Global Retail Banking Round-Up: Key Developments

TymeBank’s record setting acquisition costs

One of the key stories in the new banking book It’s About Tyme covers the development of TymeBank’s customer acquisition story, and its development of kiosks in retail stores such as Pick’n’Pay and the attendant ‘ambassadors’. The cost of customer acquisition for TymeBank is between $4 and $5, which Westvig said is one of the lowest in the world outside of China, about 10 per cent of costs for the big South African banks, and 30 per cent of Capitec’s costs. (A good 60 per cent of that cost goes to ambassador wages.) But another competitor will soon arrive, in the form of retailing giant Pepkor: notably, Pepkor has access to the type of customer data that banks would love to have. “Africa’s biggest seller of clothing and mobile phones plans to open bank branches in South Africa that offer zero-fee services, using its 6,000-store network in the country to reach millions of lower-income customers, people familiar with the matter said,” reports BusinessTech. Pepkor will roll out the branches inside its existing store network, and there are unconfirmed reports that it may partner with Investec. “It can also use the substantial data it has collected on customers to more effectively tailor financial products to sell to them. Other retailers, including the country’s largest grocer Shoprite Holdings, are also using their rapidly growing consumer data gathered from loyalty programs to offer banking solutions to about a sixth of South Africans that have no bank account or are under-serviced by traditional lenders.” Pepkor has long offered in store credit across its stores through Tenacity Financial Services, Capfin, and a host of other financial services including its Foneyam phone rental business.

Stepping out, stepping in

India’s government and regulators are taking a mellower approach to allowing foreign lenders to acquire shares in India banks as India’s economy grows, and international banks look for expansion opportunities. “Now the mindset of the regulator and the government appears to be changing to allow banks to tap into global capital for growth and expansion,” said Vikram Raghani, senior partner at JSA, an Indian law firm that has been involved in recent banking deals, reports the FT. “‘If our banks have to go to the next level, they will need capital and international expertise.’ A person familiar with the Reserve Bank of India’s thinking said it was coming around to more foreign participation, calling the recent spate of deals a ‘vote of confidence’ in India’s economy and banking sector. The person added that overseas investors were targeting mid-sized banks that were easier to acquire and had more room to grow.

‘There’s enough credit demand,’ said Yatin Singh, chief executive of investment banking at Emkay Global Financial Services in Mumbai. ‘Whichever lending segment you pick up, you’d find a very, very large opportunity over the next 15, 20, 25 years. Anyone who’s buying a bank in India is taking, I’m sure, a 50-year view’.” Emirates NBD announced a plan in October to acquire a 60 per cent stake in mid-sized lender RBL Bank and is reported to be one of three lenders in talks to acquire Deutsche Bank’s retail and wealth banking network.

US gets de novo digital banks

New digital banks are still big news in the US, including a new digital bank aimed at small and mid-sized businesses, particularly digital businesses, which will be run by former executives at US Bancorp. VALT would have a main office in Eagle, Idaho, but will operate “with no geographic limitations,” the application said. Among its organizers, directors and senior officers are John Elmore, former vice chairman of U.S. Bancorp, and Ross Carey, who was executive vice president of business banking and small business at U.S. Bancorp. “The proposed upstart, dubbed VALT Bank N.A., aims to provide credit and deposit products, in addition to treasury and cash management services for ‘digitally oriented’ companies, according to an application for national bank charter dated Nov. 13 submitted to the Office of the Comptroller of the Currency,” reports Bloomberg. “Our mission at VALT is to take what feels overwhelming for SMB operators — opening a bank account, managing cash flow, applying for credit, or integrating financial tools — and make it approachable, clear and uncomplicated,” said Matt Gediman, proposed chief executive officer of VALT who also worked at U.S. Bancorp.

Don’t blame AI for every job cut (yet)

Dutch bank ABN Amro said it will cut one-quarter of its 22,000 strong workforce over the next three years. The first question nowadays: how much of that work will be replaced by AI? Turns out ABN is not loading too much promise onto AI – at least until it implements end-to-end digital processes. For a start, half of the 5,200 job cuts will come by not replacing those retiring or otherwise departing. “As part of the overhaul, ABN, which reported €2.4bn in net profits for 2024, said it would simplify its operations by reducing its number of legal entities, phasing out legacy technology systems and increasing its use of artificial intelligence,” says the FT. “The shake-up is part of wider changes at the Amsterdam-headquartered bank, which was nationalised during the 2008 financial crisis before being partially reprivatised and relisted in 2015.” It’s also selling its Alfam personal loan business to Rabobank and aiming to focus more on the high end of retail in the private banking market. Dutch bank ASN Bank also announced 25 per cent job cuts earlier this month. It might not be AI doing it, but banks are certainly having to work harder on their cost to income ratios.

