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Ratings agency S&P Global Ratings has hailed SA’s big banks for being early adopters of fintech, saying the country’s lenders are on par with their counterparts in developed markets.

The ratings agency said in a research note that Neobanks are unlikely to reshape competitive dynamics in the next couple of years because most of them rely on other banks or retail networks to operate.

“Challenger banks such as TymeBank, Discovery Bank and Bank Zero, which all launched in the past five years, are digital and have a very small market share (less than 0.5% to date). The SA banking sector operates with few and strong banks. Top-tier banks control about 90% of system assets,” said S&P.

TymeBank last week threw down the gauntlet to the big five banks, saying it aims to be in the top three in the next three years.

This is as it notched up a rare feat in the banking industry by turning a profit within five years of its launch.

TymeBank now boasts more than 8.5-million customers, making it the fastest-growing bank in SA.

S&P said fintechs will continue to challenge and emulate banks in the payments space as they provide constant, cost-effective and efficient products, forcing banks to adapt quickly and collaborate to remain competitive.

However, the ratings agency expects the big banks to continue investing heavily in IT infrastructure in response to changing consumer behaviour.

“Leading banks improved efficiency and met changing customer needs in response to the pandemic-related economic restrictions. They deployed contactless technology very quickly and met the requirements of the booming e-commerce,” said S&P.

“IT expenditure has been steady for most banks, given their previous investment strategy. They averaged 10% of operating expense for the top five banks in SA over the past five years.”

Fintech has become a big money spinner in Africa, with telecommunications companies benefiting handsomely.

Africa’s largest mobile operator MTN said last year that payment giant Mastercard will take a minority stake in its burgeoning R100bn fintech business. Vodacom is also scaling up its fintech business.

Financial services group Old Mutual is looking to roll out its fintech platform O’mari in other markets after a successful launch in Zimbabwe, where it attracted 50,000 customers in just five weeks.

Old Mutual launched O’mari — which offers mobile money services, insurtech, investech, digital lending, e-commence, payments and digital products and services for the retail mass market in Zimbabwe — at the end of May.

The launch ratcheted up the fintech competition in that country. which is dominated by Econet’s EcoCash and Innbucks.

S&P said the high migrant population in SA is also fuelling fintech in the bulging remittances market. SA has an estimated $1.2bn leaving its shores each year in remittances while Nigeria is thought to have $18.6bn coming into its economy from the diaspora.

“The high migrant population also drives demand for cheaper and faster cross-border money transfers and several fintechs such as Mukuru, Mama Money and Hello Paisa operate in this space. Consumer habits changed in the pandemic’s aftermath, which gave rise to contactless payments,” S&P said.

“Banks onboarded big technology companies’ payments options such as Google Pay, Samsung Pay and Apple Pay. SA is more advanced in contactless point-of-sale system implementation than other African countries, which will support growth in the segment.

“SA has been a key destination for technology investments. Leading US companies in mobile and security software have operations in SA and contribute to train local skills. This helped banks adopt fintech products while developing their own capabilities.”

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