South Africa has seen the launch of three new digital banks – Discovery Bank, TymeBank and Bank Zero – which all promise to make banking simpler, better, and cheaper.
These new digital banks all have a mobile and online-first approach, which capitalise on technology advances in recent years.
Smartphones, for example, make it possible for consumers to do banking from the palm of their hand with good security and unmatched convenience.
The new digital banks therefore focus heavily on smartphone apps to serve their clients and give them a competitive edge.
Without the need for physical bank branches and having to deal with legacy systems, it is cheaper and easier for new banks to roll out banking services.
Even when it comes to bank cards there are new innovations coming through, like Bank Zero using a hidden number when you conduct online purchases with its debit card.
There is, however, a challenge for the newcomers – traditional banks are doing the same things and have more money to build and launch new services.
This was highlighted in Nedbank CEO Mike Brown’s recent comments about their technology investments.
Over the past four years, Nedbank has invested just under R10 billion to completely refresh its IT stack.
He said they are creating a bank which can deliver a digital experience which is on par or better than any of the new banking entrants.
Compare this to the richest of the new entrants, Discovery Bank, which has spent less than half of Nedbank’s technology investment amount to build its full bank.
The simple truth is that traditional banks have far more money than the new entrants to spend on creating world-class digital products.
Traditional banks launching digital-first products
To see the challenge which new banking entrants face to compete against their large traditional competitors is simple – just look at the recently launched products.
In November FNB launched Easy Zero, a digital bank account with no monthly fee and a branded bank card.
The launch of Easy Zero came before Bank Zero launched its commercial offering and its value proposition is similar to what Bank Zero is expected to offer.
Another value proposition which the new digital banks punt is their easy onboarding systems.
Nedbank’s new onboarding platform, Eclipse, is offering the same convenience to existing Nedbank customers.
These customers can now take out a personal loan or open a transactional account on the Nedbank app or on the web in under 5 minutes.
With a limited budget it is challenging for a new entrant to continue to innovate to take on the biggest banks which have far more resources.
Digital banks will therefore have to prove that their value proposition is still good enough for consumers to take a chance on a new bank without brick-and-mortar branches.