Sim Tshabalala, Group Chief Executive, Standard Bank Group
Sim Tshabalala is Group Chief Executive of the Standard Bank Group. He is the champion of all things digital at the bank. As the first black CEO of the group, Tshabalala has always emphasized partnerships to create new revenue channels and access alternative data sets.
Standard Bank’s position as one of the continent’s leading banks gives it a competitive advantage in a continent with the second-fastest-growing banking industry and the second-most profitable banking market of any global area. Standard Bank has been around since 1862 and has had a significant impact on society.
Standard Bank is dedicated to ensuring that Africa takes its proper place in the world. It has grown and supplied the soft and hard infrastructure to allow people to participate as a result of this. It is for this reason that “Africa is our Home” is one of the bank’s motifs.
In this interview, Tshabalala discusses his experience expanding the bank into other African countries, the changing role of banking, and Africa’s future possibilities.
Do you see the role of banks changing in the world?
There is absolutely no doubt in my mind that the role of the bank is changing. It’s a little bit like the story of Nokia, which is an important analogy for us. We are at the center of economies today, but our fate could change fundamentally because, in my view, the fintechs and big technology companies are eating into profit streams, not only in payments but increasingly also in the traditional credit parts of the financial sector.
Big tech companies like Amazon, Alibaba, and Tencent do it in a way that delights customers. They have got networks and lots of capital. They are in a position to become able to stand between a bank and its customers. If that happens, banks could potentially become irrelevant.
What is your approach to this changing reality in banking?
Our approach is twofold. There’s a lot of effort going into building apps, artificial intelligence, robotics, blockchain — all in order to either improve the customer experience or improve the cost of product and service delivery.
On the other hand, we have to be able to offer our customers the ability to meet their life needs either through our own channels or through partnerships. This means that the people who work for us have to change. They have to innovate and become relevant for this brave new world.
Are there threats in the banking industry that other CEOs may be underestimating?
I believe South African bankers have a good understanding of the threats. Outside South Africa, the one area that worries me is an underappreciation of the risks associated with money laundering and terrorist financing.
This shows up in the way correspondent banking has been reduced on the continent because international players are de-risking, saying that they don’t want to transact [business] in those jurisdictions because they don’t trust the systems there.
That is a big risk and threat. Because of the perceived low levels of compliance, international players don’t want to have correspondent relationships. The consequence of that is that it has the effect of excluding large chunks of Africa from the financial system.
Globally, African banks are outpacing other banks in terms of growth. What do you attribute this to?
The African continent is open for business. There’s financial deepening as a result of individual borrowing, and also due to the development of financial markets. There are countries in Africa like Côte d’Ivoire, Ethiopia, Uganda, and Senegal whose economies are growing at above 6 percent.
Banking grows on the basis of GDP growth and banking penetration, and both things are happening in these countries: fast growth and increasing numbers of people getting banking products or other financial products.
The big drivers of African growth will continue to be commodity prices, but importantly, the fastest-growing countries that I was referring to don’t have large-scale oil or other mineral resources. They’ve been growing as a consequence of good policies that are making it easy to do business there.
The two big things happening on the continent are the improvement of hard infrastructure, which requires financial activity, and the improvement of soft infrastructure, like health and education. This leads to greater disposable income that translates to growth for retail businesses such as ours. I see those as the vectors of growth for both the corporate and the retail sectors.
Which of these economies are you most excited about?
Mozambique is extraordinary because of the opportunities that arise from [recent] gas discoveries there and the leverage that those will create. Nigeria is an exciting country due to its demographics.
Ethiopia is also very interesting, and although the legislation does not allow foreign banks yet when it does, it will be a great place to do business, because apart from the demographics, Ethiopia has also put in place many policies that promote economic and human development.
So as China moves up the production value chain, some of that production moves to a place like Ethiopia. And then there’s South Africa. There are many people who have negative views about South Africa, but I clearly believe that this is the place to be.
What advice do you have for businesses that want to enter Africa?
To anybody looking at the African continent, I would say yes, Africa has got risks, but if you understand them, you can price them appropriately and generate returns that adequately reward your shareholders. Africans are getting healthier and wealthier, with greater disposable income. Therefore, consumer businesses will do well. Because the economies are deepening, industrial and infrastructure businesses will also do well.
What are some of the difficult ideological differences facing businesses in Africa?
To begin with, beggar-thy-neighbor policies that could potentially lead to more balkanization. As an example, if you’re in Tanzania, you can’t move information and data outside Tanzania. This kind of balkanization has a negative impact on the movement of goods, people, and capital. In this regard, the introduction of the free trade area is a positive, because it will increase intra-Africa trade and investment.
The other interesting challenge that we face because of who we are at Standard Bank involves China and the United States. My own view is that a multipolar world is a good thing. International trade is a good thing.
