MMDB 2024 Innovation & Entr... Tyme Bank. Digital Dis... X + Create All tools Edit Convert Sign e ΑΙ BOO 1,534 desire ୪ 1/1 < > ම × Sign in 品恺 TymeBank: Digital Disruption in South Africa's Banking Sector 103 A greater threat could come from Capitec Bank and the customer acquisition and retention strategies of traditional banks. Capitec, which had its own branches and ATMs, targeted the same market as TymeBank and offered the same products at affordable fees: a transaction account, saving plans, credit options and Internet banking. In 2019, Capitec had 13 774 employees and 840 branches, making the bank costly to maintain. That said, the fact that the bank had 11.4 million customers, made it a formidable competitor. 104 Because the traditional banks had underestimated Capitec's growth in the past, they were all now quite concerned about the kind of threat posed by the three new digital banks, Russell said. "I think initially TymeBank was not seen as the biggest of the three competitors, mostly because the brand was not that strong. TymeBank was always seen as something that ‘we will watch and see'. But I think the customer acquisition rate would certainly have awoken the big four banks up," he noted." 105 In addition, traditional banks were using digital strategies more and more so that they could operate more cost effectively and provide a wider range of services to their customers. A 2018 report published by consulting firm PricewaterhouseCoopers (PwC) predicted that local banks might follow the global trend of “APIs”, which would eventually allow traditional banks to become more digital.106 Nedbank opened its API to third party partners in March 2019 and the bank's CEO, Mike Brown, had indicated that the bank was prepared to spend billions on developing new products and technologies for its customers to ensure it stayed ahead of rivals. 107 Absa, too, reported in August 2019 that it was transferring its branches onto a new, high performance, low latency, fibre-optic network designed to improve the branch experience for customers." 108 Clearly, South African banks were prepared to spend time and money on their digital strategies to retain and attract customers. Moreover, noted Russell, traditional banks had two things that counted in their favour when competing against new entrants like TymeBank: strong existing relationships that had been in place for years and brand trust. 109 And, to build a brand that customers trusted, took time. "You kind of feel you put your money there and it is safe. You also know that you are going to get the full range of service. Traditional banks do a lot more [than fully digital banks]. And they have been around for long enough; your parents banked there and potentially their parents banked there," he explained. 110 The only time a customer would consider changing his bank was when he became disgruntled with the service offered or something else went wrong, he added. 111 It was evident that the traditional South African banks were positioning themselves to compete with TymeBank and other digital banks. It was uncertain whether local banks would eventually turn fully digital, but co-CEO of African Rainbow Capital (ARC), Dr Johan van Zyl, was convinced that the handling of cash was going to reduce massively and, along with that, banks with branches.¹¹² TymeBank for the Long Term It had been perfect timing when TymeBank entered the market in 2019, as the weak economy resulted in consumers looking to cut living expenses and the bank offered an opportunity to do just that. Thus far, Keraan was pleased with the way consumers supported TymeBank. But he knew that most other branchless retail bank ventures in South Africa before TymeBank had failed. As he watched customers signing up at the TymeBank kiosk, he wondered how to ensure that the bank did not fizzle out after an initial blaze of glory. This would be key to ensuring that the bank delivered on its vision. 10 25 < > C JUN 2 14 d The financial services group PSG formed Capitec in 1997 through the acquisition of micro-lending businesses. Largely self-funded from 2000 to mid-2006, Capitec struggled until PSG invested a large amount of capital to grow operations. The investment, with Capitec's micro-lending and its simple, low cost and transparent transactional product targeted at the low- income, underbanked market led to rapid growth. Branch personnel were also trained to convert lenders and savers into banking clients, and as a result, the profile of clients had changed to more mid-market customers who switched from other banks. [Source: Makhaya, T. and Nhundu, N. (2016), “How Capitec overcame high barriers to entry in SA", Fin24, 23 May, available at: www.fin24.com/Companies/Financial-Services/how-capitec-overcame-high-barriers-to-entry-in-sa-20160523 (accessed 1 November 2019).] 2 ම × Sign in 品恺 9 < > 25 9 TymeBank: Digital Disruption in South Africa's Banking Sector 103 A greater threat could come from Capitec Bank and the customer acquisition and retention strategies of traditional banks. Capitec, which had its own branches and ATMs, targeted the same market as TymeBank and offered the same products at affordable fees: a transaction account, saving plans, credit options and Internet banking. In 2019, Capitec had 13 774 employees and 840 branches, making the bank costly to maintain. That said, the fact that the bank had 11.4 million customers, made it a formidable competitor. 104 Because the traditional banks had underestimated Capitec's growth in the past, they were all now quite concerned about the kind of threat posed by the three new digital banks, Russell said. "I think initially TymeBank was not seen as the biggest of the three competitors, mostly because the brand was not that strong. TymeBank was always seen as something that ‘we will watch and see'. But I 111 105 Canvas 2

