Estimating Bank Substitutability in the Personal Transactional Account Market in SA

Research into South African retail banking has often sought to assess the level of competition in banking markets without accounting for the degree of substitutability between banks. We use FinScope data and construct a unique dataset of bank prices, from publicly available marketing material, to estimate South African customer demand for personal transactional accounts (PTAs). This demand is estimated using a flexible choice model that measures bank substitutability between various paired banks. We find evidence of substitutability between the PTAs of the following bank pairs: (i) Capitec and FNB, as well as (ii) Capitec and Standard Bank. These results are particularly interesting when contrasted with the findings of a South African 2008 banking market inquiry which, at the time, noted that Capitec had not posed a competitive constraint on the traditional big four banks.