South Africa’s upstart lenders are leveraging their low-cost advantage to challenge the dominance of bigger and more established rivals by turning the “market on its head”, according to a report.

A cohort of newly licensed entrants including Bank Zero and African Rainbow Capital Investments’ TymeBank are able to offer the “same services as traditional banks, but at a fraction of the price”, the Solidarity Research Institute said.

TymeBank, backed by billionaire Patrice Motsepe, is able to process a set of 25 transactions at a cost almost 85% less than the traditional banks, the report found.

“It seems that a revolution is taking place in the banking sector,” said Theuns du Buisson, economic researcher at Solidarity, which is affiliated with the South African trade union. “I would not be surprised if the new banks become big banks as well within a few years.”

The dominance of South Africa’s biggest banks is fraying in the face of competition from newcomers dangling zero-fee offerings and perks like ultra-low-cost money transfers.

While the price differential could make traditional lenders more vulnerable at a time of elevated inflation and sluggish growth, South Africa’s five largest banks — a group that includes Standard Bank and FirstRand — still control more than 90% of banking assets in the country.

But shifts in consumer behaviour could make them more vulnerable in the aftermath of the pandemic. In South Africa, the number of digitally active bank clients has increased by a quarter on a combined basis between the second half of 2019 and the first six months of last year, PwC said in a recent report.

“Banks are increasingly differentiating themselves based on additional services,” Du Buisson said. “Even when compared to the cheapest accounts of the traditional banks, those with branches, the traditional banks are lagging far behind.” — Adelaide Changole, (c) 2022 Bloomberg LP