Bill gates said it in 1994, “Banking is necessary, banks are not”. The South African banking environment is evolving rapidly. Over the course of the next few years we’re going to see new and better banks coming into the market. We’re seeing it already with the introduction of Discovery Bank, Bank Zero, African Bank and Postbank. Big banks like Nedbank, ABSA, Standard Bank and FNB are going to have to work harder than ever before to hold onto their customers.
Big banks in South Africa have had it too good for two long.
From an international standpoint, competition among banks is nothing new and to be expected. We’re just behind the curve in South Africa. Regulations have made it hard for new competitors to enter the market but that’s all about to change.
For years, international non-bank financial institutions have been disrupting the banking world. They’re able to do it largely because they have the support of consumers. The world is changing, consumers are expecting and even demanding more and it all needs to be easier, cheaper, faster and better. Today’s customer wants better rates, lower costs and increased transparency, not to mention reasonable customer service. These are things that our banks are failing to provide.
Bank loyalty is a thing of the past.
Over the years, businesses and consumers have stuck it out with banks largely because there haven’t been any viable alternatives. In fact, it’s more of a perception that if you aren’t transacting directly with a bank then it’s somehow not safe or secure. South African banks have capitalised on this very point, if you consider the restrictions that come with things like exchange control policies, its fair to say they’ve actually abused it.
Today, things are a little different, in fact they’re a lot different and changing fast. Financial, tech savvy businesses are coming into the market supported by regulatory authorities and 2nd tier banks. These businesses don’t have the same heavy cost structures as the big banks. In most cases, there are no branch overheads which means they can afford to be highly competitive, flexible and transparent. There’s also far less bureaucracy, so they’re able to adapt quicker and service clients far better than banks.
The market is making way for new & better financial service providers.
Take a business like our business “fx paymaster” for example. We operate in the financial services sector providing international payments and money transfer services to both private individuals and businesses. Traditionally this is a service provided almost exclusively by banks in South Africa due to the fact that one can only effect foreign exchange transactions as an authorised dealer. Again, this is part of the reason why banks have taken advantage of customers, they’ve never had an alternative.
So, what’s changed, from a Reserve Bank authorisation point of view … nothing. Foreign exchange transactions are still carried out and reported by an authorised dealer, however the deals are now executed and managed by an intermediary. In our case, a privately owned, fully authorised and regulated financial service provider.
As an intermediary, we sit between the client and the bank. This allows us to facilitate the transactions with the bank on behalf of the customer. The difference here is that we have our own systems, processes and procedures, we control the rates, margins and transactions fees and we handle all the administration and paperwork. The bank is simply our processing arm.
According to a global survey conducted by PWC, out of 1300 financial industry executives polled, 88% fear losing business to innovators, starting with payments, fund transfer and personal finance sectors. It’s no secret, FinTech companies are driving market changes and will continue to do so in the foreseeable future.
For more information about fx paymaster, feel free to browse our website www.fxpaymaster.com.
