REAMS of research is under way in attempts to understand the best way to bring the poor into the banking system. And some of the findings have been an eye-opener.
In Soweto, for example, researchers found that women dependent on child support grants had no access to stokvels but were eager for ways to save for school fees and uniforms.
And in Nigeria, a study found that poor women were saving via an underground economy involving agents who visited them to collect regular deposits. At the end of the month, their savings were returned, minus the agent’s fee for holding the cash.
Drawing money into the formal system adds to job creation, economic growth and improved living conditions.
“If you can get that money out of the house and into a transactional account, you may be able to siphon off 10% or so into savings,” says Daryl Collins, director at research group Bankable Frontiers Association.
The big four banks – Barclays Africa, Standard Bank, First National Bank and Nedbank – have all introduced products to capture the lower end of the market.
The number of people banked is relatively high in SA because the financial sector charter pushed banks to offer low-income Mzansi accounts. But these accounts do not generally take into account the needs of the poor.
Tashmia Ismail, head of the inclusive markets programme at the Gordon Institute of Business Science, says the first iteration of the Mzansi model was “not very cleverly designed; it was done just to check a box”.
However, Capitec’s low-income focus and lean model has transformed the industry, she says.
“Banks realised perhaps they were bit hasty in not taking this market as seriously as they should have, and have since worked hard on innovative offerings that are more relevant to it,” she says.
Among the ongoing research is a three-year global study, funded by the Bill & Melinda Gates Foundation, to find ways to encourage useful savings behaviour by poor households. Standard Bank is one of five banks involved in the project, in which the banks are assisted with designing products for the lower-income market.
The others are Bancolombia in Colombia, Bansefi in Mexico, Equity Bank in Kenya and ICICI Bank in India.
The project aims to transform savings behaviour by shifting a larger share of savings into formal instruments, rather than trying to get people to save more.
“Financial inclusion is globally recognised as one vehicle for sustainable economic growth and development,” says Audrey Mothupi, head of inclusive banking at Standard Bank.
As part of the project, Standard Bank developed the AccessSave account, which makes it easy to open accounts anywhere, through an agent, with a smartphone.
Bankable Frontier Associates conducted a nine-month study of 67 Soweto households in 2012 and 2013, using financial diaries to see how daily budget decisions were made. Just under half of the participants had an AccessSave account and the majority received government grants. Collins says nearly all the households hid money, over 50% belonged to a burial society and 30% had a funeral plan.
Participants were given a money box to save money, but they complained it was of little use as it did not lock. This led to the realisation that people wanted it to be difficult to access their savings, says Mothupi.
So Standard Bank redesigned the account to have a seven-day cooling-off period before people could withdraw their savings.
This contrasts with a study in Nigeria, where people wanted the reassurance they had instant access to their savings.
In a pilot project in Lagos between global payments company Visa and global NGO Women’s World Banking to encourage underbanked women and small entrepreneurs to enter the banking system, researchers found a lack of trust in the banking system.
Mary Ellen Iskenderian, CEO of Women’s World Banking, says they found that people who had been persuaded to open bank accounts would deposit money, then immediately withdraw it, then redeposit it to check that their money was available.
Many of the unbanked in Lagos were already saving through local agents who personally collected their savings and kept the money for them. Taking this into account, the pilot project introduced agents to personally open accounts and collect and hand out money. Iskenderian says this built confidence in the system. “The local underground depositors took a storage fee, so at the end of the month participants were confused when they received a small interest payment,” she says.
The Soweto and Lagos studies found that banking terminology alienated potential customers. In response, Standard Bank changed the word “interest” to “bonus”.
Iskenderian says they developed a visual way to explain product benefits. They spoke of “saving money” rather then “banking”, “putting money” instead of “deposit” and “secret number” instead of “10-digit customer ID”.