Picture: 123RF/SCAN RAIL
Picture: 123RF/SCAN RAIL

Over the past few years there has been a gradual, yet discernible, shift in retail banking in SA as new entrants, often with limited or no physical infrastructure and/or a specific focus on pricing, tried to make their mark. Digital banking received a lot of airtime and pressure to reduce fees increased.

“Traditional” banks responded quickly, and competition intensified. What type of business model would be able to withstand the ongoing contest for the hearts and minds of SA customers, many wondered? And then, without warning, the Covid-19 pandemic entered our lives...

While the SA economy was already under considerable pressure prior to the pandemic, it soon became evident that this was no regular slump. Although the outlook remains uncertain, all indications are that the impact of Covid-19 will be much more severe and prolonged than the effect of the global financial crisis.

Moreover, while the pandemic has created cash-flow problems for many South Africans (which have translated into credit risk for financial institutions), it is fundamentally different from the 2008 situation when credit-risk issues triggered the crisis.

We expect a 10% drop in real GDP in SA this year. The National Treasury estimates that between 690,000 and 1.79-million jobs could be lost — heartbreaking figures for an economy like ours that is struggling with significant levels of unemployment, poverty and inequality. The impact on disposable incomes is already visible.

Banks will have to carefully balance the need to invest in technology and digital solutions and cost containment

At the same time there have been behavioural changes. Many businesses have had to alter their operations to allow for online sales or deliveries and have had to embrace remote working practices. The need to stay at home while staying in touch, also fueled a bigger reliance on digital services, such as streaming, video-conferencing and digital banking. Across the Absa Group, for instance, almost half our colleagues are working remotely.

Interestingly, some companies — locally as well as globally — have reported productivity gains in certain parts of their operations, opening the door to permanent changes in remote working policies. Denmark’s biggest lender, Danske Bank, recently announced that it would permanently allow employees to work from home a few times a week, even in the absence of lockdown conditions.

What does this mean for the future of SA banks?

Bespoke solutions will become more important

When circumstances are out of the ordinary and the future is uncertain, solutions need to account for the urgency and uniqueness of the challenge. As banks continue to navigate this once in a hundred years event, the ability to respond quickly with bespoke and appropriate solutions to customer needs will be more important than ever.

Less than a week after President Cyril Ramaphosa announced that SA would enter a nationwide lockdown, banks started offering payment holidays, relief programmes and other solutions to help customers during the pandemic. While the overall uptake has been significant, the test will be whether these solutions truly respond to customer needs over time, and whether banks can continue to innovate as the situation changes.

Customers have long memories and will remember how they were treated when they were at their most vulnerable. In this environment, protecting customers will become even more important.

Growing momentum behind the move to digital

International consulting group McKinsey notes that the Covid-19 pandemic has prompted a shift to digital banking channels that would probably have taken at least a couple of years without the international branch closures experienced during the crisis.

Locally, the momentum behind the move to digital (including electronic and contactless payment adoption and growth in “card-not-present transactions”) has also gained traction during the lockdown. Absa recorded a 33% increase in the average rate of daily digital registrations in March, month on month. Card-not-present transactions related to online shopping are at record levels as customers migrate from in-store shopping.

With a protracted economic slump expected, banks will have to carefully balance the need to invest in technology and digital solutions and cost containment. At the same time, the expectation of some customers — in particular that the suite of online and app-based offerings should be broadened — should be weighed against fraud considerations and the requirement to have access to “warm body” assistance through bankers for more complex issues.

There is no doubt that digital adoption will become increasingly important. However, in the near term, branches, ATMs and call centres will continue to play a crucial role as part of the service offering. It is also important to realise that even a digital offering comprises various channels, including text-based cellphone banking (USSD), internet and mobile banking.

Value for money will be a key consideration

The debate around banking fees, and “free banking” in particular, continues, but while marketing initiatives tend to focus on the absence of monthly fees, customers may still need to pay for ATM withdrawals, withdrawals at till points, [Absa’s] CashSend transactions, external debit orders and electronic payments, thereby eliminating the perception of “free banking”.

In this regard, there is no one-size-fits-all solution — the type and frequency of transactions need to be carefully considered to choose the most appropriate account.

In a constrained environment, banks will need to demonstrate what value customers really receive for the money they spend, something that is highly dependent on customers’ personal circumstances and preferences. In this regard, service excellence will become increasingly important — when incomes are under pressure and customers struggle to see what value they derive from their banking fees, service failures will not be easily forgiven.

Pricing is important, but the value offered to customers will be the next big talking point in banking. Banks that place primacy on remaining relevant to the evolving needs of customers will transcend markets and customer constraints. Ultimately, intensely analysing customer feedback, trends and insights with a view for continual improvement will allow banks to prosper, in a post-coronavirus world.

Building lasting relationships with customers during an era of social-distancing and economic pressure will require a newfound agility to respond to customer and societal needs in a relevant, sustainable and holistic manner.

• Fox is Absa Group managing executive for everyday banking, retail and business bank.

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