South African banks are reporting phenomenal growth in the use of banking apps despite the country’s finite banked population, stagnant levels of smartphone penetration and relatively low levels of financial literacy.
Recent figures released by leading retail banks show digital banking is fast growing, understandably so given the fierce competition to innovate and meet the needs of digitally savvy consumers.
FNB’s strategy to migrate customers from physical to digital channels showed much progress with physical financial transaction volumes declining from 68% in 2009 to 29% in 2018 while digital financial transaction volumes grew from 32% to 71% over the same period. It notes that increased digital functionality has enabled it to move some transactions that could previously only be performed in-branch across to digital channels.
The bank reported annual growth of 65% in mobile banking app volumes, bringing the level almost on par with that of online or desktop banking, which fell 4% during the year through to June 2018. FNB says it processed around R105 billion in payments through digital channels over the 12-month period, an average of R8.7 billion in digital payments per month.
Similarly, Standard Bank says its customers “continued to indicate a preference for digital rather than physical”. Its Personal and Business Banking unit reported a 7% increase in active mobile banking users, with transactions increasing by 58%.
According to Nedbank, its new app launched in November 2017, was downloaded over a million times and registered 400 000 active users in less than 10 months. It told investors at a third quarter roadshow that enrolments and transactions across all versions of its app increased by 61% and 26% respectively.
Capitec, the country’s fastest growing retail bank, registered a 62% increase in the use of its banking app to 1.8 million clients during the six months ended August 2018. Additionally, self-service banking transactions – on its app, via its USSD functionality and through its in-branch self-service terminals – grew 27% to 295 million. The bank says the uptake in digital solutions resulted in a 25% increase in total transactional volumes.
Interestingly Capitec’s decision to pick up the data costs associated with using its app may also support transactional volumes. Its CEO Gerrie Fourie would not disclose its tab for this, saying only that it is “quite a big number”.
He told Moneyweb he was surprised by the pace of digital migration. Given South Africa’s low level of financial literacy when compared with Europe, he thought it would take longer to migrate clients to self-service platforms.
A constructed financial literacy index published in the South African Journal of Economic and Management Sciences in 2018 puts the mean level of financial literacy at 48.1 out of 100.
In addition to relatively low levels of financial literacy, South Africa’s banked population is finite. A 2016 FinScope survey on Financial Inclusion found that only 58% of adults, excluding South African Social Security Agency (Sassa) card holders, are banked.
So what is driving growth in banking apps usage to such a degree that the top five retail banks’ apps all fall in the top 50 free downloads in Apple’s App Store? And, low bases aside, how are several banks able to consistently report skyrocketing growth in banking app downloads and usage?
According to Herman Singh, MTN’s group executive for innovation strategy, such growth may not be related to smartphone penetration. “Smartphone penetration is not growing that fast in South Africa,” he says. “Based on what we have seen in the rest of Africa, this is because customers are multi-banked; banks measure transactions rather than unique users, and this is growing from a small base.”
It is possible that migration from USSD banking to app banking is driving growth in digital, he adds.
Banking Acumen’s Angus Brown, a founder and former CEO of FNB’s eBucks loyalty programme, believes demographics are driving growth. “Every year that goes by sees more millennials join the working population, and they are extremely tech-savvy. So, although the average age stays the same, the generation cohorts are moving through the banked population.” He adds that the younger generation has grown up expecting that ‘there’s an app for that’ and that the scrapping of monthly fees for access to digital channels and reduced charges for digital transactions is probably also playing a role.
Bank fees tend to vary for services rendered across different channels, with branch fees being the highest and digital fees being the lowest or, in some cases, non-existent.
From selfie banking to WhatsApp banking and video banking, local banks are pulling out all the stops to indulge digitally savvy consumers. It remains to be seen how such ‘gimmicks’ rate against simple offerings, but there is a place for such devices, says Brown. “Although usage may initially be low, there is value in experimenting. The banks don’t know what customers will appreciate – and it’s good to let customers ‘vote with their fingers’”.
But he notes that banks have not been good at culling unnecessary functionality, with many banking apps appearing quite bloated.
* Absa did not disclose figures related to digital migration and platform usage.