Tag Archive for: Banking in South Africa

Andrew Stegmann

Cheque Limits Reduced to R50,000 in South Africa

Following the recently announced rules from the Payments Association of South Africa (PASA) to reduce the maximum value of cheque limits to R50,000, businesses are urged to adopt electronic banking channels.

The updated rules come into effect in May 2020, with an eight-month grace period to be granted for cheques that are yet to be processed by the due date.

Kenneth Matlhole, FNB Business Spokesperson, said several businesses and public institutions that still have cheques built into their operations will be heavily impacted by the decision. This ranges from schools, churches, scrap metal dealers, agriculture, motor industry, fiduciary services and auctioneers, among others.

Matlhole unpacked important factors for businesses to consider as they reduce their reliance on cheques, prior to the implementation of the new rules:

Act now – depending on the nature of the business or institution, moving away from a traditional payments system may result in cash flow disruptions. Business should allocate enough time for migrating to new payments systems. It is also essential to ensure that staff members are trained accordingly.

Business to business transactions – whether the business is receiving or issuing cheques, it is advisable to communicate and inform business associates and suppliers about the new payment systems/ arrangements and reach a mutual understanding.

Businesses can offer discounts or incentives for suppliers or business associates to adopt electronic banking channels, to help speed up the process.

Moreover, when considering the administration process, storage of physical paper, and the cheques clearance waiting period, migrating to electronic payments which are more efficient will no doubt be an incentive to migrate to electronic payments.

The same guiding principles for alternative payment adoption should be applied to inter-company funds transfer where cheques have been used as a mechanism to allow for money flow between linked franchises and business entities.

Adopt electronic banking channels – once a thorough analysis of how the business uses cheques has been conducted, the next step is to identify the most appropriate and efficient electronic banking channel to use. Furthermore, businesses that are still receiving B2B cheque payments should ensure that their systems are updated and ready to accept electronic payments.

“Given the reduction of cheque limits due to several issues including fraud, it may not be viable for businesses to continue using cheques.

“Regardless of the final decision to be taken by businesses, on thing is clear, the imminent reduction of cheque limits to R50,000, leaves businesses and institutions with no choice but to ultimately reduce their reliance on cheque payments,” Matlhole said.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: Matthew Kwong [1], [2].

Andrew Stegmann

The Africa Report 2019: How South African Banks Are Performing

South Africa is ‘a marketplace without boundaries’, says PwC, and new niche players are limbering up to compete with the country’s top banks by offering digital, lower-cost financial services.

A slew of new banks and tech-based financial services are shaking up the industry in South Africa. New competitors to the so-called ‘big four’ – Standard Bank (#2), Absa Bank (#5), Nedbank (#7) and First National Bank (FNB, #14) – range from the stateowned Postbank to insurance group Discovery, TymeDigital (a venture by the Commonwealth Bank of Australia and Patrice Motsepe’s African Rainbow Capital) and former FNB chief executive Michael Jordaan’s Bank Zero.

These are joined by retailers (mobile money from Shoprite Money) and agricultural groups (Afgri, which bought Bank of Athens’ South African operations). Many of those firms would like to grow like Capitec (#44, see profile). It gave South Africa’s well-entrenched major banks a wake-up call by disrupting their long-held oligopoly as a leaner, meaner and faster-growing operation. But it took Capitec, which was launched in 2001, some years to become a major force in the industry.

A recent PwC report says the South African financial services industry is increasingly ‘a marketplace without boundaries’, where banks are being challenged ‘by digital solutions with lower-cost models’. It adds that the market share of the incumbents will likely be squeezed by innovative new entrants unless banks implement strategies ‘to remain relevant in the future banking market landscape’.

FNB has moved successfully to a more digital banking model, while other large banks are trying to follow suit. The new financial services models are not centred around becoming one of ‘big four’, whose services range from retail banking to commercial and investment banking with a plethora of additional services, from mortgage lending to large-scale merger and acquisition capability.

Wessel Badenhorst, an analyst in the financial services sector at 36ONE Asset Management, tells The Africa Report that it is important to keep in mind that most of the challenger banks offer limited product suites: “Most do not offer business banking or offer limited retail products, sometimes because regulatory hurdles prevent them from competing in these markets. TymeDigital, for example, offers only transactional banking, and comments from [insurer] Discovery suggest its bank will have limited lending products, at least initially.” So far, the big banks continue to brush off the threats and have weathered some difficult years.

PwC’s analysis indicates that they grew earnings 5.2% in 2017, although core earnings – operating income minus operating expenses – improved by only 3.6%. Earnings were helped by a 10.6% decline in the second half of the year in bad-debt charges.

Remarkable resilience

Credit growth remained muted ‘given elevated levels of political and economic uncertainty, low GDP growth and subdued levels of household and business confidence,’ PwC says. In addition, retail asset-led businesses including instalment sales and vehicle finance showed strain, while corporate credit demand declined.

The Reserve Bank said that total banking sector assets increased 5.7% year-onyear to more than R5tn ($378.8bn) at the end of 2017. The central bank added that the 12-month moving average operating profit growth rate decreased throughout 2017, mainly due to a decline in the growth of net interest income and an increase in operating expenses.

Investors jittery

Operations in the rest of Africa offer growth for some of the players, but generally earnings growth in the medium term is dependent on cost savings, says Mergence Investment Managers’ head of listed investments, Bradley Preston.

There is still nervousness among investors in South Africa, spurred by the downfall of some major companies, including Steinhoff.

For banks, President Cyril Ramaphosa’s announcement of land expropriation without compensation is another potential challenge. “How land expropriation is executed is obviously important to the banks as lenders against property and lenders in the agricultural sector,” Preston concludes.

To read the full report, click here.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].