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South Africa’s Postbank may struggle to crack retail market

By David Whitehouse
Posted on Thursday, 5 December 2019 16:48

Analysts say that South Africa's Postbank will struggle to win customers who use Capitec's branch network. REUTERS/Siphiwe Sibeko

Postbank’s plans to become a full-service bank focusing on lower-income parts of South Africa’s population may be hampered by perceptions that it is a state-owned bank, as well as by increasing competition in the sector.

Communications Minister Stella Ndabeni-Abrahams said in October that Postbank has developed a strategic plan and that it will be able to operate as a stand-alone retail bank once it gets a full licence. In November, acting managing director Shaheen Adam told Fin24 that Postbank has about 3b rand (EU180mn, US$ 200mn) in capital, or about double the capital adequacy requirement.

South African consumers have become increasingly frustrated with existing banks.

The South African Banking Sentiment Index 2019 published by BrandsEye in November analysed social media mentions for the five major banks, Absa, Capitec, FNB, Nedbank and Standard Bank, and found worsening sentiment due to branch closures and high charges.

But Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers in Cape Town, does not expect that Postbank will have a decisive impact on the market.  “Private banks are more efficient than state-owned banks. Currently the market is very competitive and the big four banks hold over 80% of assets, which makes our industry oligopolistic in nature,” she says.

Confidence Issue

Some fear that perceptions of South African state-owned enterprises may count against Postbank.

  • “Whatever the government touches these days goes to dirt,” says Byron Lotter, director at Vestact Asset Management in Johannesburg.
  • “I would never give the Postbank my money regardless of who is operating it.” It is yet to be decided whether the post office, the government, or both, will own Postbank.

Lotter points to Capitec as a bank that services people who still like to go to branches “very well and cheaply. To be honest, I don’t see much room for Postbank to operate.”

  • The BrandsEye survey gave Capitec the best customer experience after fee reductions made it the clear leader in “perceived value.”

“South Africa has world class banks and we are experiencing a big surge in branchless, low fee, digital banks,” Lotter says. He points to Tyme Bank, Discovery and Bank Zero as leading the charge.

  • “This in turn is forcing the big banks to drop fees and focus more on digital. It is a thriving, well-managed sector,” Lotter says.

BrandsEye found that South Africans are generally positive on the new upstarts – but noted that this could fade quickly as they get over the hump of becoming fully operational.

Postbank may find that process easier.

  • It already has 6.2 million accounts, though some customers have more than one account.
  • Postbank is also working on developing its own ATMs and a digital banking offering.
  • Mthombeni at Mergence argues that Postbank itself does not have any legacy of poor governance. “So the expectation is that under South Africa Reserve Bank prudential authority it will be well run, under stringent regulation.”
  • She expects Postbank to be able to contribute to increased levels of financial inclusion in South Africa.

Bottom Line: Postbank’s coming arrival looks poorly timed as Tyme Bank, Discovery and Bank Zero are expanding. It will need a decisive break from its roots in the state to have a chance of success.


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