LAS

COURSEWORK
IFB GROUP 1&3

NDIYE NDWAPI
IFB20-053
School of Business & Leisure

Academic Year: Sept 2020/2021

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Contents
List of Abbreviations..............................................................................................................................3
Introduction...........................................................................................................................................4
Executive Summary...............................................................................................................................4
Diversification and Onboarding Issues..................................................................................................5
The Role of AI in BrandsEye Reserach...................................................................................................6
Banking Operations in Traditional and Digital Banks.............................................................................7
The Banking Industry Complexity..........................................................................................................8
FNBs’ Market Competitiveness............................................................................................................10
APPENDIX............................................................................................................................................11
References...........................................................................................................................................12

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List of Abbreviations
 AI; Artificial Intelligence
 FNB; First National Bank
 IS; Information Systems
 NLP; National Language Processing

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Introduction
The come up of digital banks is one concept that has been in the works and
finally has been brought to life in the South African banking industry, with new
entrants Bank Zero, Discovery and Tyme. Digital banks came about with the
evolution of Fintech, which is simply short for Financial Technology. Fintech in
short is technology used to facilitate financial operations, carried out using
Artificial Intelligence (AI) software. They bring about digital solutions to your
everyday operations that customers carry out at traditional banks.

Executive Summary
Discovery, Tyme and Bank Zero are the new entrants in the South African
banking industry. These banks do bring about new ways of carrying out day to
day operations through digital channels. They bring about diversification to the
industry, through different ways and with their use of AI under Fintech, one
would think exactly how complex this makes the industry. Competitiveness
and market share are surely up for grabs in this new era for banking and
traditional banks are expected to feel the pressure that is accompanied by
this. Day to day tasks are made easier and with the current ongoing
pandemic, customers would preferably welcome the idea of not going to the
bank so often. Therefore, questions do arise as to whether traditional banks
are ready for the new and digitised banks entering the scene.

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Diversification and Onboarding Issues
When finance is involved, diversification refers to capital being allocated
and/or invested in a way such that the risk is spread out. This is simply not
putting your eggs in one basket.
Discovery mention in their article (Diversification: why it is important to
consider offshore holdings, 2018) that “Diversification is especially important
in South Africa where a large percentage of the Johannesburg Stock
Exchange (JSE) consists of mining companies”. They go on to mention that
investing offshore brings benefits such as access to global investment
themes. To elaborate on this, it simply implies that consumers can invest in
investment themes not available in South Africa, but at the same time have
expected growth values that are forecasted to guarantee value for your
money, such as the global pharmaceutical industry. Furthermore, they go on
to mention diversification as a benefit. In this case, investing in different
portfolios helps with managing losses. Investing in these portfolios could also
bring about markets that have negative or positive relationships, where one
market could be losing whilst the other gains.
However, this does come with issues like every solution. Investments are
realistically meant to be long term thus trying to time the market is not an ideal
thing to consider. Shipilov (cited in Ballard, 2018) says that “One of the
main reasons that diversification fails is because businesses do not have the
right strategy in place,”, and goes on to mention that “They must think
carefully about what distinct resources or capabilities they can move between
different markets to give them a competitive advantage. In a nutshell, placing
your portfolio in the right hands is also an issue faced when diversification
comes into play.