MMDB 2024 Innovation & Entr... Tyme Bank. Digital Dis... X + Create All tools Edit Convert Sign e ΑΙ BOO 1,534 desire ୪ 1/1 < > ම × Sign in 品恺 TymeBank: Digital Disruption in South Africa's Banking Sector 103 A greater threat could come from Capitec Bank and the customer acquisition and retention strategies of traditional banks. Capitec, which had its own branches and ATMs, targeted the same market as TymeBank and offered the same products at affordable fees: a transaction account, saving plans, credit options and Internet banking. In 2019, Capitec had 13 774 employees and 840 branches, making the bank costly to maintain. That said, the fact that the bank had 11.4 million customers, made it a formidable competitor. 104 Because the traditional banks had underestimated Capitec's growth in the past, they were all now quite concerned about the kind of threat posed by the three new digital banks, Russell said. "I think initially TymeBank was not seen as the biggest of the three competitors, mostly because the brand was not that strong. TymeBank was always seen as something that ‘we will watch and see'. But I think the customer acquisition rate would certainly have awoken the big four banks up," he noted." 105 In addition, traditional banks were using digital strategies more and more so that they could operate more cost effectively and provide a wider range of services to their customers. A 2018 report published by consulting firm PricewaterhouseCoopers (PwC) predicted that local banks might follow the global trend of “APIs”, which would eventually allow traditional banks to become more digital.106 Nedbank opened its API to third party partners in March 2019 and the bank's CEO, Mike Brown, had indicated that the bank was prepared to spend billions on developing new products and technologies for its customers to ensure it stayed ahead of rivals. 107 Absa, too, reported in August 2019 that it was transferring its branches onto a new, high performance, low latency, fibre-optic network designed to improve the branch experience for customers." 108 Clearly, South African banks were prepared to spend time and money on their digital strategies to retain and attract customers. Moreover, noted Russell, traditional banks had two things that counted in their favour when competing against new entrants like TymeBank: strong existing relationships that had been in place for years and brand trust. 109 And, to build a brand that customers trusted, took time. "You kind of feel you put your money there and it is safe. You also know that you are going to get the full range of service. Traditional banks do a lot more [than fully digital banks]. And they have been around for long enough; your parents banked there and potentially their parents banked there," he explained. 110 The only time a customer would consider changing his bank was when he became disgruntled with the service offered or something else went wrong, he added. 111 It was evident that the traditional South African banks were positioning themselves to compete with TymeBank and other digital banks. It was uncertain whether local banks would eventually turn fully digital, but co-CEO of African Rainbow Capital (ARC), Dr Johan van Zyl, was convinced that the handling of cash was going to reduce massively and, along with that, banks with branches.¹¹² TymeBank for the Long Term It had been perfect timing when TymeBank entered the market in 2019, as the weak economy resulted in consumers looking to cut living expenses and the bank offered an opportunity to do just that. Thus far, Keraan was pleased with the way consumers supported TymeBank. But he knew that most other branchless retail bank ventures in South Africa before TymeBank had failed. As he watched customers signing up at the TymeBank kiosk, he wondered how to ensure that the bank did not fizzle out after an initial blaze of glory. This would be key to ensuring that the bank delivered on its vision. 10 25 < > C JUN 2 14 d The financial services group PSG formed Capitec in 1997 through the acquisition of micro-lending businesses. Largely self-funded from 2000 to mid-2006, Capitec struggled until PSG invested a large amount of capital to grow operations. The investment, with Capitec's micro-lending and its simple, low cost and transparent transactional product targeted at the low- income, underbanked market led to rapid growth. Branch personnel were also trained to convert lenders and savers into banking clients, and as a result, the profile of clients had changed to more mid-market customers who switched from other banks. [Source: Makhaya, T. and Nhundu, N. (2016), “How Capitec overcame high barriers to entry in SA", Fin24, 23 May, available at: www.fin24.com/Companies/Financial-Services/how-capitec-overcame-high-barriers-to-entry-in-sa-20160523 (accessed 1 November 2019).] 2 ම × Sign in 品恺 9 < > 25 9 TymeBank: Digital Disruption in South Africa's Banking Sector 103 A greater threat could come from Capitec Bank and the customer acquisition and retention strategies of traditional banks. Capitec, which had its own branches and ATMs, targeted the same market as TymeBank and offered the same products at affordable fees: a transaction account, saving plans, credit options and Internet banking. In 2019, Capitec had 13 774 employees and 840 branches, making the bank costly to maintain. That said, the fact that the bank had 11.4 million customers, made it a formidable competitor. 104 Because the traditional banks had underestimated Capitec's growth in the past, they were all now quite concerned about the kind of threat posed by the three new digital banks, Russell said. "I think initially TymeBank was not seen as the biggest of the three competitors, mostly because the brand was not that strong. TymeBank was always seen as something that ‘we will watch and see'. But I 111 105 Canvas 2

