A Tale Of Two Markets

The South African banking sector is divided into two distinct segments but both are being driven by technological innovation.

The country’s big, established banks have traditionally competed for the same customers that make up the relatively affluent third of the population, including most white South Africans and more wealthy non-white citizens. Until relatively recently, the rest of the population received as little attention as the unbanked masses in the rest of the African continent.

However, this second segment is now attracting more interest from micro-finance institutions, mobile banking services and even the mainstream banks themselves. All are confident that a significant proportion of the poor majority will enjoy improved financial circumstances in the future and so are keen to widen their customer base as fully as possible.

Rather than investing in expensive branch networks in rural areas and informal settlements, some banks allow shops and post offices to act as withdrawal points. Although South Africa is widely considered to be the most developed economy on the continent, an estimated 11m South African adults currently have no bank account. On the other hand, the country has a mobile penetration rate in excess of 100% so there is clearly plenty of scope for mobile banking.

South Africa’s regulatory authorities have opened up the mobile banking sector very slowly. Absa chief executive Maria Ramos says: “South Africa has a very sophisticated banking sector. I think the objective of our regulators is to ensure that people are properly protected.”

However, recent research has concluded that mobile banking has finally taken off in South Africa over the past year. The Mobility 2011 study, which was undertaken by World Wide Worx and First National Bank, found that 44% of urban mobile phone users now use mobile banking services, up from 27% last year.

The technology has been slower to take off in rural areas, while South Africans aged 26–34 are the most likely to use their mobile handsets to access financial services. It is interesting to note that 27% of all mobile banking customers in the country earn less than R1,000 a month ($147), suggesting that the technology is enabling poorer South Africans to handle their money electronically for the first time.

IT can drive down costs

Allan Dickson, a consultant at Compass Management Consulting, said: “By examining current operations from a global perspective and improving efficiency across divisional boundaries without compromising quality of service, as well as by using technology to improve back office processes, IT managers can drive down internal costs and free up the funding to break into this market … Opening up the market not only makes sound business sense to the banks, which stand to profit from a vastly increased customer base, it also stands to benefit the country as a whole by helping it to grow.”

A global survey of financial service needs by research company TNS in May found that South African consumers wanted greater access to mobile banking services.

James Fergusson, the head of the global technology sector at TNS, said: “Mobile money extends the concept by turning handsets into mobile wallets, capable of being loaded up with and storing money. As well as delivering new services in developed markets, mobile wallets can bring people without bank accounts into the wider financial world and help drive economic and social development.”

Technological synergy

Some banks are also combining mobile and ATM technology. Absa pioneered such synergy through its CashSend service, which allows one person to authorise another to make a cash withdrawal at an ATM machine via an SMS.

CashSend won the Banking Technology IT innovation award in 2009 for providing a relatively safe and cheap method of transferring money over large distances. This seems apt given that it was Absa’s parent company Barclays that introduced the world’s first ATM machine in 1967.

South African banks have been as slow as those elsewhere in the world to upgrade their ATMs. Many models are well made and operate for decades without any need to replace them. Although new software and applications are gradually being incorporated in new machines, the pace of technological advancement is nowhere near as fast as in the world of mobile telecoms, where customers often upgrade their handsets every one to two years. This is borne out by trends in South Africa, where incomes are generally rising, despite concern over income inequality.

Speaking to journalists at the World Economic Forum in May, Ramos said that her bank was seeing rising income levels among its customers. She added: “We are certainly seeing more people acquiring bank accounts. We have a very big drive to extend banking services to people who have not had banking services, and that is very much part of the drive around an inclusive banking environment, and getting people utilising banking services, whether they are individuals or small or micro-enterprises. It is very much part of the development strategy.”

Dickson agrees, arguing that all communities need to be given access to banking products and services, not just the more affluent sectors of the population. He said: “By making banking accessible to these areas, individuals and small entrepreneurs are given the opportunity to grow, which is critical to the growth of the economy. And these individuals and small businesses will in turn reward the banks by growing into the type of more affluent customer that banks traditionally seek out.”

Different technologies are being offered to the wealthy and the previously unbanked in Africa’s biggest economy, but they could have lessons to teach each other. Mobile banking may be designed to benefit the unbanked majority but offers a level of convenience that could also suit more prosperous customers. Customer satisfaction surveys in South Africa consistently reveal that wealthy citizens would like to have more control over their money via their mobile handset.

Online e-banking via a PC or laptop has made more headway in Africa’s biggest economy than anywhere else on the continent, probably because more people have land-line internet access than elsewhere.

It will therefore be interesting to see whether mobile and internet banking services begin to compete with each other, or whether the two can be integrated into a single platform. Whatever the answer, progress on providing it is sure to arrive quickly.