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Sector Overview - Banks
Digital Disruption Brings Innovation And Transformation To The Sector
By Shumrai Chimombe
The South African banking sector continues to maintain its position as the largest on the African continent. As of September 2024 there are 28 banks operating in the country of which 11 are branches of foreign banks according to the South African Reserve Bank.
As of 2022, the combined tier 1 capital of the sector reached $42.2-billion according to Statista. In addition, the top four financial institutions in the country were among the 10 largest African banks in terms of asset value in the same year. The total assets of the banking sector represented around 88% of the South African GDP in 2020.
The banking sector has significantly increased its customer base in the last decade. In 2023, almost 86% of the adults in the country had a bank account, compared to about 64% in 2014. The population share with a banking account in South Africa is forecast to continuously increase between 2024 and 2029 by 8.7 percentage points. After the 15th consecutive increasing year, the banking account penetration is estimated to reach 96.62% and therefore a new peak in 2029. The penetration rate refers to the share of the total population with a bank account - Statista.
PwC South Africa has reported that the country’s major banks demonstrated a durable financial performance in the first half of 2024 amid complex operating conditions and elevated levels of uncertainty, reporting a combined headline earnings growth of 2.5% against the same period in 2023.
Digital Inclusion In A Transformed Banking Landscape
The Banking Association of South Africa indicates that the banking landscape has seen a seismic shift over the past decade, driven largely by the rise of digital banking. Its rapid adoption is mainly due to increased mobile penetration and access to the internet, and a rising consumer appetite for convenience and efficiency, leading to a growing uptake of digital banking solutions spanning online, mobile, and USSD banking.
This has led to major transformation in the financial sector with increased inclusion with just over 44% of the country’s population reported using online banking in 2022. Online banking is expected to continue its growth trajectory in the coming years with fintech driving innovation and developing new technological banking solutions.
At the same time the entry of new digital banks onto the financial landscape has increased competition, disrupting the status quo. In response, the major legacy banks have had to step up and undertake large-scale transformation programmes aimed at improving customer experience, digital transformation, new ways of working, and enterprise-wide cost reduction.
The major banks are not powerless to address this challenge posed by these new entrants, writes PwC South Africa.
“Unlike their challengers, they have the principal advantage of already serving a sizable share of the country’s retail and commercial customers. To maintain this advantage, and meet the challenge posed by fast-paced entrants, these universal banks will need to develop clear innovation strategies and operating models as well as embracing a culture that supports agility and measured risk-taking.
The future of banking in South Africa is dynamic and exciting. Agile new entrants with a differentiated value proposition and a business model focused on the monetisation of customer insights will compete head-on with universal banks reinvigorated by new innovation strategies. Not all banks will succeed in this new environment, but those quickest to adapt will benefit and capture a disproportionate share of the future banking market.”
The Rising Demand For New Skills
The Banking Association of South Africa reports that the major legacy banks have been aggressively adapting their operations to remain competitive. In recent years they have invested heavily in upgrading their digital platforms, enhancing mobile apps, and implementing AI-driven solutions to streamline processes. This has enabled customers to conduct transactions, apply for loans, and manage their finances without visiting physical branches, leading to banks closing some of their physical branches.
This rapid digitalisation has led to a rising demand for new jobs with the banks now hunting for professionals with skills in technology, data analytics, and customer experience management.
Opportunities For Traditional Banks In An Evolving Customer Landscape
Traditional banks in South Africa face significant challenges such as adapting legacy systems to meet modern digital demands and addressing cybersecurity risks. However, these challenges are counterbalanced by opportunities that will enable them to secure their competitive edge.
• Strategic partnerships: Collaborating with fintech companies (including start-ups) combines the agility of fintech with the trust and customer base of traditional banks.
• Data analytics: Leveraging data analytics can significantly enhance customer experience by offering personalised services and predictive insights. The use of data analytics has improved customer retention by 20%.
• Digital products and services: Traditional banks can innovate by introducing AI-driven chatbots for customer support, blockchain for secure transactions, and mobile apps for seamless banking.
• Meeting consumer expectations: Innovations meet changing consumer expectations and provide a competitive edge.
Source: “The future of digital banking in South Africa - KLA
Talents In High Demand Include:
Artificial intelligence and machine learning
Cloud engineering
Customer journey management
Cybersecurity engineers
Data engineering
Data science
Quantitative analytics
Risk management
Software engineering
These skills are essential for ensuring smooth operations across digital channels and safeguarding customer data. They are also crucial for leveraging data-driven insights to enhance client experiences and streamline operations.
In addition to tech roles, power skills like critical thinking, problem-solving, and emotional intelligence are also in high demand, reflecting the need for employees to be agile and adaptive in a fast-changing environment.
Moreover, the demand for relationship managers and acquisition bankers indicates that despite the growth of digital platforms, personal relationships with clients remain important while supported by data analytics and digital tools.
The Banking Sector In SA - A Bird's Eye View
28 - number of banks operating in SA as of September 2024
11 - branches of foreign banks
$42.2-BILLION - the combined tier 1 capital of the sector
88% - contribution of the sector's total assets to GDP
86% - adults with a bank account (2023)
Sources: South African Reserve Bank/ Statista