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The Role of AI in BrandsEye Research
The increase of data in social media has created a platform such that data
mining can be used to get insights into several topics being discussed. AI
addresses such issues with the use of National Language Processing (NLP),
a field under AI on how machines understand human language.
According to (Bringsjord & Govindarajulu, Naveen Sundar, 2018), “Artificial
intelligence (AI) is the field devoted to building artificial animals (or at least
artificial creatures that – in suitable contexts – appear to be animals) and, for
many, artificial persons (or at least artificial creatures that – in suitable
contexts – appear to be persons)”. BrandsEye, a company that combines both
the use AI and human intelligence in their respective field of work, published
an article about digital banking in South Africa. They go deeper into explaining
how the use of AI helps in their analysis of data, mentioning the use of net
sentiment under NLP.
“Natural Language Processing (NLP) is the branch of Artificial Intelligence (AI)
that studies how machines understand human language. Its goal is to build
systems that can make sense of text and perform tasks like translation,
grammar checking, or topic classification” (Roldós, 2020). According to the
publication done by BrandsEye, the sentiment index is based on an analysis
of social media posts about South Africa’s largest banks across various
platforms, including Twitter, Facebook and Instagram. Sentiment analysis.
“The first thing to know is that NLP and machine learning are both subsets of
Artificial Intelligence” (Roldós, 2020), showing us how deeply branched in the
use of AI ran in their analysis. In addition to this, “Applying sentiment analysis
over big data leads to a lot of insights and business benefits. Sentiment
Analysis, opinion mining or emotion detection is the process of extracting
sentiment from text which is commonly used over online unstructured text like
micro-blogger data and social media data streams” (Ahmed, El-Tazi, &
Hossny, 2015).
Furthermore, AI plays an influential role in the development of data analytics,
and this is based on its ability to learn the same way humans do. It addresses
the disadvantages of tiredness and lack of challenging tasks by being able to
consistently draw out conclusions from varying data. Furthermore Tutuk (cited
in Casey, 2019) mentions that “AI and machine learning, among other
emerging technologies, are critical to helping businesses have a more holistic
view of all of that data, providing them with a way to make connections
between key data sets,” Tutuk says. But, she adds, it is not a matter of cutting
out human intelligence and insight.
It is clearly visible that the role of AI is key in the research done by
BrandsEye. Therefore, we can conclude undoubtably that AI plays a major
role in the analysis carried out by BrandsEye.

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Banking Operations in Traditional and Digital Banks
The operation of traditional banks are the basic things/tasks you would
generally require in a bank. These tasks include but not limited to clearing of
cheques, deposits and the latter. With the introduction of digital platforms, due
to what is referred to as the industrial revolution, bring about a new aspect, or
new way of carrying out such basic but important tasks. No task is overlooked
by banks, and with digital banks popping up into the scene one would truly be
mesmerised as to how such operations would take place.
Traditional banking as we know it carries out their operations with customers
having to physically go to the branches. “One of the first questions that
consumers have about online-only banks is how to deposit a physical cheque”
(Roos, 2011). Such are a norm to consumers that are yet to experience
digital banking and its new way of carrying out day to day tasks.
Digital banking brings about a different aspect of banking to the way your
traditional bank would usually operate. The use of the internet as a delivery
channel has altered banking transactions that are carried out in the traditional
manner. Millions of people can carry out banking transactions through the
Internet instead of physically going to one of their bank branches. The Internet
plays an irreplaceable role in digital banking by bringing about a new
introspect to what is called self-service banking. Internet banking has brought
much convenience to South African bankers because they are now able to
pay accounts, book flights, make purchases and transfer cash all without
leaving the comfort of their homes or offices. In addition, Internet banking
customers do not necessarily have to access a networked PC or laptop as
they are able to complete banking transactions through accessing the Internet
via their cell phones.

