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Retail Banking Needs to Quickly Evolve to Survive Pressure From Challengers in South Africa

Retail Banking is set to rapidly evolve in South Africa, explained consulting firm Boston Consulting Group (BCG) in a recent report on the banking industry. 

The covid-19 pandemic drastically changed how consumers view and want to interact with their banks. Another BCG report, produced in partnership with Discovery Bank, detailed how around 80 per cent of South African customers would prefer to do their day-to-day banking digitally. Meanwhile, around 60 per cent would be comfortable using a completely digital bank.

With a seemingly ever-increasing emphasis on the importance of digital offerings to customers, it could become potentially difficult for traditional banks to keep up with the offerings of newer challenger banks.

The likes of Tyme Bank, Discovery Bank, and Bank Zero are opening the eyes of consumers in the region to new types of personalised banking that could be more suited to today’s world.

“Retail banks are in a competitive starting position but will need to adapt. They benefit from high levels of customer trust, strong brand awareness, and skilled staff. This can play an important role in an omnichannel customer relationship,” explained Tijsbert Creemers, managing director and partner at Boston Consulting Group. “But without change, incumbents face separation from customer touchpoints, losing access to customers and valuable data in the process.”

Competition or collaboration? 

BCG’s report also suggests that traditional banks may find it difficult to reposition themselves to meet new digital expectations. It may take time and significant investment to transition from the legacy systems some banks currently have in place.

While new challenger bank options may be more ready to offer digital options, traditional banks still hold large customer bases. The banking landscape may lend itself well to collaboration between traditional and challenger banks.

Frederic Boutet, managing director and partner at BCG, commented on the different strengths each option offers. Boutet explained: “There is a space for both incumbents and challengers. Incumbents are able to leverage data from a vast, stable customer base to better understand and meet customer needs. Challengers are agile and able to develop tailored digital propositions for specific customer journeys.”

The report also likens consumers’ experience with the financial system in South Africa and limited levels of financial inclusion to that of the starting point of China’s market. The messaging, social media, and mobile payment app WeChat is evidence of fintechs causing disruption in the Chinese market. WeChat and similar alternatives make use of high mobile phone and internet adoption to cover limitations in customers’ banking experiences.

The example highlights how if traditional banks cannot suitably evolve to meet customer requirements, digital financial services may begin to steal customers and threaten their existence.

How can banks adjust accordingly? 

The BCG report suggests that traditional banks must use their existing position to their advantage. Because they have existed and served customers for longer than competitive challengers, they are generally trusted much more.

Banks also have access to far more data that, if leveraged correctly, could help to understand customers’ greatest needs. The report explains that “the banking industry in South Africa is more advanced than other industries”, regarding data analytics.

One possible solution could involve using AI models, driven by customer data. Such models could enable banks to predict the needs of customers before they actually arise. If predictive models worked efficiently, this could position traditional banks back at the forefront of the banking industry in South Africa.


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