Disrupting the status quo

Revolut’s potential entry into the South African market could signal the start of a transformative shift, where fintechs transcend political boundaries, thereby reshaping and disrupting local industries. With lower operational costs, a superior ability to blend lifestyle with traditional banking and a faster pace of decision-making and innovation, fintechs like Revolut are poised to challenge the status quo. Local players will need to adapt swiftly and strategically or risk being outpaced and rendered obsolete in an increasingly digital financial landscape. 

How banks can proactively prepare to address and mitigate the potential threat posed by emerging fintechs 

Top-tier corporations have successfully mastered and integrated six key levers into their business models, driving remarkable success. South African banks can benefit significantly by adopting or implementing some or all of these strategic levers:

1. True zero-based budgeting and resource allocation
2. Corporate experimentation at scale
3. Capital allocation as a core competency
4. Incentive audits and behavioral economics in compensation
5. True procurement and supply chain transparency
6. AI-driven customer and employee co-creation

With the rise of AI and simpler opportunities for automation, Zero-Based Budgeting (ZBB) is becoming more accessible and easier to implement accurately and effectively. However, despite these advancements, most South African banks still rely on incremental budgeting.  This traditional approach, where past budgets largely dictate future spending, contrasts sharply with the dynamic resource reallocation that ZBB offers based on real-time business needs. Automated, zero-based budgeting, which continuously optimises spending, is not yet widely implemented. Instead of reviewing budgets on an annual basis, companies should leverage predictive analytics to adjust budgets dynamically in response to shifting priorities and market conditions. Currently, internal funding often follows rigid department-based allocations, rather than being directed to the highest-impact opportunities across the business. Additionally, organisations lack systems that automatically identify underperforming projects or clusters and reallocate resources accordingly, leaving substantial opportunities for improvement untapped. PwC’s Major Banks Analysis March 2025 notes that banks that harness the power of AI, data and highly qualified people are the ones that are transforming their operations, elevating customer experiences and exceeding stakeholder expectations.  

Budgets that rely solely on historical periods, disconnected from strategy and strategic objectives, create significant inefficiencies. This approach may soon become a luxury that traditional banks can ill afford given the rise of new digital entrants that operate on lean cost structures, transcend political boundaries and are disrupting the status quo.

Alongside traditional budgeting methods, South African banks continue to allocate significant time and resources to non-value-adding activities. In our experience, up to 80% of a finance team's time is spent on reporting and budgeting, which translates into costs amounting to hundreds of millions annually. Fintech companies, in stark contrast, spend minimal time and effort on reporting, with the majority of their resources focused on strategy and insights, as illustrated below:

Banks need to create an environment where innovation can thrive. This includes creating space for projects to be incubated, tested and allowed to fail before scaling up. In a world where technology, customer expectations and market dynamics are evolving at an unprecedented pace, fostering a culture of experimentation and agility is crucial. This approach can drive rapid adaptation and response to the needs of the market.

Incubating and testing projects: One key area is to establish innovation labs or incubators within the organisation where new ideas (including zero based budgeting and finance teams designed around strategy and insight) can be explored without the heavy constraints to existing systems. These projects, often starting with small pilot programmes, should be allowed to fail without massive consequences. Failure in this context is not a setback but rather a learning opportunity. Through iteration and testing, banks can refine ideas, identify problems early and gather data to understand what works and what doesn’t.

Scaling up successful ideas: Once these pilot projects demonstrate value and promise, banks can scale them strategically. However, scaling shouldn't be done by merely applying old systems and processes. Instead, it requires a complete rethinking of how solutions can be brought to a larger scale, including optimising technology infrastructure and workflows for speed and efficiency. By testing in smaller environments first, banks can mitigate the risk of launching full-scale initiatives that might fail under the weight of bureaucracy.

Adapting faster than market demands: Traditional South African banks, like many others globally, are often constrained by legacy systems, outdated technology and deeply ingrained bureaucratic structures. These systems, although functional, are far too slow to meet the rapidly changing demands of the modern market. Digital transformation is no longer optional; it is a necessity. To stay competitive, banks must be able to quickly deploy new services, products and features that address customer needs, regulatory changes and technological advancements. 

In essence, banks need to shift from a mindset of cautious, incremental improvement to one that embraces more bold, flexible and rapid innovation. This is where agile methodologies come into play—creating smaller, cross-functional teams that can focus on solving specific problems quickly and effectively. Additionally, adopting open banking frameworks, leveraging fintech partnerships and implementing cloud-based technologies are all ways to overcome the limitations posed by legacy systems and slow-moving bureaucratic processes.

Ultimately, the traditional structures and systems that once defined banking institutions now risk making them irrelevant in a rapidly changing market. For South African banks to not only survive but thrive, they must invest in creating spaces where innovation is encouraged, tested and implemented quickly at scale, enabling South African banks to stay ahead of both market expectations and emerging competition.

