FirstRand chair on threat of new entrants, Discovery Bank, and collapsing municipalities

FirstRand says the threat from the plethora of new competitors in the banking space is a topic “that fully occupies the minds of FirstRand’s board and management team”.

In his annual letter to shareholders last month, chair Johan Burger says there is no doubt “that the number of new competitors challenging the ‘big four’ paradigm is significant, and it is changing the game for participants and consumers alike”.

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He contends that while a narrative has persisted for many years among investors that the banking system in South Africa is a “cosy oligopoly”, in reality “there has never been anything ‘cosy’ about banking” and competition between the incumbents has been “fierce”.

“To both defend and attack in this new world requires agility and resilience if the group expects to continue to meet its core commitments to shareholders of outperformance, both in terms of growth and return on equity,” he says.

The sector has faced a massive onslaught of new entrants in recent years with more to come.

Apart from the runaway success of Capitec Bank, so far, TymeBank, Discovery Bank, Bank Zero and African Bank have all entered the space, with Old Mutual Bank being the most recent to launch a retail bank offering.

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Coupled with this has been Vodacom and MTN trying to position mobile money offerings of their own in the market. Both have met with very limited success.

Retailer Shoprite has been at the edges with its free, no-frills Money Market Account. It has hinted it will make a full tilt at the mass market retail banking segment soon, while Pepkor has also confirmed that it has received approval to establish a banking presence. Add to this global fintech Revolut that has applied for a banking licence in the country.

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This is an infinitely more competitive market than just the six players from five or 10 years ago.

Burger argues that FirstRand, the country’s largest banking group by market capitalisation, “is facing up to this competition from a strong position given the quality of its customer-facing franchises and track record of innovation”.

Without naming Discovery Bank – but with an obvious reference to it – Burger says “new entrants have identified the high-quality profit pools where the group has built strong market share and have started to chip away at these”.

This is the first time FirstRand has publicly – albeit not overtly or explicitly – acknowledged the threat from its former joint venture partner.

The two groups have been fiercely fighting over a core group of as many as 300 000 original high-earning Discovery Card members who were part of the JV before Discovery bought that book and the right to exit the venture for R1.8 billion.

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Although perceived to be a bank targeting affluent customers, Discovery Bank has shared that it is attracting clients across all segments. This battle now extends across more segments than just wealthier customers.

Burger says that while “the impact remains at the margin, vigilance is required, particularly with regard to areas where the new fintechs are looking to disintermediate the banks”.

He contends that the group has “many of the solutions required to compete, such as a leading wallet offering [eWallet], and is fully focused on responding to the threats and opportunities that are emerging”.

FirstRand says it can address these threats by building, partnering or acquiring.

Optasia stake

This, says Burger, is why the group acquired a 20.1% stake in fintech Optasia in October 2025 as part of that group’s initial public offering.

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Burger says “as one of the world’s largest AI-powered fintech platforms providing financial access to people across emerging markets, Optasia represents an exciting opportunity to leverage a proven fintech platform with a successful track record of solving the lending needs of underbanked or unbanked consumers who have had difficulty accessing traditional credit products”.

“Its ability to pre-score customers, process micro loans at scale and use mobile data sales as a credit collection mechanism is highly innovative and clearly meeting the needs of millions of customers in 38 countries across Africa, the Middle East and Asia.”

He says FirstRand looks “forward to extracting value for our shareholders from this strategic investment”.

SA economic turnaround

Burger highlights that “whilst the country is currently benefiting to some degree from improved sentiment towards emerging markets, strong precious metal exports and low oil prices, considerable structural inefficiencies persist”.

“Real GDP growth of around 1% is below population growth (which is around 1.5%), leaving per capita income negative,” he says.

“Here the maths is brutal. Without faster growth, inequality and unemployment will remain entrenched.”

The group has for more than two decades used its chair’s letter in its annual report to weigh in on political issues.

Burger describes the renewed coordination between National Treasury and the South African Reserve Bank (Sarb), which has seen the adoption of a lower inflation target, as “the most constructive alignment of macroeconomic policy since the joint response to the global financial crisis”.

“This shift creates a more predictable environment for investment by lowering risk premia, thus improving currency stability which should eventually help ease the cost of capital for firms and households. It offers a genuine opportunity to rebuild confidence and place the economy on a firmer footing, and this is being recognised by international capital providers and the ratings agencies.”

Municipal dysfunction

Still, considerable challenges remain. Burger says the state of dysfunction in most of the country’s municipalities is one of the biggest hindances to economic growth.

“Measured by national municipal expenditure, only 19% received an unqualified audit opinion while 81% revealed varying degrees of mismanagement.

“The people of South Africa deserve the delivery of basic services, which is fundamentally impossible if only 19% of municipal financial resources are managed effectively.”

Problematically, “Johannesburg – the country’s economic hub – remains deeply dysfunctional, with service delivery and infrastructure collapsing”.

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“Operation Vulindlela’s Phase II rightly focuses on local government, but the interplay between economic and judicial reform must now come into even sharper focus.

“Although many service delivery challenges are framed as complex coordination problems, it is also common knowledge that much of the county’s failure to realise its potential can be attributed to endemic corruption.

“When individuals waste other people’s money for private gain, the economy underperforms and, crucially, confidence is lost,” he says.

“The government is learning how hard it is to restore that confidence.

“The real tragedy lies in the human cost of generations of jobless youth and a population moving backwards in real GDP per capita terms.”

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