Accounts ‘for poor’ fail to fulfil hopes

2010-06-12 00:00

JOHANNESBURG — Commercial banks created the Mzansi account for lower-income groups five years ago, but about 42% of all these accounts are now dormant.

Commercial banks no longer keep statistics of Mzansi account holders. At Mzansi’s height more than six million people had such accounts.

What was initially extolled as a success story of service to the so-called “unbanked” sector of the economy now falls short of expectations as it is unprofitable for commercial banks to operate this type of account.

At a function on banking services this week professor Gerhard Coetzee, a specialist adviser on inclusive banking services at Absa, said half of the Mzansi account holders had moved to other bank accounts.

For the other half, the account simply remained too expensive.

The account started off a low-cost base, but banks progressively increased the fees.

Lawrence Twigg, managing executive of entry-level banking at Absa, said the number of Mzansi account holders continues to decline. Banks no longer market these accounts.

The account did not meet its original objective because most clients opened only the one account.

Banks had hoped that opening the first Mzansi account for a client would lead to the use of other banking services, such as personal loans and credit cards.

On its own the account proved unprofitable to operate, especially because it was characterised by only one or two transactions a month.

Banks have since shifted their focus to other services targeting lower-income groups. Coetzee says an example of this has been Absa’s “Step-up” account plan.

In terms of this plan, unsecured loans are made to clients. If R400 is advanced and repaid, a further loan of R800 is advanced.

According to Coetzee, this plan has not worked either. Bad debts eventually rose to 96%, with a cost ratio of over 100%.

Absa is now focusing more extensively on the unbanked market by means of the Allpay system, in terms of which banking services are supplied to people who receive social grants.

According to Twigg, there are currently 2,1 million recipients per month, about one million of whom do not have banking services.

 

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