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Future Growth

Keraan believed that there was still a wide range of the South African population that had not yet heard of or tried out TymeBank. “We see the opportunity to expand our distribution footprint of the TymeKiosk and being creative about how and where we acquire customers,” he said. “We are very conscious that we have to remain organisationally nimble and innovative. This is important, because by constantly innovating the way we deliver products and services to customers, we are becoming more efficient. Delivering better value for customers is key to fundamentally driving acquisition and adoption by customers in the long-run.”77 Tyme was also planning to bring the TymeBank South Africa model into other markets in Africa and Southeast Asia – but only once TymeBank was securely established in South Africa.78 Plans also included seeking more partnerships with ARC’s businesses, such as insurance and asset managemen

Utilizing insights from the Tyme Bank Case study, to make informed decisions on digital innovations, identify how TymeBank used technology innovation to achieve its objectives. In your response, specifically consider the following:

a) Identify and discuss the key success factors that have allowed TymeBank to be profitable and create value for their customers.

b) Analyze the processes followed in strategic planning, implementation, and postlaunch strategies. Support your arguments with concrete examples and evidence from both the case and auxiliary course materials and supplementary readings.

Transcribed Image Text:MMDB 2024 Innovation & Entr... Tyme Bank. Digital Dis... X + Create All tools Edit Convert Sign e ΑΙ BOO 1,534 desire ୪ 1/1 < > ම × Sign in 品恺 TymeBank: Digital Disruption in South Africa's Banking Sector 103 A greater threat could come from Capitec Bank and the customer acquisition and retention strategies of traditional banks. Capitec, which had its own branches and ATMs, targeted the same market as TymeBank and offered the same products at affordable fees: a transaction account, saving plans, credit options and Internet banking. In 2019, Capitec had 13 774 employees and 840 branches, making the bank costly to maintain. That said, the fact that the bank had 11.4 million customers, made it a formidable competitor. 104 Because the traditional banks had underestimated Capitec's growth in the past, they were all now quite concerned about the kind of threat posed by the three new digital banks, Russell said. "I think initially TymeBank was not seen as the biggest of the three competitors, mostly because the brand was not that strong. TymeBank was always seen as something that ‘we will watch and see'. But I think the customer acquisition rate would certainly have awoken the big four banks up," he noted." 105 In addition, traditional banks were using digital strategies more and more so that they could operate more cost effectively and provide a wider range of services to their customers. A 2018 report published by consulting firm PricewaterhouseCoopers (PwC) predicted that local banks might follow the global trend of “APIs”, which would eventually allow traditional banks to become more digital.106 Nedbank opened its API to third party partners in March 2019 and the bank's CEO, Mike Brown, had indicated that the bank was prepared to spend billions on developing new products and technologies for its customers to ensure it stayed ahead of rivals. 107 Absa, too, reported in August 2019 that it was transferring its branches onto a new, high performance, low latency, fibre-optic network designed to improve the branch experience for customers." 108 Clearly, South African banks were prepared to spend time and money on their digital strategies to retain and attract customers. Moreover, noted Russell, traditional banks had two things that counted in their favour when competing against new entrants like TymeBank: strong existing relationships that had been in place for years and brand trust. 109 And, to build a brand that customers trusted, took time. "You kind of feel you put your money there and it is safe. You also know that you are going to get the full range of service. Traditional banks do a lot more [than fully digital banks]. And they have been around for long enough; your parents banked there and potentially their parents banked there," he explained. 110 The only time a customer would consider changing his bank was when he became disgruntled with the service offered or something else went wrong, he added. 111 It was evident that the traditional South African banks were positioning themselves to compete with TymeBank and other digital banks. It was uncertain whether local banks would eventually turn fully digital, but co-CEO of African Rainbow Capital (ARC), Dr Johan van Zyl, was convinced that the handling of cash was going to reduce massively and, along with that, banks with branches.¹¹² TymeBank for the Long Term It had been perfect timing when TymeBank entered the market in 2019, as the weak economy resulted in consumers looking to cut living expenses and the bank offered an opportunity to do just that. Thus far, Keraan was pleased with the way consumers supported TymeBank. But he knew that most other branchless retail bank ventures in South Africa before TymeBank had failed. As he watched customers signing up at the TymeBank kiosk, he wondered how to ensure that the bank did not fizzle out after an initial blaze of glory. This would be key to ensuring that the bank delivered on its vision. 10 25 < > C JUN 2 14 d The financial services group PSG formed Capitec in 1997 through the acquisition of micro-lending businesses. Largely self-funded from 2000 to mid-2006, Capitec struggled until PSG invested a large amount of capital to grow operations. The investment, with Capitec's micro-lending and its simple, low cost and transparent transactional product targeted at the low- income, underbanked market led to rapid growth. Branch personnel were also trained to convert lenders and savers into banking clients, and as a result, the profile of clients had changed to more mid-market customers who switched from other banks. [Source: Makhaya, T. and Nhundu, N. (2016), “How Capitec overcame high barriers to entry in SA", Fin24, 23 May, available at: www.fin24.com/Companies/Financial-Services/how-capitec-overcame-high-barriers-to-entry-in-sa-20160523 (accessed 1 November 2019).] 2 <tv A X W Д O Ο T NEW ם 1:1 0 Q

