The market shares of South Africa’s four big banks—Standard Bank, Absa, First National Bank, and Nedbank—go up and down, but with few big swings. Despite government pressure to do more for the bottom end of the market, and some stabs at doing so, all have continued to focus on their traditional middle- to upper-end customers. That, they’ve held, is where the money is.
And it’s true, that’s where the money was. But growth in that sector has slowed. Profits are under pressure. So the giants been forced to look downmarket, where there are an estimated 8 million “unbanked” and “unsecured” customers, and plenty of growth to come.
The fight will be brutal. They’re all charging into the same arena at the same time, so they’re tripping over each other. The big banks have clout, and are deadly serious about this new venture. But they’re stepping onto the home turf of two smaller banks—African Bank and Capitec—which know how to fight there.
These two operate in different niches. They’ve been growing fast, and extending their presence into new areas with appealing offerings. They’re also solidly established, and far from rolling over under the current onslaught, they now have no choice but to become even smarter and more aggressive.
The bigger of them, African Bank, hardly advertises at all, but has many years of hard-earned experience at the lower end of the market, a sophisticated approach to credit management, almost 16,000 highly motivated people, and a large pool of customers who are real fans and not just locked-in by some gimmick.
Capitec is a younger business, but its promise of simpler, cheaper, and more convenient banking has strong appeal. After initially aiming at poorer black customers, it’s now opening branches in wealthy areas and attracting whites, professionals, and suburban housewives.
There’s a classic disruption strategy at work here, as described by Harvard Business School professor Clayton Christensen:
- Incumbent firms keep improving what they’ve been doing, assuming they’ll keep customers happy by doing more of the same better. But they do lots of stuff customers don’t care about. As they add more and more bells and whistles, their costs rise and they create a “price umbrella” for upstarts.
- One or more newcomers sneak in under that umbrella. They focus on customers the dominant firms have overlooked or underserved, with products tailored precisely for “the job they want done.” Unencumbered by entrenched mindsets and legacy policies, practices, and infrastructure, they’re able to keep costs and prices low. They go unnoticed while they fine-tune their processes and build awareness, capabilities, experience, and muscle.
- Stuck with a price disadvantage and lots of baggage, the big players struggle to move downmarket. At the same time, the disruptors start moving upwards, to pick off their customers.
The current process has a way to go. The latest phase in the banking war illustrates just how hard it is to stand out in the marketplace today—and why “sustainable advantage” is for more and more companies an impossible dream. It highlights the importance of delivering a “difference” that really is different, but also that matters to customers so they’ll pay for it.
THE DELIBERATE DESTRUCTION OF DIFFERENCE
Virtually in unison, the big guys have announced a flurry of new products and services (or re-promoted existing ones), and started to move downmarket. They’re hoping for the best of several worlds: to keep customers they’ve got, while also stealing some from each other—and to snatch business from African Bank and Capitec, while also luring unbanked customers in that territory.
Since March, print media have been stuffed with one page of ads after another extolling the promises of three of the Big Four: Absa, Standard Bank, and First National Bank.
Absa promises “Better banking”:
IMMEDIATE PAYMENTS…STAMPED BANK STATEMENTS…APPLY ONLINE…SCAN AND PAY…SEND CASH AROUND THE WORLD…FREE eSTATEMENTS…CELLPHONE BANKING…CASH ACCEPTING ATMs…UNIT TRUSTS ONLINE…OPEN ACCOUNTS ONLINE…OVER 8 000 ATMs AND 900 BRANCHES…RECHARGE WITHOUT CHARGE…LOW-COST BANKING…REAL BUYING POWER…REAL CASH REWARDS…
Turn the page, and there’s Standard Bank “Moving forward:
THE CONVENIENCE OF 18 450 PLACES YOU CAN DO YOUR BANKING…HELPING CUSTOMERS SAVE UP TO 50%…ELITE BANKING COSTS R99.00 A MONTH…YOUTH…STUDENT ACHIEVER…GRADUATE AND PROFESSIONAL BANKING…ACHIEVER ELECTRONIC…PRESTIGE BANKING…PRIVATE BANKING…
And without a gap, you get First National Bank, answering its “How can we help you?” slogan with its own laundry list of promises, and its claim to be the industry innovator:
INNOVATION…VALUE…PAY2CELL…KRUGERRANDS…ONLINE FOREX…FNB LIFE COVER…SLOW LOUNGE…eBUCKS…SELF-SERVICE BANKING…INCONTACT…INSTANT ACCOUNTING…FNB BANKING APP…SHARE INVESTING…FUEL REWARDS…MULTICURRENCY ACCOUNTS…eWALLET…TABLET & SMARTPHONE OFFER…
Now, as a customer, what do you make all of this? What’s the difference—or is there really any difference? What does it mean to you? Are you impressed by this growing range of offerings? Or overwhelmed? Or perhaps you just don’t care.
The South African banking industry ranks among the healthiest in the world—thanks to tough regulation. But banks have long been accused of over-charging, lousy service, and bullying tactics. Nobody I know is excited about dealing with their bank. Nobody has ever recommended their bank to me.
As a customer myself, I have absolutely no idea what sets banks apart. I deal with them because I need to, not because I want to. They make a lot of noise, but I can’t hear what they say.
Bank strategists would do well to pay close attention to Beating The Commodity Trap by strategy professor Richard D’Aveni of the Tuck School of Business at Dartmouth. Because that’s exactly the trap they’re creating for themselves—at huge cost, and despite their desperate efforts.
Describing why firms get into a commodity trap, D’Aveni writes:
“…the reasons most companies find themselves in the trap in the first place is because they failed to innovate early enough to avoid it or they later differentiated and cut prices so much that they have exacerbated the trap.”
They’d also to well to heed to these words of Harvard Business School professor Youngme Moon in her excellent book Different :
“Competition and conformity will always be fraternally linked, for the simple reason that a race can only be run if everyone is facing the same direction.”
“…the way to think about differentiation is not as the offspring of competition, but as an escape from competition altogether.”
“There is a kind of difference that says nothing, and there is a kind of difference that speaks volumes.”
Making a “difference that speaks volumes” has always been a challenge to companies and their ad agencies. It’s getting harder as competitors crowd into a field, and as they watch and learn from each other, benchmark themselves against each other, recruit people from each other, attend the same industry events, read the same publications, buy from the same suppliers, and so on. They strive to be different, but do everything possible to look alike.
First National Bank has seized an advantage by not just re-segmenting the market, but by using product innovation as its differentiator and a character called “Steve” to grab attention in broadcast media. But how long will it be before others do the same? Technology constraints might slow some of its competitors down, but they’re sure to fix that. So the rapid reinvention of business models will continue. Future ad campaigns will surely become both more factual and more emotional.
If experience from other industries is anything to go by, the banks have started what could be a costly “race to the bottom” (and not just the bottom of the market). Together, they’re transforming their world. The best they can hope for is that none of them does anything really silly, and that the market stays reasonably stable. They also need to hope that their efforts don’t create a credit bubble and provoke their regulator to clamp down on them.
Whichever way things go, we’re about to see:
- What difference strategy can make, vs. the importance of being able to think on your feet, change direction in a blink, and run faster than your enemies.
- How important real product innovation is vs. vaguer corporate branding.
- Whether conventional forces can take on guerrilla fighters and win, and what it takes.
- How guerrillas can withstand an onslaught from multiple well-armed attackers.
There will be important lessons here for all managers, so this is a battle worth watching closely. (More on this in a coming post.)