Beyond the Mzansi Account in South Africa – Targeting Usage

According to FinScope, between 2004 and 2008 the percentage of banked South African adults increased from 46% to 63%. This feat was driven primarily by the six million Mzansi accounts that were opened over that period – two-thirds of which by people that had never before had a bank account . As a result the Mzansi account attracted much interest internationally.

As background, the initiative stemmed from South Africa’s Broad Based Black Economic Empowerment policies, and in particular the Financial Sector Charter (FSC) which was negotiated between constituents of labour, community, government and the financial sector. With Phase II of the FSC currently being finalized, there is an opportunity to review some of the key lessons of the Mzansi initiative with the aim of increasing the impact from the next phase.

The product was collectively designed by the “big four” banks, with an agreed bundle of services, a cap on the price that could be charged for that bundle, common use of the Mzansi brand and a commitment not to charge monthly management fees. The collective design assisted the banks to achieve scale (and to monitor progress against targets), however competition between players suffered as a result. The banks were unable to compete on product features, pricing, or branding; and could not use insights from their respective experiences to improve the Mzansi customer value proposition.

It is therefore perhaps not surprising that, despite the rather generous definition of “active” (one customer-initiated transaction during the preceding 12 months), by August 2008 approximately 30% of the accounts opened by the “big four” banks were inactive or closed (excluding those that had been migrated to traditional bank accounts). Further, the level of usage, the average balances and the fee income were significantly lower than on the nearest equivalent accounts that the commercial banks offered (55%, 85%, and 70% lower respectively).  In addition, account holders were heavily reliant on cash, with 93% of funds leaving the accounts via ATM and branch withdrawals (compared to an already high 77% for the nearest equivalent accounts).

As a result the accounts reportedly had questionable economics for the banks. While these accounts are still available, none of the commercial banks appear to drive marketing of the product, preferring instead to promote alternative low income options.

Since 2008, when Phase I of the FSC agreement came to an end, the proportion of banked adults stalled, and as of 2011 was still languishing at 63%. 

The Phase II draft released for public comment does well to move beyond the Mzansi initiative, to implicitly promote competition and sustainability. The move to acknowledge alternative delivery channels, beyond bank owned branches and ATMs to include, for example, agents and mobile phones, is also welcomed. This allows for the advancement of financial access in a more cost effective and sustainable manner; and opens a space for innovative business models within the Phase II Draft Code. 

While Phase I did not allow for innovation within the FSC framework some may argue that by increasing the focus on, and engagement with, the low income segment that the banks were able to gain valuable insights on what these customers do and do not want, indirectly spurring new product development. After all, the market is not short of innovative products and channels targeting the low income segment, including card-less ATM withdrawals, agent banking, and a number of mobile banking initiatives.

The next step must surely be to focus on usage. Rather than predefining inputs such as price, brand, product and channel, wouldn’t it make more sense to focus on the culmination of a well designed customer value proposition – customer usage?

Let’s give some more thought to the type of behavior that leads to the realization of some of the key benefits of financial inclusion – such as safe storage, convenience, a lower economic cost and a transaction history which can facilitate the provision of responsible finance. Improved levels of savings, remote purchases and bill payments, and sending formal domestic and international money transfers come to mind.

The draft Phase II Code has made some big strides in the right direction. However, I suspect ironing out the details will be critical in determining how far Phase II pushes financial inclusion in South Africa.  This is not to say that merely adding usage targets will be the panacea that the market has been searching for; but at least it should focus attention (and data collection, monitoring and even consumer education budgets) on a desirable outcome.

Banks will of course still have their work cut out, and will need to work even harder to understand exactly what financial services low income customers need, and how their respective business models might need to adapt to meet those needs on an economically viable basis.