Technology will drive down banking costs in South Africa over the next few years – but the driver of this trend is unlikely to emerge from current banking sector players or technologies.
That’s according to Rogan Davies, head of financial services at The IQ Business Group, who believes that the widespread optimism that cellphone technology would having a depressing effect on banking charges is largely misplaced.
“Banks use cellphones purely as an additional customer interaction channel, rather like a personal, portable ATM. While mobile phones are increasingly being used for payment remittances around South Africa, this is not evidence of a banking sector that’s being transformed. Rather, the mobile phone is merely enabling banks to broaden their client base through the provision of a new transaction channel; but it is not having any effect on how banks operate, their internal efficiencies or how they structure their fees,” he explains.
Davies says it will be the power of the Internet – regardless of how this is accessed – and the emergence of new online banking “aggregators” that will ultimately force banking costs down.
He points out that while banks package their offerings differently, they essentially all offer the same services. “A cheque book is a cheque book; a payment card is a payment card; and a savings account is a savings account. There might be minor differences in features but the problem for consumers is that it is virtually impossible to compare these features, let alone their costs,” he says.
But now a new breed of banking “aggregators” is coming to the fore. They are harnessing the Web to take control of the consumer-bank relationships and are effectively commoditising banking services.
Already, operators like Mint and Yodlee provide US-based bank customers with powerful, easy, secure, extremely useful – and free – Web-based online financial management services that banks cannot, and do not, provide.
Mint and Yodlee aggregate consumers’ bank accounts (and even some retail store accounts) and automatically track exactly where they are spending their money. This facilitates easier and more accurate budgeting.
However, Mint has gone a step further and it’s this, Davies believes, that has the most potential to transform banking and compel banks to introduce real efficiencies in order to enable them to reduce costs.
Not only can Mint analyse a consumer’s actual spending and payment history, it can also evaluate whether or not that consumer would save on bank charges by using a different credit card, cheque or savings account. In addition, Mint will assist the consumer to switch to the alternative bank which offers the lower charges.
“From the consumer’s perspective, it won’t matter if he or she ends up using multiple banks for different purposes. Because Mint aggregates all these relationships, the consumer only has to access one screen on the Mint site to view and operate all his or her accounts. The consumer’s banking relationship is with Mint, not with the bank,” Davies adds.
“This will revolutionise banks as it commoditisers banking services, with the only real differentiator between the different institutions being fees and bank charges.”
He points out that local banks have already had a taste of this ‘intermediation’ with the emergence of bond/home loan aggregators. It has resulted in intense competition in the home loan market among the various banks. The emergence of the online banking aggregator, however, would have a far wider impact on the bank’s bottom line.
“It will probably take some time before a South African equivalent of Mint is launched, but there is no question that this will happen.
“Those banks that reengineer their processes and introduce efficiencies that will enable them to lower fees without impacting on their profitability, will be in the strongest position to benefit from the emergence of the aggregators,” Davies concludes.