The effects of virtual banking on the South African banking industry

Abstract

The South African banking industry is set to undergo a complete transformation in the next ten years. One of the main reasons for this transformation is the development of virtual banking, specifically new delivery channels used to deliver financial products to the banks' customers. The research set out to analyse this transformation by identifying five main areas of change that indicate how virtual banking is expected to affect the banking industry. Three external areas of change were identified, namely customers, new competition and technology. Customers are becoming more important as virtual banking gives them increased power, and are thus forcing banks to focus their operations on meeting customer needs. Banks are also being forced to compete with new competition as virtual banking redefines the value chain of banking, allowing new competitors to enter the industry by focusing on specific areas of banking in which they have competitive advantages. Technological developments are also having a major impact on banks, despite the fact that technology has formed a major part of banking for some time. Two internal areas of change are necessary for banks to respond to customers, competition and technology. Firstly, there is a need for banks to change the way they operate in order to meet the requirements virtual banking, and secondly, banks are being forced to become more competitive in a global market. These five areas of change were used to develop a conceptual framework of the effects of virtual banking on the banking industry. This framework shows that increased costs, increased complexity and loss of control is creating radical change in the banking industry as virtual banking develops. These factors are forcing all players in the industry to focus on specific areas of banking rather than attempt to control all steps in the value chain. It is thus vital that banks analyse the effects of virtual banking, and determine how to respond to these changes and how to retain their control over banking.