A COMPREHENSIVE ANALYSIS OF THE LOWER-END BANKING MARKET IN SOUTH AFRICA
Over 13 million people in South Africa are unbanked, which means that two out of every five South African adults have no access to formal financial services whatsoever. According to Falkena et al. (2004) the most prominent characteristics of the identified unbanked include the following: * Do not have any form of transactional account;
* Are resident in informal areas and townships;
* Lack a steady cashflow;
* Are mostly black or coloured;
* 19% have never had a bank account;
* 3,6% are indirectly banked through either their families or a stokvel; * Have not prior interaction with banks;
* Are not banking product literate.
From the above, it is therefore recognised that it becomes difficult for people to participate in the formal economy without some form of access to the formal banking system. South Africa has one of the largest divides between the rich and the poor, and the lack of access to banking poses significant social challenges in addition to the more obvious threats to macro-economic sustainability (Keraan, 2010). According to Keraan (2010), South Africa has 19.6 million are unbanked, 2.9 million who were previously banked and 10.2 million who are never banked.
Increasing access to financial services would benefit the individual, the community and the service provider. The South African banking industry is dominated by a relatively small number of competitors, all with a similar range of products and services. The big four banks (ABSA, FNB, Nedbank and Standard Bank) accounting to 85% of banking assets, they were primarily focused on the higher income market, to the exclusion of the lover income market, as shown in Figure 1 (SARB, 2007) cited by Fick (2007). The greater percentage of adults with a bank account in the higher living standards measure (LSM) groups, in contrst to the much lower percentage in the lower LSMs.
Figure 1: Distribution of the unbanked in terms of the Living Standards Measure
Source adopted from AMPS, 2006 cited by Fick (2007)
Figure 2, further shows the relative positioning of the different role players within the industry, base on their degree of differentiation and market segmentation. Investec is only included in the position map for comparative purposes and would not form part of the analysis. According to Coetzee (2010) the provision of retail banking product and services to the low-end market has in the past been somewhat neglected by the big four South African retail banks (standard, ABSA, Nedbank and FNB).
The big four banks have started considering the lower end market since early 1990’s, with the government and community groups (the external environment) putting pressure on the banks to improve access to finance for all South Africans, especially to the low income individuals
Figure 2: A graphical representation of the major competitors and their relative positions in the South African banking industry. The size of the market is an indication of the latest published income attributable to equity holders.
While the government has through the Financial Sector Charter, exerted pressure on the banks to respond to the lower-end market in South Africa, by making financial services accessible, meaningful progress has been hard to some which Keraan (2010) says some was due to lack of appreciation for the full breath of innovation that is required across the critical banking areas of product, distribution and process.
Keraan (2010:1) further points out that there is significant wealth to be made in the lower income markets, pointing to the following examples; * The social welfare system in South Africa paid out R69 billion in 2009 to the grant recipients all over the country. While most of this money is banked, the lack of affordable and accessible banking infrastructure means that the dominant behaviour amongst recipients is to simply withdraw...
References: Coetzee, J. 2005. Banking the unbanked in South Africa: The practical implications on branch banking [Online].Available from:
[Accessed on 26 July 2011]
Falkena, H. Davel, G. Hawkins, P. Llewellyn, D. Luus, C. Masilela, E. Parr, G. Pienaar, J. Shaw, H. 2004. Competition in South African banking. Task Group Report for the National Treasury and the South Africa reserve Bank, April
Keraan, T. 2010. Banking the bottom of the Pyramid: The egg that all emerging market banks need to crack [Online]. Available from:
[Accessed on 26 July 2011]
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