International competition is a good thing. The fact that you’ve got the Chinese in Africa competing for resources with Europe and the U.S. and competing for trade relations is good for the African consumer and the African producer. The thing is, though, that Africans need to put themselves in a position where they negotiate appropriate deals.
Standard Bank Group is 20 percent owned by a Chinese bank, and China is by far the largest funder of infrastructure projects in Africa. Do you foresee any issues with that situation in the long run?
I see a problem if Africans don’t negotiate appropriately, but I see it as a massive opportunity if they recognize that they can have Chinese partners, along with the E.U., the United States, and intra-Africa trade. Then in that context of competition, there’s likely to be more rational conduct and more rational contractual arrangements.
Are you seeing a lot of value being created by bank and fintech partnerships?
Absolutely. Take the case of one of our products, SnapScan. There’s a one-man shoe-polishing business within the bank premises. I use him often and pay him electronically through SnapScan on his phone. He benefits because he doesn’t need cash and he doesn’t run the risk of being robbed.
The people who designed this were part of a fintech based in Cape Town. We bought them, and they’re now part of the Standard Bank network. That’s just one example, but there are so many other examples where you partner with fintechs, let them into your system, generate new revenue models, and increase your value propositions for clients.
How can legacy banks thrive in Africa in a mobile-only banking and commerce culture?
There are different approaches. One way would be to start from scratch, either on your own or in partnership with somebody else. The problem with that is that it takes forever to build capability. At Standard Bank, we feel that approach doesn’t work.
The second one would be to remain as you are and bet that you can do well as a back office. I don’t think that that will work — you would end up competing only on price. The third option is to digitize yourself, innovate, and learn to partner with the fintechs, big technology companies, and other competitors. That is the approach we follow. It’s risky, but we’re comfortable with that.
We’re not going to be disintermediated. We’re going to partner with others. We accept that the physical channels are going to decline, but electronic channels are going to increase. It’s a bit like owning a mall and letting your competitors be your tenants. We are happy to do that.
How do you respond to challenger banks that are positioning themselves as the transparent and no-fee alternative to traditional banks?
Wait until they go insolvent. It is as simple as that. However, it is true that competition from fintechs and big technology companies will create more transparency. In our case, this has resulted in a reduction in fees and commissions with online transactions. We’re already seeing a shift in which digital channels are on an upward trajectory and physical channels are declining.
Given the growing base of youth who are potential borrowers, how are you adjusting your decision-making?
Traditionally, we focused only on transactional behavior or people’s demographics to decide whether to lend to them or not. Now, we combine the traditional approach with partnerships with fintechs, cell phone companies, and big tech to harvest data that is not traditionally used in the credit decision-making process. So these partnerships are important.
You’ve talked about the need for South Africa to be ready for the fourth industrial revolution. Would you talk a little bit more about this?
I feel that business, the labor movement, and the government have not spent enough time thinking about the implications of competing in the fourth industrial revolution. The consequence of not doing that will mean that we’ll lose the South African national competitive advantage, and the likes of Nairobi in East Africa or Lagos in West Africa will beat us.
We need to be working much harder at fixing the soft infrastructure, improving the quality of the schools, increasing the number of research universities so that we can teach people coming through the system the skills that they will need to be competitive in the fourth industrial revolution. The increased use of robots and robotics, if not managed, will make a lot of people redundant.
In your role as CEO, what key issues have you had to take a stand on personally?
Recently, Standard Bank was obliged under South African law to withdraw banking services from companies linked to the Gupta family, who subsequently came under investigation for corruption.
With regard to the same case, we also had to oppose suggestions made by certain officials of the ruling party and certain ministers who were trying to persuade the bank to conduct itself in a manner inconsistent with our values.
We’ve had to take a stand on racism. I wrote a letter to staff on how I think about racism and why it’s important to reject it completely. In that letter, I make a reference to my own personal history.
As CEO of Standard Bank, I’m also the global representative for HeForShe, the United Nations women’s solidarity movement for gender equity. We live in a world that is more than half made up of women, and yet they’re not fairly represented in the most powerful parts of society.
I believe that has to change. I want to make my own contribution to that, and Standard Bank is committed to that, and I’ve got the support of my executives and the board to do that.
Do you see a significant humanistic component to banking?
Banking to me is absolutely a human endeavor. I attribute that perspective to my upbringing. It’s not just about debits and credits. It’s about people buying homes, or fridges for their health, or trucks for their businesses, or building bridges and roads for society.
Today, if you’re a financial institution, you can no longer simply say “I just provide intermediation services.” You’ve got to do it in a sustainable way, which means you have to think about creating jobs.
You have to worry about environmental degradation and think very, very hard about anti-money laundering and helping to combat corrupt practices. And in that sense, you are an integral part of society, not just a bank trying to maximize profits.
This interview was conducted by Suvarchala Narayanan, a business writer, future of work researcher, and startup consultant.