Transcribed Image Text:MMDB 2024 Innovation & Entr... All tools Edit Convert Sign e ΑΙ BOO Tyme Bank. Digital Dis... + Create 1,534 ୪ Becoming Profitable Keraan anticipated that the business would break even towards the end of 2021 or the beginning of 2022.94 Van Zyl explained what this would entail: “To become a self-sufficient bank, we need 2 million active accounts. We also need 700 000 of those 2 million to have their TymeBank account as their primary account, which means they must pay their salaries in there and conduct the majority of their transactional banking affairs from those accounts. In addition, we only need about 130 000 customers taking out an unsecured term loan. If that is the case, we are at break-even."95 TymeBank's business model generated revenue from transaction fees, value added services fees and interest income from deposits. However, to achieve a sustainable economic return for the business, it also turned to net interest income from lending. Keraan believed that the bank, whose income generation model actually was similar to that of a traditional bank, was on its way to proving its viability: "We are doing well on our volume of, and revenue from transactions. We have just piloted our unsecured lending proposition to a select number of customers and believe that this will be an important component of our income in the near future."⁹6 In the interim, ARC had been engaging with investors to raise capital for TymeBank. To this end, new investors in TymeBank had reduced ARC's controlling interest to 65.5% by the end of June 2019. This equated to an effective ownership interest of 32.7% for the ARC Fund. ARC invested R550 million into TymeBank in December 2018 and contributed a further R240 million in the first six months of 2019. Until the time that TymeBank was sustainable, the shareholders were committed to investing proportionally in the bank." 98 A Changing Competitive Environment TymeBank's entry into the market was followed by that of another digital bank, Discovery Bank, in March 2019, and would be followed by Bank Zero in 2020. However, Keraan and his management team did not believe that these banks would provide direct competition to TymeBank. Discovery Bank formed part of the financial services division of the Discovery Group. Even though it had already signed up over 22 000 customers by June 2019, Van Zyl pointed out that its target market differed vastly from that of TymeBank." Director of Citibank (Citi) and bank analyst Charles Russell agreed: "Discovery Bank already has an entrenched, financially-serviced customer base - a very affluent customer base with very high cross-sell potential." He believed that it would compete more with traditional banks than with TymeBank. 100 101 On the face of it, Bank Zero, founded by its CEO Yatin Narsai and former FNB CEO Michael Jordaan, would pose a greater threat. It was an app-driven, digital, mutual bank that also targeted the lower end of the market by offering low-cost transactions. Bank Zero was focusing on the deposit market for individuals and businesses, and was not considering lending." Russell commented: "Their model would be slightly different to TymeBank in that there is no physical infrastructure [such as kiosks] with which to interact." However, Bank Zero did have the advantage of having only 10 or 11 staff members, making it a "super ultra-low cost" bank. 102 desire JUN 2 14 1/1 < > ම × Sign in 品恺 9 < > 25 9 TymeBank: Digital Disruption in South Africa's Banking Sector 103 A greater threat could come from Capitec Bank and the customer acquisition and retention strategies of traditional banks. Capitec, which had its own branches and ATMs, targeted the same market as TymeBank and offered the same products at affordable fees: a transaction account, saving plans, credit options and Internet banking. In 2019, Capitec had 13 774 employees and 840 branches, making the bank costly to maintain. That said, the fact that the bank had 11.4 million customers, made it a formidable competitor. 104 Because the traditional banks had underestimated Capitec's growth in the past, they were all now quite concerned about the kind of threat posed by the three new digital banks, Russell said. "I think initially TymeBank was not seen as the biggest of the three competitors, mostly because the brand was not that strong. TymeBank was always seen as something that ‘we will watch and see'. But I 111 105 Canvas 2 <tv A X W Д O Ο T NEW ם C 1:1 0 Q

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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