This culture of experimentation is not limited to technology projects; it should be unleashed in areas such as pricing strategies, incentive structures, new product launches, zero-based budgeting etc. While tech companies often use A/B testing for product development, traditional corporations rarely apply similar methods to business models, pricing strategies or organisational structures. A culture of continuous experimentation is often missing, with most corporate decisions based on past experiences rather than real-time testing and iteration. 

Few organisations have structured frameworks for rapid prototyping and scaling innovation leaving employees without effective mechanisms to propose and test new ideas at scale. Large enterprises rarely run controlled trials for alternative incentive models, management structures or workflow optimisations before fully implementing them. In South Africa, most banks struggle to make impactful, paradigm-shifting decisions, often sticking to conventional approaches. This hesitation to embrace change could be a major disadvantage, as agile and adaptable fintechs can swiftly disrupt the market. Without a shift towards innovation and flexibility, traditional banks risk losing market share to more dynamic competitors. An example of this working exceptionally well is Amazon Web Services (AWS).  

A key lesson from AWS’s success is the value of ambitious internal projects that solve real problems while allowing room for failure. Amazon’s need for scalable infrastructure led to an internal initiative that wasn’t originally intended as a standalone business. By investing in an internal solution with long-term potential—and being willing to iterate and take risks—Amazon unlocked an entirely new market.

Today, AWS generates over $90bn in annual revenue and powers a significant portion of the internet. This underscores the importance of fostering internal innovation, even if the initial goal is just operational efficiency rather than external commercialisation.

Many corporations do not treat capital allocation as a key strategic function, instead leaving investment decisions to fragmented finance teams rather than integrating them into the broader business strategy. AI-driven capital allocation models have the potential to help companies dynamically shift capital toward the highest ROI projects. However, most firms still rely on static, human-led decision-making processes. Additionally, the process for funding internal initiatives is often slow and bureaucratic, discouraging agility and innovation. As a result, companies frequently over-invest in legacy businesses and under-invest in emerging opportunities due to a lack of real-time performance tracking and capital reallocation mechanisms.

To remain competitive and foster innovation, companies must embrace (potentially) AI-driven, dynamic capital allocation models that integrate with broader business strategy, enabling faster, less bias and more strategic investment decisions and better alignment with emerging opportunities.

Plain and simple, many banks' senior executives are often incentivised to work against one another and drive profitability down. In addition, incentive structures within many organisations are often misaligned with long-term business goals, resulting in short-term decision-making that prioritises immediate results over sustainable growth. Companies rarely conduct in-depth audits of their incentive models to ensure they encourage the right behaviours across leadership and employees. Moreover, behavioural science principles could be better integrated into compensation models to foster innovation, collaboration and ethical behaviour, rather than focusing solely on financial performance. Additionally, performance metrics used in compensation plans often fail to account for external factors, which can lead to unfair or unintended consequences in bonus structures and promotions.

ESG misunderstood

The misalignment of incentive structures within many banks, where senior executives prioritise short-term profits over long-term sustainability, highlights a key ESG (with an emphasis on “G”) issue that is often overlooked. Poor governance practices, driven by incentives that reward immediate financial results, undermine long-term growth and ethical decision-making. Additionally, compensation models that fail to integrate behavioural science principles or account for external factors can lead to a toxic corporate culture, discouraging collaboration, innovation and ethical behaviour. This is the ESG that banks are missing, as a more balanced approach to incentives could promote responsible governance and foster a positive social impact within organisations.

Supply can and should go well beyond procurement. A well-optimised and transparent supply chain can be a powerful catalyst for a bank’s success, especially when it is sophisticated enough to not only support but actively challenge the baseline practices within the organisation. When a supply chain is strategically aligned with the bank’s long-term goals, it goes beyond simply facilitating day-to-day operations. It plays a pivotal role in driving innovation, improving efficiency, and ensuring that spending is focused on initiatives that directly support the bank’s overarching strategic objectives. This level of sophistication allows the bank to be more agile, responsive, and competitive in an increasingly complex financial landscape, creating a strong foundation for sustainable growth.

A transparent, dynamic and sophisticated supply chain could foster a culture of ownership and innovation, where the supply chain team actively challenges the status quo and aligns spending with strategic goals. In this future, the supply chain becomes a dynamic engine for growth, not just supporting operations, but leading the bank’s competitive edge and driving sustainable success.

Many companies claim to be "customer-centric", yet they rarely involve customers directly in strategic decisions or product development in real time. While AI-enabled customer advisory boards could provide continuous feedback loops, most organisations still rely on periodic surveys and focus groups to gather insights. Employees often have valuable perspectives but lack a direct, structured channel to influence strategic decision-making in real time. To address this, corporations could leverage AI-powered platforms to align customer demand trends with internal innovation efforts, ensuring that new products and services meet actual market needs.

Ultimately, the future of traditional banks hinges on their ability to adapt swiftly and strategically in an increasingly digital and dynamic financial landscape. Those that embrace innovation, refine their strategies and learn from successful models like AWS will be better positioned to compete with agile fintech disruptors. By prioritising adaptability and forward-thinking approaches, South African banks can secure long-term success and resilience in an evolving industry.