South African lenders are upending private banking.
Once the preserve of the ultra-rich, services are now being made available to some graduates and those earning at least 750,000 rand — or roughly $44,000 — a year.
Offers of lower-tier accounts and accompanying reward packages have effectively turned what was a bespoke service into a mass-market offering.
The prize is a market segment known as the Henrys — high earners, not yet rich — a pool that encompasses some 1 million potential customers.
Banks, already among the most profitable in Europe, the Middle East and Africa, are focusing on signing up private clients with high earning potential from early on in their careers.
The business model is based on the premise that they will be able to offset thinner margins by forming lifelong relationships.
Technology and intensifying competition are accelerating the trend. New entrants to the market include billionaire Patrice Motsepe’s GoTyme Bank, insurer Discovery and Bank Zero.
Potential forays by the likes of Revolut, as well as retailers Pepkor and Shoprite threaten to intensify the scramble for customers.
The market isn’t without risk.
Multiple lenders targeting the same demographic means they may be forced to cut prices or add services to attract and retain customers, raising costs.
Meanwhile, private bankers who used to handle a few select clients are now responsible for several hundred, and some complain of burnout.
While South Africa’s private banking model has traditionally generated most of their income by offering credit, lenders have now renewed a push to provide investment and wealth-management services.
That could go some way toward increasing access to financial-planning advice and bolstering the ranks of the middle and upper class.
The move should benefit banks and their customers alike and help reduce inequality in an economy that ranks as one of the most world’s most inequitable more than three decades after the end of apartheid rule. – Bloomberg