Standard Bank expands digital banking abroad as domestic challengers mount
Standard Bank is strong enough to make a lot of small bets on digital banking in new markets. The challenge lies in how to deal with the threat of digital upstarts in its home market.
Standard Bank launched its digital-only banks in Botswana, Zambia and Zimbabwe in June, to be followed by Nigeria in September. It already rolled out the digital offering in Uganda, Tanzania, Ghana and Kenya in the first quarter of this year, and in Côte d’Ivoire in 2018.
Paul Hollingworth, managing director at Creative Portfolios in London, sees Standard Bank’s policy as having long-term coherence. African populations are rapidly embracing new technology and the bank has to maintain the pace to keep up, he says. A unified digital strategy across diverse markets allows the advantages of scale.
The timing of entry into Zimbabwe, in the midst of an economic crisis with inflation rates of 100% and an acute shortage of foreign currency, is a surprise. Even passports and identity cards are now hard to obtain. Hollingworth acknowledges that the country is starting from a very low base.
“Things will get worse before they get better,” he argues. “It makes sense to buy while there’s blood in the streets.” He pointed out that it is impossible to time entry to perfection, but in the long term, “you have to be there”.
Zimbabwe is likely to be in a better place in 10 to 20 years, Hollingworth argues, and Standard Bank could benefit from an early-mover advantage. In the meantime, entry investments and operating costs are no more than a “drop in the ocean” for a bank of this size.
He sees Botswana and Zambia as high-growth markets but adds that the digital banking market in Nigeria is much more competitive. Standard Bank will “find it harder to make a mark” there, Hollingworth adds.
Small and nimble
Digitalisation is a double-edged sword because it also intensifies competition. According to a PwC report, Digital Disruption in the South African Banking Sector, South African retail banking will soon experience a “significant uptick” in competition due to digitalisation.
New digital entrants, PwC says, are unconstrained by legacy systems and will be able to establish an “almost unassailable advantage” over the universal banks due to their ability to launch new solutions in short periods of three to six months. Established banks often take between 12 and 24 months to launch new products, PwC finds.
Greater competition has already resulted in lower transaction fees and commissions in retail banking, PwC claims in its South Africa Major Banks Analysis published in April. Competitive pressures are set to increase in the coming months due to new entrants and wider product offerings from players such as TymeBank, Bank Zero and Postbank, the PwC report says.
- In June, Standard Bank increased its branch closure plan in South Africa to 104 branches, from 91.
- TymeBank says that it will hit 500,000 customers by the end of July and is targeting one million by the end of 2019.
Hollingworth agrees that the threat of increased digital competition exists for Standard Bank but says it’s too soon to quantify the market share new entrants may take. The impact is not purely negative for incumbents like Standard Bank, he says. The bank is influenced by the innovations of new South Africa competitors in its expansion strategy abroad.
- The new markets won’t provide big profits even in the medium term, but Hollingworth expects Standard Bank to do well in Botswana, Zambia and Zimbabwe over a period of 10 to 20 years.
Moves in small new markets may turn out well in the long run, but Standard Bank’s real digital challenge lies in fending off fiercer domestic competition.