Stephen Timm meets four innovators changing the face of SA’s finance industry.
Michael Jordaan is smiling. The former FNB head is about to launch Bank Zero. His is one of several new digital banks, including Discovery Bank and TymeDigital, that could give their traditional brick-and-mortar peers a run for their money.
This comes amid the growth in new financial services technology, or fintech as it is more commonly called. The sector exploded after the 2008 global financial crisis and is now threatening traditional banking and financial services.
Bank Zero will likely launch in the first half of 2019 and Jordaan says his team is busy integrating its IT system with the various payment rails and carrying out testing. This will be followed by user acceptance testing and then crowd testing.
Jordaan believes that fintech can drive economic growth in South Africa by reducing the cost of financial services, increasing access to these services and offering better pricing of risk by using more data and better algorithms.
“The result is the creation of more efficient financial services, which helps to make the economy more competitive and enables more citizens to participate,” he says. The growth of fintech is being driven by small groups of talented people who believe that the existing financial services business models are cumbersome and expensive.
“These entrepreneurs understand the benefit of mobile-first, digital everything and are unencumbered by legacy income streams.” The smartphone revolution, coupled with the lowering of mobile data costs, has enabled the growth of fintech in emerging markets, Jordaan points out.
While Chinese customers are arguably the most advanced in using smartphones for everything, he reckons Africans are also benefitting by leapfrogging into a tech-enabled world where they had nearly no similar services in the physical world.
“South African consumers are in a slightly different position as the current banking system is well developed and regulated, and many services are already available, albeit expensive. The biggest change locally is therefore the reduction in fees and prices when services are used online. Of course, there is some competitive resistance by existing players, so it will be up to consumers to switch to better value propositions. If consumer behaviour is not price-elastic, then the status quo will remain,” he says.
In time, Jordaan reckons blockchain will compete with traditional payment systems but he adds that, at present, it makes more sense to integrate it into South Africa’s sophisticated payments systems. “While it has issues – like not processing transactions over Sundays and public holidays – it is able to handle huge transactional volume at a low cost,” he stresses. But does the onset of digital banks mean the end of traditional banks? Jordaan doesn’t think so. He says traditional banks will rather adapt their product set and pricing over time.
“Certain customers still prefer paper and personal interaction, and don’t mind paying for this privilege. Others prefer to be in control of their finances themselves and are more price sensitive,” he adds.
We will showcase three other disruptors in the next few weeks.