Startups are shaking up the South African banking sector

South Africa’s upstart lenders are leveraging their low-cost advantage to challenge the dominance of larger, more established rivals by disrupting the ‘market’, according to a report.

A cohort of newly licensed entrants, including African Rainbow Capital Investments’ Bank Zero and TymeBank, are able to offer “the same services as traditional banks, but at a fraction of the cost”, the Solidarity Research Institute said.

TymeBank, backed by billionaire Patrice Motsepe, is able to process a set of 25 transactions at almost 85% lower cost than traditional banks, according to the report.

“There seems to be a revolution going on in the banking sector,” said Theuns du Buisson, an economics researcher at the South African union-affiliated Solidarity. “I wouldn’t be surprised if the new banks also become big banks within a few years.”

The dominance of South Africa’s biggest banks is fraying in the face of competition from new entrants offering no-fee offers and perks such as ultra-cheap money transfers.

While the price differential could make traditional lenders more vulnerable at a time of high inflation and sluggish growth, South Africa’s five largest banks – a group that includes Standard Bank and FirstRand – still control more than 90% of the country’s banking assets.

But changes in consumer behavior could make them more vulnerable in the aftermath of the pandemic. In South Africa, the number of digitally active banking customers grew by a quarter on a combined basis between the second half of 2019 and the first six months of last year, PwC said in a recent report.

“Banks are increasingly differentiating themselves on the basis of additional services,” said Du Buisson. “Even compared to the cheapest accounts in traditional banks, those with branches, traditional banks lag far behind.” — Adelaide Changole, (c) 2022 Bloomberg LP

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