One in 5 banks is less than 20 years old, but only 1 in 8 has embraced digital. Will this be a problem?

I’m old enough to remember when Amazon turned a profit one quarter earlier than expected. That event signalled the end of the dotcom bubble.

I like to call it an “Amazon moment.” That was the first, but by no means the last.

When Amazon sold its first book in 1995, Borders Books and Music generated sales of $1,6 billion. Amazon wasn’t seen as a threat to Borders. Instead, Borders (and Barnes and Noble) was seen as a threat to independent bookstores.

Ten years later, in 2005, Borders reported $4 billion in sales across its 1,200 stores. Six years after that, in 2011, Amazon sold more e-books than physical books for the first time. That same year, Borders filed for bankruptcy.

Of course, Borders’ going out of business wasn’t only because of Amazon. A company going out of business is never due to a single cause. Nonetheless, Amazon and its business model had a huge influence.

Over the years, Circuit City ($10 billion in 1999, out of business ten years later), RadioShack, and even Toys R Us have been unable to compete in the new market.

Covid-19 gave South African retail its “Amazon moment.” Retailers are scrambling to adapt and respond, even as local online giants are strengthening their hold on the market. Retailers are moving quickly because their margins are lower than other industries. Industries like, say, banking.

When I look at the banking sector, there seem to be two main beliefs: that banking will never have an Amazon moment, and even if it does, that day is far in the future.

But I think banking is having an Amazon moment right now; banks just haven’t noticed it yet.

Our research seems to back that up.

According to Accenture’s Disruptability Index, banking has moved into the “volatile” quadrant. Another startling statistic is that 1 in 5 banks are less than 20 years old, which shows how the industry is moving fast. Despite this, only 12% — about 1 in 8 banks — have fully embraced digital.

When Amazon started selling books, petfood retailers, music shops, computer stores and others had no idea that Amazon would either put them out of business or threaten them mightily.

Retailers have an advantage because there is only one Amazon. They know the shape of the threat, which is the first step to avoiding it.

But in the banking industry, there are many small Amazons that are chipping away at the incumbents. Some are competing with banks, others are partnering with them, a few are doing both. So it’s harder to think of them as a threat.

The high-margin activities of payments and lending, and even the very idea of a bank account, have all been disrupted by new entrants.

In January 2021 the “buy now, pay later” lender Affirm raised $1,2 billion in an IPO. It doubled its share price on day 1. By March it was worth $29 billion. The regulators raised some red flags, but that story shows that the Amazon moment is here for banking. We only have to look at South African players such as MobiCred, Ozow, Payfast, Yoco and others to see how the payment space is changing.

Even lending, which is harder to disrupt, will take a hit. The threat is that fintechs will partner with banks to provide the customer interface to lending, and banks will be left doing the low value work of transaction processing.

What about bank accounts? I would argue that a blockchain-enabled currency wallet functions very much like a bank account in that it stores value.

Peer-to-peer lending such as crowdfunding platforms also encroach on the payment space.

South African banking is responding. Looking globally, I think the local industry is doing better than many other territories. I still think that banks could be doing a lot more, and doing it a lot more quickly. If you’re interested in reading our related research for yourself, you can find the report here.