Banking the unbanked: the pot of gold
The revised financial services sector code sets targets for getting more people into the formal system
For many years access to financial services characterised the divide in SA, with the affluent serviced by a technologically advanced banking sector and an innovative insurance sector.
In LSM 1-5 (those earning less than R6,000/month) informal savings and investment vehicles such as stokvels and burial societies still dominate.
Banks and insurers would love to get hold of the unknown billions held in informal providers: it is the pot of gold believed to be buried in lower-income areas.
Thembisa Mapukata deals with these groups daily as the GM of the Old Mutual Foundation Market. She says informal channels will remain important as they are preferred choices of engagement by customers.
"These still embrace communal values and are driven by trust based on values of ubuntu. Stokvels and funeral parlours are closer to their customers as they are family, village, town or regionally based. Stokvels often offer immediate money access, which is a key driver in the market."
But Mapukata says formal providers can help stokvels by strengthening their administration and transactional capability. No doubt their branded products would soon follow.
Sanlam Personal Finance deputy CEO Hennie de Villiers agrees that informal providers are seen as "helping hands". But, he says, it is important that more regulated entities play in the market to reduce the space for unregulated, unscrupulous entities.
The three main formal players in the market are Old Mutual Mass Market, Sanlam Sky and Metropolitan; their sweet spot is in the R6,000-R20,000 income group. De Villiers says that though 70% of adults have transactional accounts, insurers face premium collection problems as many clients withdraw money as soon as it lands in their accounts.
There needs to be a balance between responsible lending or sale of financial products, and providing capital to people with no asset base. This is a key aim of the newly revised financial services sector code: banks and insurers have to see increasing access as the ticket to the game.
For insurers, the focus is on a combination of face-to-face interaction with brokers or agents, and online or app-based sales. The banks are expected to increase their physical footprints.
There are regulatory targets to meet, as part of broad-based BEE. Access is unique to the financial sector code — it is not part of the construction, advertising or even accounting codes. Some of these demands seem to reflect an analogue way of thinking, as physical presence is not as relevant in an age of cellphone-based electronic transfer. Electronic access is a factor: the target is for 19% of account holders in a defined target market to use cellphones or Internet banking for basic services such as account transfer and balance inquiries.
But the department of trade & industry won’t let the banks off the hook. There will be plenty of bricks and cement bought to build new outlets, even if they are a lot simpler than the branches we know today. Many will be portable and housed in converted crates.
There is a target of 85% coverage through transaction points within 5km of areas where at least 50% of the population earn less than R6,000/month; there people can draw cash or purchase from their accounts. These points would not need to be staffed. Service points available every 10km could be lightly staffed as they provide simple services such as resetting a PIN, enabling money transfers and handling account queries.
The sales point within a 15km range would be more like a typical branch as it would include services such as replacing a card, making cash deposits over the counter and setting up funeral policies and loans.
Songezo Zibi, Absa’s head of communications, says the bank has met or exceeded the physical channel targets agreed through the Banking Association SA. Absa’s partnership with Pep Stores gives it a trusted brand in the mass market — 230,000 clients use this network. It even provides access to lawyers for lower-income clients through its R35/month Law For You product. And Absa has the largest ATM network in the country, with more than 2,000 spread between small towns and rural areas.
Zibi says that once affordable Internet access improves, it will be easier to offer more services and bypass the branches.
Ciko Thomas, MD of retail and business banking at Nedbank, believes banks have the power to create solutions that promote financial inclusion. He says the artillery around credit products and infrastructure needs to be positioned for the unbanked.
The banking industry’s largest initiative for the unbanked, the Mzansi accounts rolled out a decade ago, were a failure. Millions were taken up as zero-cost accounts, but many have been closed. Most were used simply to draw salaries out in cash on pay day rather than for transactions. This is in line with Sanlam’s experience today. And many still have to draw cash as cards are rarely accepted in spaza shops or taxis.
Christoph Nieuwoudt, CEO of FNB’s consumer segment, says banks have since introduced better mechanisms to meet the needs of the unbanked, whether pure transactional products, mobile money payments, insurance or credit products. "Costs can be very low for those willing to adjust their banking behaviour by cutting back on cash withdrawals, swiping their cards and transacting electronically."
Nieuwoudt says that, nonetheless, the rollout of physical infrastructure is important as most consumers want to talk to someone when opening an account, taking a loan or buying insurance. He says the role of branch personnel has changed from performing transactions to focusing on sales and advising customers how to bank.