Banking the unbanked

2014-03-16 14:00

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With more than 2?000 access points, more than half in remote areas, Postbank could give established banks a run for their money

Tito Mboweni, the former SA Reserve Bank governor and self-proclaimed ANC “activist”, reaffirmed the ruling party’s resolution reached at Mangaung in 2012 for radical intervention in the financial sector.

Among these was the use of the Post Office’s banking service to expand financial inclusion, especially in underserved rural areas. But the ANC might have missed the bus. This was the plan of Postbank as far back as 2003.

Since then, the country’s major banks, and some newcomers, have made considerable inroads into banking the previously unbanked.

Three of the big four banks recently reported higher customer numbers – mostly at the expense of Barclays Africa subsidiary Absa – and most of these customers had taken up their entry-level products.

Some of the banks also attributed the growth in customers to social grant beneficiaries who need a bank account to receive their grants each month.

Financial think-tank FinMark’s latest FinScope survey showed that, by the end of last year, about 30.7?million people over the age of 16 were using financial services, 3.5?million of whom were new entrants to the banking market; and the social grant system contributed 1.9?million people to the banked population last year.

To expand their reach even further, three of the big four banks, along with Capitec and Ubank – which has been providing services to mine workers for four decades – have struck deals with Diebold, a US-based financial services and security company, to supply biometric ATMs.

These ATMs use fingerprints, retinal identification, and facial and voice patterns to authenticate customers, negating the need for PIN codes.

“Those who cannot read can make use of biometric technology as a means of authentication. There are a number of banking solutions these consumers can take advantage of,” said George Mayes, Diebold’s head of operations.

Security concerns uncovered in recent research commissioned by Diebold prompted the company to install the ATMs in South Africa following a successful run in India.

Mayes said: “Consumers said they were concerned about security and depend on their financial institutions to keep their financial assets and personal information secure. Apart from convenience, consumers are attracted to biometrics because they are perceived as more secure.”

There are still opportunities for Postbank. Despite the banks casting a wider net, FinMark has found a large number of financially excluded people who manage their financial affairs through direct personal relationships. It said they numbered about 5.7?million, with nearly half living in remote areas.

“They have no financial products and if they borrow, they do so from friends and family only,” reads the report.

“And if they save, they save at home or with friends and family.”

FinMark found one of the most dominant reasons for their “exclusion” related to access to financial services owing to their remote location, making bricks-and-mortar facilities inaccessible.

The latest Post Office annual report shows that its “corporatisation” process – a plan the Post Office is following to meet Banks Act requirements and thereby win a banking licence – is making good progress, backed by National Treasury funding of R481?million.

Postbank boss Shaheen Adam expects the process to be complete by the end of this year.

One of the conditions attached to the Post Office’s licence to operate is the establishment of 50 new access points each year.

With the number of access points at more than 2?000, more than half of which serve people in remote areas, Postbank could still give the more established banks a run for their money.

But it could be hampered by its inability to offer lending products – a condition of the Treasury funding, according to a progress report it made to the parliamentary labour and public enterprises committee last year.

“They are no competition for the banks who make their money from lending and transactional [banking],” said Patrice Rassou, the head of equities research at Sanlam Investment Management.

But Adam believes it can take on the banks.

“Postbank’s focus will remain on providing simple, easy-to-understand financial products and services for the underbanked and unbanked, an area in which we are currently focused in terms of Postbank’s mandate. “Therefore, we plan to compete in this niche market where other banks are not as active.”

He added Postbank’s research showed there was a large market for its products and services.

“We have just added a tailored youth bank card product to our offerings, and although it has not been launched publicly, its take-up is good.

“Another example of a niche product is our Bakgotsi account for savings clubs. It offers all the features that a savings club needs and is doing very well. Corporatisation will allow us to expand on our products offerings.”

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