Banks move past banking

In the same way South Africa’s banking system was the envy of the world in past decades, it is once again expected to become a role model for even the most developed economies. 

As the 2020s dawned, South Africa eliminated paper cheques, yet it is expected that many industrialised countries  will continue to use them well past the middle of this decade.

Meanwhile, South Africa is moving on. BankServAfrica, which is responsible for processing transactions between banks, is about to launch a digital payments platform for South Africa’s Rapid Payments Programme (RPP). Its main features are sending instant payments, making payments in a simpler way, and directly requesting a payment through a “Request to Pay” system.

“South Africa was a world leader, but I think we started falling behind a little bit when it comes to payments,” said BankservAfrica CEO Jan Pilbauer in early 2020, shortly after cheques had finally been phased out. “I want South Africa to take the pedestal again. If you really want the economy to be doing well, you need to have something which brings less friction to moving money.”

As the banked population waits with bated breath for the dawn of this era of instant payment, several banks are taking dramatic steps in their own modernisation. For example, Absa, often seen as a technology laggard, plans to kickstart innovation in its payment processes with the integration of the Syspro 8 enterprise resource planning (ERP) system.

Marius Wessels, head of professional services at Syspro Africa, says that accounting and ERP systems will combine with banking systems to enhance speed, efficiency and accuracy.

“A shift is underway in how banks and financial corporations adopt and apply new technologies of the future. Accounting and ERP system integration has become a primary concern for these enterprises, and ease of integration has become a primary focus.”

Last month, Investec launched Programmable Banking for business and private banking clients, offering them the ability to create individualised banking services. Aimed at IT professionals like software developers and programmers, it allows them to build code that, for example, defines rules to approve or decline specific transactions. They can also integrate the card with outside platforms like the Sage and Xero accounting systems to optimise business processes.

Says Devina Maharaj, program head of Investec Business Online and API Banking: “It allows them to write these rules that can say, my card must only work between eight and 10. Or it can only work at this merchant. Or, as soon as I swipe my card, instead of sending me an SMS message, I can make it go into my Slack channel, for instance. The idea is, how do we develop a proposition that makes software developers feel really comfortable, but also empowers them in the world of banking?”

Cumesh Moodliar, head of Investec Private Bank SA, puts this capability into a business context: “Our digital capability needed to get the next injection and step up in terms of where we need to go as a business. Having these coders working with us through the programmable banking module is helping us build on that.”

So far, he says, more than 500 developers have joined the initiative.

“A key part of Investec’s strategic intent is to bring software engineers and IT professionals on board to help them grow their wealth and unlock new opportunities. We acknowledge their skills and see how IT professionals are fundamentally improving the world and how we operate, engage and transact in it. By investing in this particular market segment, we believe that we can have a significant impact on society and the economy at large.”

At the beginning of this month, FNB unveiled the latest evolution of its mobile banking app, already regarded as one of the most advanced in the world. It launched a range of lifestyle solutions, “designed to help its customers beyond financial services”. The expansion takes it into the realms of education, private security and gaming, with low-cost online courses from Udemy, a medical and personal armed response service called GuardMe, and an ad-free eBucks Games portal with no monthly subscription.

It also expanded the FNB Connect service, which offers savings on mobile phone accounts, and high end smartphones, laptops and tablets, at a lower price than from retail stores.

FNB CEO Jacques Celliers says that the launch was a major step change in the bank’s efforts to be relevant to customers in every context, beyond basic banking.

“The lifestyle solutions we are integrating into our ecosystem will set new standards for value-added services in the financial services industry. Our expanded value propositions to insurance and investments are really gaining a lot of traction. We built out what we refer to loosely as lifestyle offers, as additional reasons why people choose our platform.

“We’ve attracted a tremendous amount of attention over the years to the ability to have topped up airtime or electricity or water, the day-to-day  needs that people have as it relates to lifestyle and just getting by. Over time we’ve expanded that, those expanded opportunities give us further traction, and out of those interactions we create more stickiness.

“If we can retain clients more and have more regular interactions, we can create more activity.”

Warwick Bam, head of research at Avior Capital Markets, agrees that the business case comes back to attracting and retaining customers. 

“FNB is actively expanding its non-core services to balance actual and perceived value for money,” he says.  “For instance, FNB acquired the Slow Lounges from Comair as customers use and value this benefit. Adding service providers directly off the FNB app adds a convenience and trust factor to e-commerce.  

“Commercially, banks benefit from higher transactional revenue if goods and services are purchased directly off its banking app.  In a similar way to how social media platforms leverage a captive audience of daily users, banks are realising that the banking app offers valuable visual space for the sale of third-party products and direct advertising.”

In the process, the data generated in the course of regular activity becomes a strategic asset.

“Banks are getting access to more granular transactional data, enabling targeted offers and customised credit solutions at the point of sale.  Successful banking models in 2030 will monetise transactional data in more effective ways. Data insights, available to banks with the appropriate software systems, create real-time, actionable leads, benefitting merchants through higher sales and banks through transaction fees.”

Craig Pheiffer, chief investment strategist of Sasfin Wealth, says there are two key reasons for expanding banking offerings.

“A savings account is a savings account and banks have to try and differentiate their offering in some way so these innovations may be a part of that. The biggest reason though is to try and grow non-interest revenue. The difference between interest paid on deposits and interest earned on loans is the banks’ bread and butter, but they all want to diversify and grow their non-interest revenue.”

He believes that, while banks do need to get the basics right and prioritise core banking, they can’t be left behind competitors either. 

“They can well focus on both ends of the spectrum simultaneously.”

Sergio Barbosa, CIO of enterprise software development house, Global Kinetic, and CEO of its open banking platform, FutureBank says the more nimble fintechs continue to capture a growing piece of the banking revenue pie, leaving banks to provide the technical systems support for the customer experience. 

“Fortunately embedded finance running on banking as a service (BaaS) platforms, allows banks to easily partner with companies that offer new and exciting offerings, without having to rip and replace their old and often unstable legacy systems,” he says.

By using BaaS, banks are able to partner with more fintechs to boost their digital products for their new customers. Rolling out new digital products can be done in weeks instead of months or years, with no risk or disruption to core banking systems.

* This feature first appeared in Business Times in The Sunday Times.