First National Bank's (FNB's) owner this week shrugged off the enthusiasm of newcomer institutions for behavioural banking as "the flavour of the month".
After almost a quarter of a century of dominance by the so-called big four - FNB, Standard Bank, Nedbank and Absa - SA's retail banking sector is becoming a fierce battleground as branchless, data-driven lenders, notably Discovery and TymeBank, enter the market. Both new entrants are touting their ability to turn masses of data into tools that will influence client behaviour.
"Hype," said Alan Pullinger, CEO of FirstRand, which owns FNB. "We've been using behavioural analytics for about two decades now."
Despite feeble growth in SA, which held back Rand Merchant Bank and vehicle finance business WesBank, FirstRand's profits for the six months to end-December were buoyed by a 13% rise in earnings from FNB.
After years of raking in data through its eBucks rewards programme, the bank is now hitting a sweet spot as it cross-sells and "upsells" other financial products to a client base it knows well, FNB CEO Jacques Celliers told Business Times.
Earlier in the week, Absa reported that its retail and business bank division grew headline earnings by 2% in the year to end-December. Standard Bank and Nedbank last week reported modest rises in full-year earnings in comparable divisions.
All the major banks have a rewards programme of some sort linked to their credit cards, but FNB's eBucks is big - it pays out about R2.5bn a year and helps the bank keep its finger on the pulse of its more than 8-million clients.
This, in part, helped the bank build up a life insurance business of nearly R5bn in a decade. It is also a low-cost way of originating tailor-made loans.
"In the early days of banking, we saw our customers maybe once a month when they came into a branch," Celliers said. But the business has changed and even straight-up internet banking is taking a back seat to transactions on smart devices. Volumes on FNB's banking app overtook online banking last year.
"Now, because of the platforms . [customers] interface with us multiple times a day. As a consequence of that we have so much data about that activity and behaviour and we can so much better target value propositions at them," said Celliers.
Tellingly, FirstRand reported that FNB gave it a 41% return on equity, a key measure of how effectively the group is generating profit from the money that investors put into the business. Absa's retail and business bank reported a 24% return, while Standard Bank posted 21.9% and Nedbank 18.9%.
The data is especially useful for "events-based" lending - to cover weddings, divorces and the payment of school and university fees.
"Emotion in finance has become such a cool thing to work with," said Celliers.
And it has helped FNB grow its unsecured lending, which includes personal loans, to about a quarter of the total market, he said.
In transactional banking, FNB started from a base in the middle market and gradually built it out to compete effectively both in the high end and the low end of the consumer market, added Celliers.
His predecessor, Michael Jordaan, who is setting up a new digital bank named Zero, was instrumental in positioning FNB to appeal to the young and the tech-savvy.
Discovery will definitely be making a play for the yuppie end of the spectrum. Best known for its medical fund, Discovery calls its new business "the world's first behavioural bank".
Tyme, controlled by Patrice Motsepe's African Rainbow Capital Investments, also boasts of behavioural aspects in the digital business it has launched with Pick n Pay as the front end. Tyme is targeting both thrifty, dissatisfied clients who bank at other institutions, and first-time account-holders. It sees a 50-50 split between these two groups and aims to have 2-million clients within two years.
But FNB is not too worried.
It is using the data it has to make sure it lends to the right people, firstly by selling products and services to its own clients who might be under-insured or have borrowing needs. FNB also knows what types of credit other financial institutions might offer to its clients. It can then use the data to try to "crowd out" other lenders...