The Rise of The Digital Bank: TymeBank, Bank Zero & Discovery Bank

Published: 10 December 2018

In comparison to many foreign counterparts in the US and Europe, the sophistication and extent of banking via digital channels employed by traditional banks in Africa has seen major strides over the last decade. In South Africa for example, we have seen FNB’s aggressive digital strategy which has won them a large portion of younger technocentric customers who favour banking at a distance over the traditional “know your bank manager” approach.

To a large extent this rapid need for digitisation has been more out of necessity than for any other reason, based on the fact that the mobile channel is really one of the only means available to reach a large portion of the African customer base. Despite these strides, a large portion of the continent are still unbanked due to existing KYC (Know Your Customer), accessibility and cost challenges which continue to plague the traditional banking system. With brick and mortar sites as well as the accompanying staff expenses it is believed that the cost to income ratios of these traditional operators sits at around 60%.

For South Africans however, this is all set to change in 2019 with the issuance of 3 new banking lisences by the South African Reserve Bank to 3 digital first banking operators. This is in an attempt to bring a more competitive environment to the industry, lower banking costs and enable higher rates of financial inclusion. In fact, it will be the first real shake up to the industry since the early 2000s when Capitec entered the market and managed to win over a significant portion of customers through an aggressive pricing strategy.

The recipients of these lisences are Discovery Bank – the banking division of the well known insurance group, TymeBank – the banking arm of TymeDigital, a FinTech business known more commonly for its’ money transfer service available in retail outlets Pick ‘N Pay and Boxer and finally Bank Zero – the brain-child of ex FNB CEO Michael Jordaan and partner Yatin Narsai.

What Makes a Digital Only Bank Better?

Digital first businesses have seen much success the world over. Consider GiffGaff in the UK, a mobile network which relies its community and call centre exclusively for support resolution and ships all SIM’s via the postal service, enabling major cost savings for the business and customers in comparison to many of the other networks.

This model, which has no physical presence and so also a much smaller staffing cost is able to lower its’ cost base considerably. Importantly, this model is able to avoid jeopardising the customer experience provided traditionally “in-store” by increasing the interaction and communication channels between customer and business through other more economical means. With these cost savings to the business, naturally comes the ability to pass these savings on to the consumer, meaning that the “digitisation” is really a pricing strategy at its core.

In the banking domain, this method of delivering banking services is expected to enable a cost to income ratio of approximately 25-30% in comparison to the traditional 60%. This difference is set to result in lower bank fees and more competitive interest rates, both a major driver of consumer’s decisions in this industry.

The question on everyone’s minds is how comfortable are South African consumers with “digital only” operations and will the pricing strategy be enough to switch existing “multi-banked” consumers who have developed a level of brand allegiance and familiarity with their traditional banking providers.

Approach & Positioning of the 3 Banks

TymeBank

Set to officially launch in 2019, TymeBank, majority owned by Patrice Motsepe’s African Rainbow Capital (ARC) is targeting low to middle income retail customers, known to be unbanked and underserved, as well as small, medium and micro enterprises.

Offerring an EveryDay Account with no monthly fee, free card swipes and relatively low transactional fees, as well as a GoalSave savings accounts which offers up to 10% interest with a maximum saving of R100k, TymeBank’s strategy places it head to head with traditional incumbent, Capitec.

Bank Zero

Set to launch in mid 2019, Bank Zero will offer an application driven experience and will operate as a mutual savings bank. Different to traditional banks with shareholders, a mutual savings bank is owned collectively by its members who subscribe to a common fund and are recipients of distributed profits. A major focus of the business is around encouraging savings and helping members to move away from the “instant gratification” challenge presented by conspicuous consumption.

Being entirely app driven is set to provide an interesting dynamic for Bank Zero, with data costs in South Africa still being relatively high. There is a question to be asked as to whether Michael Jordaan’s other fledgeling busines “Rain”, a newly formed data only telecommunication provider championing the lowering of data costs, will play a facilitating role in seeing the growth of Bank Zero?

Discovery Bank

Still in staff beta testing and also set to launch in 2019, Discovery Bank has kept to their routes and is positioning their banking arm as a “healthier” alternative. Through their well known behavioural modelling and use of real-time consumer data, as analysed in “Digital First Insurance : A Disruptive Wave Revitalising an Age Old Industry”, combined with their rewards/ incentives approach, Discovery Bank aim to affect your personal health by influencing the health of your banking behaviour (i.e. savings, debt).

With the benefit of already having a very large customer base in other verticals, including health, insurance and investment, as well as their partnership with FNB through the Discovery Card, they are likely to be able to migrate a large portion of customers who are allegiant to the Discovery brand and appreciate the convenience of having all of their services under one umbrella.

With a play at more than simply private banking, but also into wealth management, they will not only be taking on the big industry incumbents, but also those operating in the wealth management domain. Offering dynamic interest rates, Discovery Bank believe they are set to turn the industry on its head, a visual we are reminded upon in their launch media.

A comparison of the core characteristics of the digital only banks set to launch in South Africa in 2019.
Courtesy @michaeljordaan on Twitter Dated: 19 Nov 2018

A Tough Nut to Crack

The true success of these digital-only operations will only be seen in time.

In a country with a population who are still getting to grips with a digital business environment and an industry notoriously difficult to crack, the biggest challenge these operators will face is whether their pricing strategy is enough of a draw card to get customers already banked elsewhere to switch.

In addition, we must consider whether this new wave of banking will be the catalyst needed to attract those who are still unbanked and whether this is potentially the customer, in considering the continent as a whole, on which these operators are looking to base their future success.

About the Author

With a keen interest on all things commerce in Africa, Alex avidly keeps abreast of digital solutions providing answers where difficult to solve problems once existed. Alex has worked in this domain for the last decade advising clients on customer attraction and experience across a multitude of industries. It is with this knowledge and keen interest that he continues to advise the clients of Digital Advisory Africa, ensuring they too thrive in these exciting but disruptive times.

About the Author

With a keen interest on all things commerce in Africa, Alex avidly keeps abreast of digital solutions providing answers where difficult to solve problems once existed. Alex has worked in this domain for the last decade advising clients on customer attraction and experience across a multitude of industries. It is with this knowledge and keen interest that he continues to advise the clients of Digital Advisory Africa, ensuring they too thrive in these exciting but disruptive times.

Contact

Silo District
4 South Arm Road
V&A Waterfront
Western Cape
Cape Town
South Africa

Contact

Silo District
4 South Arm Road
V&A Waterfront
Western Cape
Cape Town
South Africa

DAA News & Insights

Contact

Silo District
4 South Arm Road
V&A Waterfront
Western Cape
Cape Town
South Africa

DAA News & Insights