I was reading our latest research report on the state of banking for 2021, and thinking about the South African market. You can read the ten trends we identify by downloading the report here. It’s a very global perspective, and I wanted to see if we could gain some insights for the South African market.
One strategic choice that our research identifies, that South African banks are also staring at right now, is: do they a) become part of somebody else’s ecosystem? Or b) do they become the destination? With the launch of its Avo offering, it seems that Nedbank is embracing option b. They want to be the destination. Avo is a marketplace of trusted vendors. If you want a plumber, then potentially there’s a plumber on Avo. What are the insights driving this kind of strategy?
One insight is that customers trust their bank. This means that if Nedbank suggests a plumber, then that’s a trustworthy suggestion.
Another insight is that the bank benefits if its customers start transacting more with each other.
Then there’s the fact that banks are competing increasingly on the customer experience. The more a customer interacts with the bank, the more the bank can offer its customers a finely-honed customer experience drawing on how the interaction on the bank’s platform takes place. If a bank decides on this strategy of banking as a platform, as Nedbank seems to have done, the next business problem to solve is how to attract people to the platform. After all, it’s not intuitive to use a banking app to look for a plumber.
The other option, option a, is for a bank to become part of somebody else’s ecosystem. That is what Alipay is doing with Vodacom.
Alipay is part of China’s Alibaba group. Vodacom and Alipay announced their collaboration in July 2020. The idea is to build a payments app on the Vodacom platform, powered by Alipay. In March 2021, Massmart announced it would participate in the initiative.
What that means is that a Vodacom customer will be able to shop online at Massmart stores, starting with Makro. Massmart says it is the second-largest online retailer in South Africa, after Takealot. So instead of building its own ecosystem, Massmart has decided to participate in the Vodacom ecosystem.
In true platform style, there is a promise of a win-win. Massmart will attract more customers, especially those who don’t currently shop at Makro. It is betting on attracting a younger demographic as well as accessing the 11-million South Africans who don’t have bank accounts but do have cellphones.
This offering also encourages people to remain Vodacom customers. This is a win for Vodacom even before the transactional income it may earn from the online shoppers. Vodacom also wins because it starts to gain a better understanding of its customers’ behaviour.
The danger is that Massmart loses control over the customer engagement and relationship because Massmart may become one of many retailers in the Alipay/Vodacom app. This is the threat – and the choice – facing banks now, in the world of Open Banking. Our research still seems to suggest that banks believe Open Banking will give them a net benefit. I know my colleague Justin Bradshaw has different views.
I would love to hear your thoughts on how well-positioned South African banks are to take advantage of innovations in banking. What do you think we’ve missed in our research? Let me know in the comments.