Investec challenges Basel III rules

The Basel III rebellion has spread to Africa, as South Africa’s Investec has joined leading international banks in calling for a revision of Basel III rules. Opposition to new rules in the US and Europe has already led to regulators slowing down the pace of implementation. Investec Chief Executive Cumesh Moodliar told Bloomberg that the rules should create a ‘fair playing field’. “Moodliar pointed out that “the US, Europe, and the United Kingdom have differing approaches to the rules, which have imposed a steep cost on banks that operate in developing markets,” reports Finance in Africa. “He added that because banks in emerging markets ‘already hold more capital and pay more for funding’,” extra surcharges under Basel III will bite harder for African banks. “Their business models also differ in ways that interact directly with Basel III mechanics. African lenders often book a higher share of retail, SME and corporate lending in domestic currency, manage wider cross-border exposures, and carry more pronounced FX and sovereign-linked risks. These are activities that the standardised approaches under Basel III may treat as more capital-intensive. The implications extend beyond South Africa. As the only African member of the Basel Committee, South Africa often provides a reference point for regulators across the continent.” Meanwhile, South African discount retailer Pepkor said that it received regulatory approval yesterday to establish a banking presence. “Pepkor said in a statement that it had secured approval from the Prudential Authority in November, enabling it to enter South Africa’s competitive banking sector.”

Klarna decides crypto is a-ok

BNPL business Klarna continues to move towards banking: as one headline put it “Fintech Klarna records loss as it moves towards conventional banking.” (Swapping the excitement of fintech for conventional banking isn’t too hard to take when one makes profits.) Klarna, which holds a European banking licence, has pivoted to crypto for cross-border payments, announcing that it will create stablecoin KlarnaUSD on a Stripe blockchain. “Klarna is attempting to move away from only offering short-term, interest-free loans to consumers towards becoming a digital bank,” reports the FT. “Shares in the lossmaking fintech have fallen more than 30 per cent since listing in New York in September.” Klarna boss Sebastian Siemiatkowski, a formerly vocal crypto sceptic, now says that crypto has become low-cost, fast and secure. KlarnaUSD will operate on payments-focused blockchain Tempo, developed by Stripe and Paradigm. Stablecoins have become this year’s darling of the blockchain, with Bitcoin dropping off an all-time high earlier this year.

JPMorgan to reward UK with Europe’s biggest office

It’s been a good month for UK banks. Shares in the top four banks are their highest since the financial crisis almost 20 years ago, and profits good enough this year that banks feared a new one-off tax in yesterday’s budget. But former banker and now UK Chancellor Rachel Reeves spared the banks: Jamie Dimon welcomed the UK government plans to focus on growth, and investors piled into UK bonds and sterling. Then came this announcement: “ JPMorgan said on Thursday it would build a huge new tower in the Canary Wharf financial district in East London, committing billions of pounds to Britain on the heels of a closely watched UK budget that has sought to reassure investors of the nation's finances,” reports Reuters. “JPMorgan said the project would contribute 9.9 billion pounds ($13.1 billion) over six years to the local economy – including the cost of construction – and create 7,800 jobs. The new tower will house up to 12,000 of JPMorgan's employees and will be its largest office in Europe, the Middle East and Africa, the bank said.” JPMorgan has a sizeable investment banking operation in London, where it also operates Chase, a new UK digital bank. “‘The UK government's priority of economic growth has been a critical factor in helping us make this decision,’ JPMorgan Chairman and CEO Jamie Dimon said, a day after supporting UK finance minister Rachel Reeves' budget in rare public remarks on a budget day. JPMorgan said the investment, soon after building a new global headquarters in New York, was subject to the business environment remaining positive in the UK, but if it goes ahead as planned it would be a significant post-Brexit win for London.” The new office will take six years to build.

Casinos out, Robinhood in

A regular theme in retail banking is banks asking: ‘Where are all the deposits going?’ Fintechs such as Robinhood have attracted retail investors with the promise of turbocharged investments, which often look like barely disguised gambling. The Robinhood app, which rose to prominence during Covid, offers fee-free stock trading, but has added “prediction markets” where users can place bets on things such as Taylor Swift topping Spotify charts, or Green Day Packers beating the Detroit Lions today (Thanksgiving Day in the US). While the newly-retired Warren Buffett conducted annual get togethers for his loyal investors in the CHI Health Centre in Omaha where he sipped on a can of Coke, Robinhood chief executive Vlad Tenev holds an annual meeting in Las Vegas, modelled on NBA post-game interviews with livestreams and live audiences: one writer noted that the Robinhood events conjure up memories of pre-Global Financial Crash exuberance. This year, Tenev showed up dressed as a race car driver. “The company’s critics liken the environment to a casino, but its fans credit Robinhood with democratizing the lucrative world of sophisticated investments,” writes the Wall Street Journal. “Robinhood’s detractors say it is encouraging a gambling culture in markets. ‘It shouldn’t be lost on anyone that a casino came out of the S&P 500 and Robinhood went in,’ said Tyler Gellasch, CEO and president of the Healthy Markets Association, which advocates for protections for individual investors. (Robinhood replaced Reno, Nevada-based Caesars Entertainment in the S&P 500 in September.) Robinhood’s backers say the firm has been unfairly targeted by its critics, becoming a kind of industry punching bag held responsible for individuals’ investment decisions and broader shifts in the market. “‘He’s almost building a cult,’ said Aaron Cook, a 28-year-old plumber who was in the audience in Las Vegas. Cook said he had used his profits from trading stocks, options and memecoins to buy a Jeep Wrangler and a $60,000 home. ‘I want it to feel like a concert,’ Tenev said of his events, joking that he would love to include pyrotechnics some day. (Caveat: he may not, in fact, be joking.)