Disruptive innovation in the South African banking sector : a case study of Capitec Bank

Ntimane, Lazarus Mandla (2020-03)

Thesis (MA)--Stellenbosch University, 2020.

Thesis

ENGLISH SUMMARY : The South African financial services sector is traditionally dominated by four big retail banks, ABSA, FNB, Standard Bank, and Nedbank. There are significant barriers to entry for new banks in the retail banking sector. The four big banks already have the higher salary earners of the South African population as clients and designed banking products aimed at the established income bracket to compete with each other, leaving out a large potential clientele among the majority of the population without banking services as essentially "unbankable". In this environment a new entrant retail bank, called Capitec Bank, radically changed the banking services landscape in South Africa by introducing a simplicity banking business model. The Capitec business model and strategy is based on using newly available digital technology to offer banking products and services at very low costs to clients. The digital business strategy has introduced stripped-down branches, and simplified digital registration and transaction application processes. This digitalisation of banking presented a major challenge to the traditional business models of the established banks, with their paper-driven process and complex operations. The thesis studies the phenomenon of Capitec as an instance of the effect of disruptive innovation. Christensen's theory of disruptive innovation stemming from technological progress is used to explain how Capitec Bank were so successful as a new entrant organisation in the banking services sector. Specifically, the way in which Capitec Bank used digital technology to recruit unbanked customers to participate in the retail-banking sector and so expand the banking market is highlighted. The case highlights that technology alone is not sufficient to disrupt a sector, what counts is how that technology is translated into organisational processes and products. The thesis describes Capitec Bank's humble beginnings as a collective of small financial institutions in the peripheral micro-lending market with links to manufacturing and distribution organisations. Its trajectory of growth is traced from 2001 when the Bank received the licence to operate as retail bank and how it consolidated its micro landing operations towards transformation as a full retail bank. Thereafter the disruptive innovations that were instrumental in Capitec Bank's success are described with the help of Christensen's theory: its low-cost business model and networking, the introduction of differentiated operating times, the use of paperless technologies in opening accounts and identity verification process. Also changes to the back-end process for decision making and service experience, compliance with regulation, and handling changes in real time, as well as offering the global one financial management services in a card. These innovative implementations combining digital technology and process simplifications brought masses of previously unbanked customers into the banking sector and helped Capitec Bank to establish itself as competition to the big four retail banks. The disruptive innovations have implications for the financial sector, forcing the big four retail banks to respond to the transformational business model of the entrant bank. The transformation of these banks depends on the leadership necessary to break away from traditional management style, the legacy banking model, and old technologies. In order for the traditional banks to compete in the bottom of the customer pyramid with the new entrant bank for market share, their business models had to change down-stream to attract the previously unbanked population. Christensen's theory of disruptive innovation is commonly applies in the manufacturing sector, but the case of Capitec Bank shows that it can be fruitfully applied to the services sector as well. The case of Capitec Bank shows how new business models and leadership style are as important as technological change for disruption to be successful.

AFRIKAANSE OPSOMMING: Die Suid-Afrikaanse finansiële dienste sektor word tradisioneel deur vier groot kleinhandelsbanke, naamlik ABSA, FNB, Standard Bank en Nedbank, oorheers. Daar is beduidende toegangstruikelblokke vir nuwe banke in die kleinhandelsbank-sektor. Die vier groot banke het reeds die hoër salarisverdieners van die Suid-Afrikaanse bevolking as kliënte en om met mekaar te kompeteer het hulle bankprodukte ontwerp wat op die gevestigde inkomstegroep gerig is, wat 'n groot potensiële klandisie onder die meerderheid van die bevolking weglaat as in wese "onbankbare" bevolking. In hierdie omgewing het 'n nuwe inkomende bank, genaamd Capitec Bank, die bankdienstelandskap in Suid-Afrika radikaal verander met 'n bankbesigheidsmodel wat op eenvoud en effektiwiteit geskoei is. Die Capitec-sakemodel en -strategie is gebaseer op die gebruik van beskikbare digitale tegnologie om bankprodukte en -dienste teen baie lae koste aan kliënte te bied. Die digitale sakestrategie het stroombelynde takke ingestel en die registrasie- en transaksie-toepassingsprosesse vereenvoudig en gedigitaliseer. Hierdie digitalisering van bankwese bied 'n groot uitdaging aan die tradisionele sakemodelle van die gevestigde banke met hul papiergedrewe prosesse en ingewikkelde bedryfsmodelle. Die tesis bestudeer die verskynsel van Capitec as 'n voorbeeld van ontwrigtende innovasie. Christensen se teorie oor ontwrigtende innovasie as gevolg van tegnologiese vooruitgang word gebruik om te verduidelik hoe Capitec Bank so suksesvol was as 'n inkomende organisasie in die gevestigde landskap van bankdienste. Die manier waarop Capitec Bank digitale tegnologie gebruik het om klante te werf (wat deur gevestigde banke as onbankbaar beskou is) om aan die kleinhandelsbankwese deel te neem en so die bankmark uit te brei, word spesifiek belig. Die gevallestudie beklemtoon dat tegnologie alleen nie voldoende is om 'n gevestigde sektor te ontwrig nie; wat eerder tel is hoe die tegnologie in organisatoriese prosesse en produkte ingebed word. Die tesis beskryf die nederige begin van Capitec Bank as 'n kollektiwiteit van klein finansiële instellings in die periferale mikroleningsmark met relasies in vervaardigings- en verspreidingsorganisasies. Die groei-trajek word vanaf 2001 nagespeur toe Capitec Bank 'n kleinhandelsbank-lisensie ontvang het en daarmee saam die mikro-leningsbedrywighede gekonsolideer het om volledig in 'n kleinhandelbank te omwentel. Daarna word die ontwrigtende innovasies wat tot die sukses van Capitec Bank bygedra het deur die lens van Christensen se teorie beskryf. Hieronder tel die laekoste-sakemodel en netwerke, die bekendstelling van gedifferensieerde bedryfstye, die gebruik van papierlose tegnologie om rekeninge te open en om identiteit te verifiëer. Veranderinge aan die besigheidsprosesse vir besluitneming en terugvoer oor dienservaring, die nakom van regulasies, en die intydse hantering van veranderinge, sowel as die aanbod van die wêreldwye finansiële bestuursdienste op een kaart. Hierdie innoverende implementasies wat deur digitalisering vereenvoudiging van prosesse moontlik maak, het massas voorheen ongebankde kliënte deel van die banksektor gemaak en Capitec Bank help vestig as 'n mededingende bank in die kleinhandelsbank-landskap van Suid-Afrika. Die ontwrigtende innovasies hou baie implikasies vir die finansiële sektor in. Die groot vier kleinhandelsbanke is deur die ontwrigting gedwing om op die transformerende sakemodel van die toetredende bank te reageer. Die transformasie van hierdie banke hang saam met die leierskap wat nodig is om weg te breek van die tradisionele bestuurstyl, die ou bankmodel en gepaardgaande tegnologieë. Vir die tradisionele banke om met die toetredende bank te kompeteer vir klante aan die onderkant van die klantepiramiede, moes hulle sakemodelle verander om die voorheen ongebankde bevolking te lok. Christensen se teorie oor ontwrigtende innovasie is algemeen van toepassing op die vervaardigingsektor, maar die geval van Capitec Bank toon dat dit ook vrugbaar in die dienstesektor toegepas kan word. Die geval demonstreer hoe nuwe sakemodelle en leierskapstyl net so belangrik is as tegnologiese verandering om ontwrigting suksesvol te maak.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/108239
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