Digital-First Banking Brings Efficiency, Access to African Consumers, SMBs

The appetite for digital banking has accelerated in recent years, giving rise to a new generation of challenger banks and FinTech players that are disrupting the traditional banking space with often cheaper, faster and more efficient solutions.

But as Tyme Co-Founder and CEO Coen Jonker told PYMNTS in an interview, the purist approach of these neobanks ignores the benefits of being able to access banking services in a physical location — a much needed resource for consumers in emerging markets.

“The way we think about digital banking is [that] it’s less about the digital and it’s more about using digital to create the widest possible access for people,” Jonker said, pointing to the over 1,000 kiosks TymeBank operates in retail outlets across South Africa as central to the firm’s hybrid approach.

See also: Customers Turn to FIs That Deliver Hybrid Financial Wellness Solutions

Whereas traditional bank branches are expensive to run, TymeBank’s kiosks can be operated by a single member of staff and solve key problems that are inherent to the South African market.

For starters, many locals are wary of opening an account at a full-service online bank.

“It’s “quite an intimidating experience […] even [for] people who see themselves as relatively digitally savvy,” he explained.

And the numbers are there to prove it. According to Jonker, 80% of TymeBank’s 5.3 million customers opened their accounts through a kiosk rather than entirely online, a strong indicator of South Africans’ preference for opening an account in person.

Read also: Tyme Raises $110M to Grow Digital Bank for Underserved in South Africa, Asia

Another key advantage of the kiosk model is that cards can be printed on the spot rather than having to be sent through the mail.

“In a country where [the addressing and] postal system isn’t great, [distributing cards in the mail can be] a costly exercise,” he said, compared to the ease and efficiency of simply walking up to a kiosk and getting a debit card printed.

Jonker also pointed to the benefits small business customers derive from TymeBank’s kiosk network through its cash services offer, a feature which he said bridges an important gap for merchant clients who are unlikely to bank with a financial institution (FI) that doesn’t allow them to make withdrawals and deposits.

Filling the SMB Credit Deficit

Small- to medium-sized businesses (SMBs) are an important market for the South Africa-based digital retail bank, which serves over 150,000 small businesses on its platform, “largely sole proprietors [and] owner managed businesses,” Jonker said.

One of the biggest challenges this SMB market faces is access to credit, a situation that has left the sector “chronically undercapitalized,” he added.

By overlooking SMBs, traditional banks have contributed to widening this funding gap, he explained further, mainly because their credit assessments are built around audited financial statements and collateral assets, which SMBs typically don’t have.

In an effort to improve access to credit and bridge the funding gap, TymeBank has recently acquired SMB-focused lending FinTech Retail Capital through which it will diversify its offering with the addition of small business lending and working capital finance.

See more: South Africa’s TymeBank Acquires SMB-Focused FinTech Retail Capital

As Jonker explained, Retail Capital has developed an alternative credit assessment mechanism that only requires revenue information from the borrower in order to approve a loan. What’s more, the firm’s lending model is more suited to SMBs, with repayments based on revenue rather than fixed terms.

Partnerships Provide Competitive Edge

There is increasing competition in the digital banking sector, and in South Africa, the country’s largest retailer, Shoprite, has strengthened its position in the space, transforming its money market account into a fully-fledged bank account that can receive payments, including salary and social grants, from any local bank.

Jonker called that decision by the supermarket chain to branch out into banking a “smart” move, adding that “there is no reason that a strong retail player like that can’t compete […] head-on with the banks.”

Read also: Standard Bank Looks to Expand Amid Rising Competition in South Africa

Ultimately, however, he said there’s enough space for all kinds of banking models in South Africa.

Moreover, the competition Tyme is facing in many of its targeted markets “is still cash, not the incumbents,” he said. As a result, rather than taking market share from traditional banks, alternative financial service providers are growing the size of the whole market.

Finally, he touched on how partnerships are likely to grow in significance for banks, FinTechs and other challengers in the space moving forward.

“Nobody’s going to be able to do everything well,” Jonker said, “[so] those who can partner well with other people and with other players could have an interesting and unique competitive advantage.”

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