Standard Bank is looking to shore up its business offering for small businesses as it faces an onslaught of new banking competitors that are targeting small- to medium-sized enterprises (SMEs) as a key growth area.
Capitec, African Bank and TymeBank have all made acquisitions in recent years to develop their own SME-focused business banking units while Bank Zero is building its offering from the ground up by leveraging the decades of experience of co-founder Michael Jordaan, FNB’s former CEO.
While Standard Bank enjoys a roughly 25% market share in the business and commercial banking (BCB) segment, which typically services businesses that do not require debt or equity market capital-raising capabilities from their banks, its share of the smaller enterprise segment is only about 18%.
That is according to Bill Blackie, CEO of Standard Bank’s BCB unit, who says he wants to grow the enterprise segment of the division to match its overall 25% market share. He is also targeting growth in the rest of Africa where Standard Bank has about 300,000 BCB clients compared to about 500,000 in SA.
“We want growth across our BCB business but what we’re particularly focused on right now is that we’re supporting the market appropriately in the enterprise segment,” Blackie said in an interview. “That’s the segment that eventually graduates to entrepreneur level and ultimately business and commercial clients. So it’s really important for us to compete properly in the enterprise segment where historically we’ve probably had less of the market share than we have wanted to have.”
Standard Bank’s internal breakdown of its BCB unit typically targets four key customer profiles: enterprise (up to R10m in annual turnover); entrepreneur (R10m to R100m in turnover); business (R100m to R300m); and commercial (R300m to R2bn). However, it is the enterprise segment where it is looking to shore up its offering as new rivals hone in on the segment.
“A brand like Standard Bank should really be closer to 25% market share for the enterprise segment,” says Blackie, adding that the bank wants to use its 161-year history as an established brand to lure more SME clients. Standard Bank’s continent-wide footprint, extensive branch network and long-established business banking systems are another key differentiator.
“If you want to make multiple payments to multiple suppliers we’ve got the system to enable that,” he says. “We’re working very hard on digital client onboarding. We’re making sure our branches are configured to accommodate small business customers. We also have the footprint, the branches and the systems and processes in place to help clients receive and deposit cash, which is a key requirement for a small business.”
Standard Bank also wants to use its scan-to-pay mobile payment app — SnapScan — to compete more effectively in entry-level business banking by offering more SMEs a frictionless point-of-sale solution to facilitate customer payments. The group is also introducing a flexible loan repayment offering specifically tailored to small businesses, which typically have flexible turnover, by allowing them to pay down their debt facilities as they earn income.
That offering is not too dissimilar to TymeBank’s SME lending model called merchant cash advance pioneered by subsidiary Retail Capital, which it acquired in August 2022 specifically to move into the SME banking market. Instead of charging a specific interest rate over a fixed term, Retail Capital’s model is to agree on a repayment amount with borrowers who then make repayments on a cash advance received based on a percentage of revenue earned by their business over time.
“Loan growth is a primary customer acquisition tool so we are very focused on steadily growing that asset book,” says Blackie, adding that the group is on track to match 2022’s loan growth of “low double-digit” expansion.
That loan growth is partly due to clients being affected by rand depreciation as well as the sharp rise in interest rates, which have put more pressure on BCB clients’ cash flow. Then there are the effects of load-shedding, failing road and rail infrastructure as well as blockages at ports, though Blackie says larger customers are typically more resilient in the face of these challenges.
“At this stage we have not seen an increase in impairments, which remain within the acceptable range that we’ve set for ourselves,” says Blackie. “[But] we’re seeing an increased need for working capital requirements from our customers.”
Nevertheless, Blackie says while smaller customers are more affected by issues such as load-shedding and declining infrastructure, he says he is constantly amazed at the resilience of businesses within the BCB segment. That is partly why he is so keen to fend off competition in the segment, saying the range of clients the BCB unit services — from agricultural producers to manufacturers — include many world-class entities, all of which started off as small businesses at some point.
“At the bottom end of the segment there’s a lot of competition coming into the market. You’ve got your new digital banking entrants and Capitec too have been clear that they want to come into this market through their acquisition of Mercantile Bank,” Blackie says.
“We’ve got our work cut out for us in SA, which is a very competitive market.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.