South Africa, a sovereign entity that exited British Rule in 1961 has seen economic (and political) ups and downs over the past 60 years. The credit card business has been bumpy, particularly over the past ten years. Between 2014 and 2017, the credit card industry shrunk from 13% penetration to 7% in a nation of 55 million people. The market bounced back in 2018.
Barclays was a dominant player with their Absa Bank but shrunk its ownership to just 16% after tangling with the Central Bank of South Africa. Bloomberg talks about the market today in an article entitled “South African Banks Compete With Free Burgers, Gas and Hip-Hop.“
- From free burgers and ride-hailing services to hip-hop concerts and discounted gasoline: South African banks are going all out to win customers as competition hots up.
- The biggest lenders are facing an onslaught of entrants for the first time in 12 years. They’re responding before the newcomers find their feet by pushing loyalty programs, revamping digital offerings for technology-savvy millennials, targeting existing customers with extra products and services and cutting fees.
- Central bank data shows that term loans jumped almost 15 percent in the 12 months through February after contracting the prior two years, while the value of credit-card debt increased 9.2 percent from 4.7 percent a year earlier, after shrinking in 2017.
Old school marketing is not the course for the day. The push is on for social media and a big swing at celebrity endorsement.
- Lenders are turning to different approaches to snag customers. Nedbank got local rapper Ginger Trillo to launch an offering that gives university students a cheap account, credit-card facility, as well as fast-food restaurant and ride-hailing vouchers. It also added a digital personal assistant and concierge offering to its app that links to a network of 350,000 product and service providers.
- First National Bank tries to get eyeballs to its app by connecting business customers with retail clients, or home buyers to sellers so they can do deals without a realtor. FNB is also digging deep into its client data to find cross-selling opportunities.
But some banks are pushing the envelope with growth expectations. Imagine linking your annual MBOs to this:
- Discovery Ltd., South Africa’s largest health-insurance administrator, wants to gradually add customers to the bank it recently opened, starting with the 350,000 credit cardholders it shared with FNB through a joint venture that ended last year.
- The company plans to tap into the 4.4 million lives it reaches through insurance, wealth management, and its Vitality loyalty program.
Referencing the population numbers in the first paragraph, there are only about 4 million credit cards in force. Bring in a newcomer and expect to grow ten-fold in just a few years, is a recipe for disaster. In credit cards, slow, steady growth is essential. You need to season accounts, manage FICO scores, watch how people pay. FICO scores are relatively new to the South Africa market; their relationship in that market serviced by credit bureau Trans Union only dates back ten years.
But, up against Discovery Bank is TymeBank, with similar aspirations but lower targets.
- Billionaire Patrice Motsepe’s TymeBank, which uses kiosks in Pick n Pay Stores Ltd.’s grocery outlets to open accounts with no monthly fees, signed up 210,000 clients within two months.
- To break even, the lender will need 2 million. To get this done, it’s sending mobile teams and a portable kiosk to transport hubs, university campuses and big employers — a throwback to a technique Absa used in the early 2000s to reach rural customers with briefcases packed with equipment able to sign people on.
So, here is what we have. South Africa has 4 million active credit cards today, dominated by established card banks such as Absa, Ned Ban and Standard Bank of South Africa. The credit card market stumbled between 2014 and 2017. Contraction closed about one-third of active credit cards.
Now two digital banks are aiming at the market and hope to increase credit card holders by about 150% in a few years.
Sounds like an opportunity, but with my risk manager hat on, this could bring operational risk. But either way, it might cure the country’s stagnant GDP, which grew at only 1.3% in 2017.
Overview by Brian Riley, Director, Credit Advisory Sevice at Mercator Advisory Group
