Abstract
In the banking sector, competition promotes financial inclusion by enabling low-income
earners and previously disadvantaged persons to save and access credit, insurance,
and other financial services. This facilitates more inclusive participation of citizens in
the retail banking industry. This dissertation examines how the entry and expansion of
Capitec Bank has impacted competition in the South African retail banking market in
the period 2015–2023. The research analyses what impact Capitec Bank has had on
competition in the South African retail banking market through analysing changes in
concentration ratios, market shares, key financial indicators, and whether there have
been more products that were introduced which target the low-income segment. This
study also analyses the entry and impact of TymeBank and Discovery Bank as the two
more recent entrants.
The study found that the concentration levels had indeed decreased given the
expansion of Capitec, as well as the entrance of TymeBank and Discovery Bank. The
emergence of more competition from smaller rivals created a more dynamic and
competitive retail banking industry. The study found that bank stability increased
following new entry, contrary to the school of thought which suggests that more
competition can result in greater instability. Four out of six of the banks increased their
stability levels which suggests that new entrants do not lead to the deterioration of
incumbent banks’ stability.
In terms of low-cost accounts, this study has shown that the expansion of Capitec has
not only spurred a competitive response from incumbent banks to cater to that
underserved low-cost account segment, but has also paved the way for new entrants
to enter the market and cater to that segment. This highlights the importance of
vigorous and dynamic competition in improving inclusion, particularly of low-income,
underserved markets. Furthermore, this study found that there has been an
introduction of players in the market that match consumer welfare outcomes with more
products and services to choose from. This shows that the retail banking market is
becoming more dynamic as new entrants are being able to enter the market, compete,
and offer more affordable pricing which forces a more competitive outcome from
incumbents.