out of the financial crisis of 2009 has resulted in local banks embarking on a more focused undertaking to increase revenue - either through increased growth into the 'high-risk high-return' market of unsecured lending, or supplementing the low growth in interest income with other fee income.
The unsecured lending market has been shrouded with allegations of reckless lending practices that are non-compliant with the National Credit Act (NCA). In particular, the in-duplum rule and coupled with increased provisions, as the over indebtedness of customers starts to rear its ugly head and the serviceability of loans comes into question. Not surprisingly, the major banks are moving away from this market. Amendments to the NCA are expected to further curtail growth as fixed-cost structures and credit amnesty are introduced.
With the departure from the unsecured market, banks are striving to grow customer volumes and to generate fee income through services (card fees, administration fees, transaction fees). FNB is one case in point - through a digital media strategy including social network marketing or above the line marketing - the bank is clearly on an aggressive customer campaign. On the other hand, Standard Bank has taken a different approach with the recent introduction of UCount Rewards, the bank's loyalty programme, offering attractive incentives to clients.
These two banks have identified that customers are no longer only focused on traditional banking products but, the value-add that they receive hassle-free.
The flow of customers from one bank to another is also dependent on the ease with which a customer can open a new account or switch an existing account. The banking industry in the United Kingdom (UK) recently launched new switching rules aimed at making their retail banking sector more competitive by allowing customers to switch more easily between banks.
The latest rules aim to cut the transfer time from up to a month, down to seven days and oblige the bank to oversee all incoming and outgoing payments. Ahead of the launch, UK banks have started to roll out new incentives to woo customers.
Yet, with all these added benefits and increased service, the question still remains around the affordability and competitive nature of banking fees in South Africa. While the country has a mature financial services industry, the relative monopoly that the four big local banks operate has not allowed or made it viable for foreign branches to open retail banking operations on our shores. While Capitec has started to eat into the customer base of these four, based on their simple banking fee structures catering to the lower end of the market, banking fees are still considered relatively high when compared to developed markets.
Time will tell whether or not the banks will start a price war to gain clients - Although with the value-add that banks are marketing to customers, banking costs may still remain low on the customers' radar.
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