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The Banking Industry Complexity
With the introduction of digital banks in an industry already accustomed to
traditional banks, there are bound to be changes. Change is the rule of the
game in the current business environment. The rate of change has been
continuously increasing due to factors like globalization and opportunities
presented by the development and evolution of technologies (Pankaj, Hyde, &
Ramaprasad, 2013). With digital banks comes new technology and when
looked at closely, competition increases for the market share, thus the
banking industry becomes more complex. When something is described as
complex, it simply means that it is complicated or just that it is not easy to
understand.
Ruellyn Willemse-Snyman (cited in “What to expect from South Africa’s banks
by 2035,” 2019), points out that “the continued introduction of change as well
as new digital-only banks, such as Thyme Bank, BankZero and Discovery
Bank, will lead to an increasingly complex and competitive banking industry
landscape in South Africa towards 2035”. She goes on to mention that her
research suggests 4 scenarios for the future of the banking industry, with two
of them based on using Agile Information Technology Systems and the other
two using Legacy Information Technology Systems.
According to (Chaudhary, Hyde, & Rodger, 2017) “IS agility is defined as the
ability of an IS to sense a change in real time; diagnose it in real time; and
select and execute a response in real time. Architecting an agile IS is a
complex and resource-intensive task, and hence examination of its benefits is
highly desired and appropriate”. (Pankaj et al., 2013) goes on to mention that
“Information Systems are needed for organizational agility on account of their
ability to provide shared, distributed and integrated, current, and fast flowing
information”. On the other hand, we have Legacy Systems, defined by (“What
is a legacy system? Challenges, risks and migration”, 2020) as “A legacy
system is an old or out-of-date system, technology or software application that
continues to be used by an organization. Legacy systems no longer have
support and maintenance, but they can’t easily be replaced”.
Although there are companies that currently make use of Legacy Systems,
they are old systems and bring about challenges. For example, (Lemaitre,
Sauquet, Fofol, Tanguy, Jean & Degoulet, 1995) points out that “Legacy
systems are crucial for organizations since they support key functionalities.
But they become obsolete with aging and the apparition of new technologies”.
This highlights one of the problems that could arise with the use of legacy
systems. Combined with the fact that they cannot be easily replaced, in an
economy driven by technology, raises the question as to exactly how the
banking industry would operate with such a system in 2035. Furthermore,
(Marinc, 2011) goes on to state that “However, the existence of explicit and
implicit guarantees (e.g., deposit insurance, anticipation of bailout) may drive
banks to take excessive risks. Banks may use IT developments to mask risk-
taking through increased complexity. Banks may design complex products or

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 transform themselves into highly opaque financial conglomerates that are too-
complex-to-regulate and/or too-complex-to-fail”.
As seen above, whichever system suggested by Ruellyn Willmense-Snyman,
comes with their own rules of engagement as one would say. These include
systems where one ages with time but still stays relevant, and the other
bringing in new technology based on real time problems and executions, thus
driving her point that indeed the new banks will lead to an increasingly
complex banking industry.

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FNBs’ Market Competitiveness
FNB, the oldest bank in South Africa, comes across new challenges as the
banking scene in South Africa welcomes new digital banks. In a competitive
aspect, this does bring about questions as to whether they will be able to
cause a stir in the market share of the already existing major banks in South
Africa.
The new digital banks bring about a new way of banking that completely takes
away the idea of customers physically going to banks through means of digital
channels. FNB has already started taking measures to ensure that they are
prepared to stay relevant with the supposed futuristic way of banking, as
mentioned by (Coetzee, 2019), mentioning that “FNB has moved successfully
to a more digital banking model, while other large banks are trying to follow
suit”
Wessel Badenhorst (cited in Coetzee, 2019) mentions it’s important to keep in
mind that “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”. This reflects that even though the new banks have
entered the market, they have limitations as to what they can and cannot do.
In addition to this, FNB still holds a major portion of the market share as seen
in Fig 1.1 in the Appendix, suggesting that they still are competitive in the
industry.
However, FNB does have the 2nd highest negative net sentiment ranking in
2020 as seen in Fig1.0 in the Appendix. This tells us that customers are
generally not happy with the services and/or help they receive. Furthermore,
in an article by (“The Banking Industry in South Africa”, 2019), “Absa, FNB,
Nedbank and Standard Bank are closing down or downsizing branches to
control rising operating costs and in response to customers’ increasing use of
online and mobile banking services”, driving a point that banks are trying to
keep up with what customers are leaning their preference on, giving the
impression that the new banks are indeed affecting the traditional banks
competitive edge in the market.
(“The Banking Industry in South Africa”, 2019) “New digital banks including
Discovery Bank, Bank Zero and TymeBank and mobile money apps and
services provided by telecoms and retail companies will be forcing
commercial banks to intensify efforts to continue modernising technology
platforms”, leading to a suggestion that traditional banks are playing keep up
with the new banks. This does raise suspicion as to whether major banks
such as FNB really have an edge competitively or not.

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APPENDIX

Fig 1.0 showing the net sentiment ranking 2020.

Advances market share of leading South African banks as of 2019

Fig 1.1 showing the market share in 2019

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