Wake-up call for banks is music to our ears

17 July 2016 - 02:00 By Bruce Whitfield
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Andy Grove grew Intel into the world's biggest microchip maker and one of the most admired companies in the world. His 1996 blockbuster 'Only the Paranoid Survive' became the guide for managers struggling in a rapidly changing world and taught a new generation of CEOs in those tech-heady days how to cope with rapid change.

Grove created the term "strategic inflection point". It could be anything from technology to a new competitor to a change in regulation.

"Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing," wrote Grove.

Despite the fact that the South African banking sector is massively concentrated and entry into it is incredibly difficult, local bank CEOs are feeling particularly paranoid right now.

Not only do they face increased regulation, but new technologies mean they could be disrupted at any point, and there are constantly new attempts by rivals to muscle in on their sector.

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The CEOs are facing all three key strategic inflection points at once, and it's not as if there is a hell of a lot of market share to go around in the first place.

The best bit is that their paranoia is great news for you and me.

This week saw the first step by the Post Office to obtain a fully fledged banking licence. The Post Office already has one of the most widespread branch networks of any operation in the country as it has a presence in every small town and many rural communities. Under CEO Mark Barnes, the battered institution is seeking to claw back credibility, and the financial services strategy is key to that.

Barnes, a former banker, says the aim is not to compete with commercial banks but to take banking to the people. Who is he kidding? It amounts to the same thing.

There are still no details as to how Discovery will compete at the opposite end of the banking market - but compete it will as it seeks to tie ever more of its upper-end client base into its product set across medical insurance, life and short-term cover and investments.

So local banks face a pincer movement by potential rivals. Neither is going to have a dramatic impact on banking in the next year or two, but the established players are already positioning themselves for that competition.

The real paranoia is about the risks that bankers suspect exist but still cannot see. The global revolution in financial technology, or fintech, is leading to the prospect of banking services being offered by the likes of a Google or a Facebook.

Absa is experimenting with allowing customers to access banking via Twitter. Technology broadens access and allows for a traditionally conservative industry to see what is possible.

For most of us, there is a direct benefit to the paranoia building across established banks.

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Take Capitec, which was initially seen to be in a high-risk segment that big banks preferred to ignore. It gradually built its brand and retail deposit-taking capacity to become a formidable competitor.

Once the rest of the sector woke up to the opportunity, we saw a boom in microlending and substantial product diversification across banks. They are unlikely to make that mistake again.

Internet banking is ubiquitous today, but it was not always so. During the late '90s tech boom, early fintech innovator Christo Davel saw an opportunity to capitalise on complacency around internet banking, which, until then, had been seen simply as an additional channel to branches as opposed to its stand-alone potential.

Davel's Twenty20 ended in tears when Saambou, whose licence it was using, collapsed, but during its brief lifespan the big banks were forced to respond and up their game in the world of online banking.

Whitfield is an award-winning financial journalist, broadcaster and writer

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