Developing a framework for future business models in the South African banking industry

Abstract

The South African banking industry has not fundamentally changed over many years and has been dominated by five traditional incumbent brick and mortar banks. In recent years Capitec has however been able to cause some disruption to the status quo. As the economy slows down, the South African banking sector experiences pressure on economical and social levels. The market faces widespread disruption due to the entrance of low-cost challenger banks. The incumbents furthermore face many challenges including significant cost bases, rapid technological advances and a generation of digital natives. The challenger banks are digital in nature which means they encounter significantly lower operating expenses and offer enhanced value propositions to South African consumers. The impact of changing consumer tastes and new technologies requires an understanding of the banks’ current and future business models. Studies show that successful organisations adapt their business model to adjust to their environment. The purpose of this study is to evaluate the potential influence of challenger banks on business models of the incumbent brick and mortar banks in South Africa and to develop a framework for the future of their business models. The literature review conducted focuses on research relating to business models, disruption caused by technology and understanding the current South African banking industry. The empirical study is qualitative in nature and six participants from the South African banking industry were interviewed. These participants were selected using non-probability expert sampling and the interviews were semi-structured and conducted face to face. The results of the interviews and the literature review were grouped into common themes in line with the qualitative nature of this study. The findings indicate that the incumbent brick and mortar banks face disruption across their business models with a view to societal and economic challenges coupled with the arrival of the challenger banks. It is recommended that the incumbent banks should transform their business models to become low cost, customer-centric organisations that leverage IT as a platform. For these transformations to be successful, they need to ensure they have the right talent mix, incentives structure and culture to ensure the given bank’s long-term sustainability. The present project culminated in framework that has been developed to represent potential future business models for South African bank.