KATHERINE GIBSON: Going beyond the headlines to grasp the financial inclusion landscape

SA’s financial sector has made astounding inroads in delivering access to customers, but rich opportunity still awaits those institutions that are prepared to look beyond the headlines. 

The Financial Sector Conduct Authority’s (FSCA’s) inaugural “Retail Financial Customer Behaviour & Sentiment Report” — a comprehensive study involving a nationally representative survey of 1,200 respondents — provides a measure of the advances made by the financial sector. Financial inclusion now stands at a remarkable 98% of SA adults, up from 94% a year earlier. In contrast, recent financial inclusion rates in Nigeria and Kenya were about 64% and 82% respectively. 

So, on the face of it, with near universal financial inclusion it seems it’s job done for the SA sector, with only two out of every 100 adult South Africans not having access to financial services. But not so fast.

Our survey wasn’t designed to look only at aggregate metrics but to include more behavioural insights. After all, the FCSA’s mandate is to ensure fair treatment for customers, and to do so we need to build a complete, detailed picture of how customers engage with financial institutions. 

And therein lies the rub. While financial institutions in SA have done well in driving the adoption of particular financial services — notably bank accounts and funeral insurance — they have been less successful in getting customers to broaden their products, to use them habitually and to deeply engage.   

The survey provides a wealth of insights into not only how financial service institutions might unlock latent opportunities in their existing customer bases, but also how they might become better businesses in the process. 

For example, the research shows major challenges remain in ensuring that financial services truly empower and add value for customers. While nearly all South Africans may now have access to some form of financial product, most display only passive engagement. Among the banked, upwards of 70% interact with their account just once a month, typically to withdraw all available funds and transact in cash.

Customer needs

Usage of digital channels remains low — about 40% of customers still prefer dealing with a human in their engagements — and in savings and insurance about half of adults remain excluded from the formal system. Even if people save they prefer informal solutions such as stokvels.

This limited usage points to products and channels not adequately meeting customer needs and preferences. It was also found that customers “settle” for financial products and services that may not precisely meet their needs, as they find it emotionally and cognitively taxing to look for and take up a financial product.

The report reveals that costs and flexibility are major frustrations for clients. Complaint resolution and service quality also attract negative feedback. Tellingly, almost half of the survey respondents admit to regret taking up a financial product.

With these insights it would not be surprising to see much churn in the industry as customers switch to competing products and institutions, but this is not happening either. The survey shows that exit rates are low — dissatisfied customers stick with the devil they know. 

This phenomenon underlines the danger in relying too heavily on penetration and acquisition metrics in measuring success in this sector. Behavioural metrics such as engagement tend to tell a richer story. 

Access to financial products is clearly no longer the primary bottleneck in financial inclusion. It is now essential to empower customers to derive meaningful value from engagement.

For financial institutions the research is a clarion call to focus innovation on simplification, customisation, building trust and customer advocacy. The focus of business activities should be to provide true customer value and not just gain market share. We are confident that the one will lead naturally to the other. 

Tailored advice

For businesses, a natural starting point suggested in the survey is acknowledging the emotional dimension of financial decisions. The research reveals most clients experience frustration and worry and are overwhelmed during the process of considering financial products. A key imperative should be simplifying product information and customer communication.   

But even well-targeted information has its limits because the financial services customer is not homogeneous and financial literacy is varied. Advice tailored to youth, women and poorer segments is essential.

This is an area of need in the SA landscape, in which financial service providers are in danger of appearing more focused on sales rather than financial guidance. More holistic advisory services could encourage deeper usage of products and services, attributes that are likely to lead to greater rewards for businesses in the long term. 

Progress will require collaboration between regulators such as the FCSA, whose mandate includes both fair customer treatment and customer education, industry and community partners. The common goal should be embedding financial services more seamlessly into customers’ lives — understanding and resolving pain points, not just improving metrics. 

The FSCA’s conduct and inclusion mandate positions it well to drive this agenda. But regulators too need nuance. Rules often unintentionally incentivise box-ticking compliance rather than genuine outcomes. More regular consumer insights research, such as this, can balance metrics-based supervision. 

The role of an authority such as the FCSA is as much about creating space for innovation while ensuring customers are treated properly and are protected from distasteful or illegal behaviour. This research shows that behavioural insights can empower a more effective regulatory approach and provide actionable opportunities for institutions. 

The research highlights the wisdom that it is better to light a candle than curse the darkness and the path is now well lit showing us where we need to concentrate our energies towards achieving meaningful financial inclusion in SA. 

• Gibson is deputy commissioner of the Financial Sector Conduct Authority.