Where to now for ‘traditional’ banks amid the big shift to digital?

Customers are key as never before as banks navigate the future

● Plate tectonics, the scientific theory describing the large-scale motion of the major continental plates across the Earth’s lithosphere, has shaped our planet for millennia. These gradual but powerful forces of change have left a lasting impression on our landscape.

A cursory analysis of the state of financial services and, specifically, the evolution of banks draws a timely parallel with plate tectonics, as the battle for relevance to customers and society ensues.

Trade wars, macroeconomic policy shifts, technological strides and a fair bit of populism are some of the economic “tectonic” forces reshaping how people interact with money, globally.

Locally, the big concern has been the challenging economic and political environment. Meagre GDP growth and soaring unemployment, tax hikes and sky-high fuel prices are just some of the challenges South Africans face. Consumers’ disposable income is under severe pressure and it is unlikely that there will be any meaningful improvement in the near future.

Banks operate in this environment. Competition is heating up.

However, though some opine about the impact of uncertainty “on the ground”, South African customers today have unprecedented options. The Banking Prudential Authority received more banking licence applications in the past year than it did in the past decade. New digital entrants want to make their mark.

The inescapable question is whether there remains a place for a “traditional” bank in this ever-evolving technological world, particularly a bank with an extensive branch network and thousands of employees.

It’s worth stating that, unlike the new entrants, traditional banks offer full-value banking. South Africans have embraced this form of banking over an extended period and insights suggest that it has a future. Traditional banks — “traditional” not being a euphemism for antiquated and obsolete — have also been actively evolving in tandem with new technology-driven inventions. Their competitive edge is rooted in the ability to offer time-tested solutions, under strong brands, to cater to all banking needs.

Absa has been upfront about the challenges we surmounted in order to stay adequately evolved. While there were tremendous benefits associated with being part of a global family, we had become unwieldy — we lost market share. In the wake of the sell-down by Barclays, we had to confront our competitive position.

In our view, technological advancements will eventually converge virtual channels like mobile and online banking with physical networks, where customers will be assisted on their own device within a branch (for certain transactions).

This also allows banks to measure the demand for very specific types of banking services wherever there is a branch, or one is required. This enables us to tailor our proposition, but it also means that there may be isolated instances where a branch is not an appropriate offering.

Competition in the banking sector is good and often brings out the best in all of us. Global studies suggest that a thriving banking sector is central to societal development. The adverse economic environment and fierce competition have already ratcheted up the focus on customers, as we seek to maintain existing customers while wrestling for market share.

At the same time, the rate of unemployment, coupled with pressure on disposable income, will result in limited growth among all players — new and established ones.

More than ever before, customers have the final say in determining market leadership. Catering for the full bouquet of customer needs, across age groups, demographics and geographies, is the key to relevance. As tempting as it may be to “force” customer behaviour in a particular direction (for example, by going purely digital), there is a fine balance between encouraging efficient banking habits and simply pressuring customers into uncomfortable, non-instinctive banking behaviour.

Banking transactions are migrating from physical branches onto digital platforms. However, as illustrated by advanced banking markets, there will always be a role for face-to-face interaction when it comes to money matters. Conversely, the proliferation of low-cost smartphones, together with a move towards more affordable data, will drive inclusive digital access.

In the same vein, cash and cashless payment options also need to co-exist — it is not one or the other for customers. Cash will still be prevalent across SA for the foreseeable future. In addition to the advancement in technology, as a society we will need to undergo further structural change to fully embrace a cashless society.

Ultimately, the shift away from cash towards a cashless society will happen. However, let us not forget that SA is a cash economy and one of the few markets globally where cash is still growing faster than nominal GDP (7% per annum). Counterintuitively, in such markets, non-cash payment methods will also proliferate in formats and popularity — cards, mobile and contactless payments will become more convenient, secure and ubiquitous. However, we still envision a future in which card, cash and EFT payments coexist.

What is the point of all this? Meeting the multifaceted needs of customers, or full-value banking, which caters to the typical human needs from “cradle to grave” — from purchasing a first car to buying a retirement home — is the best way to compete in the current environment. Customer primacy hasn’t been this important in recent memory.

“Tectonic” shifts will continue, but one thing is for certain: we are prepared. As Felix Rohatyn, the legendary American investment banker, said: “At its core, banking is not simply about profit, but about personal relationships.”

Rautenbach is the CEO for Retail and Business Bank, Absa