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With hip hop and bumper home loans, big banks target SA’s youth

SA’s big banks are luring youth as their customer base ages and competition becomes rife.
The likes of Capitec Bank and fully-digitised TymeBank are the main competitors ruffling the feathers of South Africa's traditional banking models. Picture: Supplied

South Africa’s biggest banks are betting cut-price accounts, big mortgages and offers on everything from Adidas backpacks to Xboxes will help them win over the youth market, which many overlooked until it was targeted by a host of start-up rivals.

An ageing client base and competition from old and new, tech-savvy rivals with lower-cost offerings have forced the big four banks to drop their fees and invest in propositions that especially appeal to upwardly mobile youth.

Absa is considering offering first-time buyers a mortgage worth more than the value of their home, while FirstRand will launch a no-or low-monthly fee account for students.

They join Standard Bank and Nedbank in weighing more mortgage risk or accepting lower fee revenues in order to attract younger customers.

All four are being thrashed in the youth market by rival Capitec, which serves around 45% of the 15-24-year-old market and over 40% of 25-34 year olds, according to an estimate of the banks’ market shares based on a 2017 Publisher Audience Management Survey (Pams) provided to Reuters by market research firm Eighty20.

Newer lenders like TymeBank are also threatening to lure even more young customers with fee-free, app-based banking.

Read: TymeBank clients take their time

Capitec Bank cuts fees to compete with digital newcomers

Executives at Absa and FirstRand said that while not especially profitable, the youth market is key to the sustainability of their customer bases.

“It’s not about the numbers per se but it’s about finding the right customers that are upwardly mobile and attractive in terms of the strategy,” said Christoph Nieuwoudt, head of consumer banking at FirstRand’s retail unit, First National Bank (FNB).

The lender had previously left a “huge gap” in the student market but wanted to make a comeback, he continued. FNB said its new student offering would combine a digital account, bundled mobile data, deals on third-party products and services and either low or no monthly fees.

Read: FNB ties banking with fitness

Lifestyle offers

Analysts said the banks appeared to be waking up to the fact that a number of their customer bases are skewed towards older age brackets, and if they do not start attracting younger clients again they would have to wrestle them away from rivals later or quickly lose relevance.

“The same thought process seems to be playing out at all the big banks,” Ilan Stermer, banks analyst at Renaissance Capital, said.

Based on responses to the Pams survey, which asked participants which banks they had an account or card with, around 34% of Absa’s customer base is 50 years old or older, compared with 24% at FNB, 25% at Standard Bank and 26% at Nedbank.

Absa, which already offers a low-fee student account, is planning to launch a mortgage product aimed at customers in their early- to mid-20s in the third quarter, Geoff Lee, managing executive of home loans in its retail unit, said.

As part of this it could offer – with strict criteria – mortgages worth more than the house itself to cover transaction costs. Standard Bank, which started offering an account aimed at 16-23 year olds and combining banking and “lifestyle” offers last year, has also recently started offering mortgages worth 104% of a house’s value to certain first-time buyers.

The moves follow Nedbank’s April launch of a digital, zero monthly fee account aimed at under 25s, promoted by a local rapper, and offering career help, DJ and photographer bookings, and deals on everything from fashion and technology to ride-hailing.

For years, the big banks have struggled to grow lending in a weak economy with high levels of household debt. But with players like TymeBank growing fast – it acquired 400 000 customers in four months – executives said the youth market was too important to pass up.

“You can’t have a customer base that dies on you,” said Cowyk Fox, managing executive of everyday banking at Absa, adding that the youth market is growing fast and has better opportunities two decades after the end of apartheid. 

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Word of caution; new home loan entrants to the market should read their contracts BEFORE signing, insist on monthly statements, not only every six months and make sure the statements reflect the exact terms and conditions of the contract! Don’t get swept up in emotion – keep feet firmly on the ground; it’s YOUR hard-earned money. Banks know exactly how financially illiterate first-time home buyers can be….

End of comments.





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