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The bank branch is dead. Long live the branch

Branches will continue to exist, but there will be fewer and they will be smaller, says Standard Bank’s Sim Tshabalala.

As the country’s large retail banks figure out ways to defend their transactional fee margins in an increasingly crowded environment, the question is whether there is appetite to continue supporting a large branch footprint.

Numbers shared during Standard Bank’s annual financial results presentation on Thursday show that its number of local branches declined 11% between 2010 and 2018, but it is the reduction in the square meterage of branches that is more significant (see below).

Source: Standard Bank Personal and Business Banking SA

Group chief executive Sim Tshabalala says branches are getting smaller.

“Over time, as customers transact in a digital way, that trend is going to continue.”

A lot of the activity previously facilitated by the branch network, such as balance inquiries, will be done electronically.

“But it is also true: we believe that the branch is dead. Long live the branch. Branches will continue to exist, but the activity in the branch will be much more solutions and problem-solving type of activity.”

Tshabalala does not envisage a time when branches will cease to exist but says over time branches will become fewer and smaller.

Digital branches

Around 60% of its rival Nedbank’s branch network is now digitally focused, with plans to convert all branches to this model in time.

Nedbank chief executive Mike Brown says the idea is not to move away from a physical branch network at some point in future.

It currently has 604 branches and believes a number around 600 is appropriate.

“What that enables us to do is to reach 84% of the economically active population in South Africa within a reasonably tight radius of our branches.”

While the actual footprint will remain largely unchanged, branches are becoming smaller, Brown says.

As new digital banks that operate without a branch network continue to enter the market, there have been questions about traditional banks’ ability to defend their transactional fee margins. New low-fee entrants have been quick to point out that South Africa is an outlier compared to the rest of the world, where transactional banking is almost free.

Listen: Standard Bank delivers sustainable earnings growth

‘Free’ is a relative notion

Tshabalala disagrees. He says in countries where transactional banking is free, it is typically cross-subsidised with fees for payments and money transmission.

A normal commercial bank must cover its fixed cost through its non-funded revenues – mainly fees and commissions. The banker’s burden is the extent to which it is exposed to declining interest rates.

Fixed costs don’t decline as interest rates decline.

“If you are not covering your fixed cost, it is the nightmare of any banker, because the quicker those [interest rates] decline and the less you are covering your fixed cost with fees and commission, the more trouble you are in,” says Tshabalala.

He does not agree that fees and commission in South Africa are high compared to other markets.

“That is not supported by the data. It is true however that with electronic and digital banking, fees and commissions have collapsed.”

He says incumbents face the prospect of being disintermediated by new entrants, fintech or large technology companies and ending up as utilities, but there is also a real possibility that the established sector will use its infrastructure, data and financial resources to improve the customer experience and defend itself.

Standard Bank has the customer base and data to survive and is increasingly investing in the customer experience, he added.

The group reported headline earnings growth of 6% to R27.9 billion in the year through December 2018. Its return on equity improved from 17.1% to 18%.

The share price closed 3.7% down at R182.43.



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That is all fine and well but then the Bank cannot require you to go to a branch to update FICA etc. The digital channels must provide for these attendances. Also need better communication to actual people requiring updates etc and not have to use the toothless branches as conduits!

Just imagine that you are the poor unfortunate soul that needs to update your FICA and the closest branch to you just closed down. How far will you need to drive to prove that you did not suddenly change into someone else?

Or walk. Some people live in places with no public transport and don’t have money to own a vehicle of their own.

Agreed…and then have anybody else had the BAD experience of trying to transact with the Deceased Esate Department? A total frustration!

“He does not agree that fees and commission in South Africa are high compared to other markets.That is not supported by the data.”

Not sure where ST gets his “data” from but I have SA and UK current accounts and I certainly know which is cheapest……..and it ain’t you Sim, not by a long way!

On top of that the service is much poorer so if the big banks want to maintain market share they need to get their collective heads out of the sand, stop bleating and start dealing with the realities of what their customers have to experience.

If they keep saying “we are not expensive” they think the untruth will become the truth? Works for politicians.

I think these guys have latched onto the Ramaphosa / Goebbels syndrome. Tell lies, often and big and unsubstantiated, tailored to your audience. Leaching, parasitic rubbish er, to be polite.

No great loss here. Face to face customer service in SA is appalling. You get stared down by a slouching, disinterested teller/cashier as if you are the plague. Essentially government employees in training…

Then when you do need to go into the branch like i had to to give my son authority to transact on my account you wait for almost an hour to be helped. However heads up to Standard it only too an hour. A friend locked himself out of his ABSA on line banking and waited one and a half hours.

And what happens in the platteland when we have to pay shearers or fencers or casual labour and the ATM is empty because the loan sharks cleaned it out.
We are already nearly there because the little branchlets are just buildings with people walking around inside. You can get nothing done, no loans, no overdraft facilities etc.

You move your acc. to Capitec.For every branch the big 4 close, Capitec opens 3.

All the balances of the accounts in my online-portfolio are kept to a minimum, so the funds available covers only the expenses of the current month.

Excess money is transferred to a savings account, which IS NOT in my portfolio.

The ONLY way to get money from my off-line-savings-account, is to go into the bank with my ID Card and transfer money back to my high-risk-online-accounts.

I believe that my cash is protected this way from SIM-card-scams at least.

There are no other reason for me to go into the bank.

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