Lynda Loxton
THE financial services market could be in for a shake-up this year as supermarket giant Pick ‘n Pay moves into in-store banking.
Fairly common in Britain, the concept is new to South Africa and has created quite a stir in the conservative banking community.
What particularly irks the banks is that Pick ‘n Pay has awarded a contract to Boland Bank to help run savings accounts without Pick ‘n Pay having to register as a bank and being subject to all the rules and regulations they have to follow. Pick ‘n Pay also plans to move into unit trusts and insurance once the savings accounts are established.
To make matters worse, Pick ‘n Pay is promising better interest rates and services than ordinary banks are able to offer owing to high overheads in the form of buildings and staff, .
Pick ‘n Pay group enterprises managing director Gareth Ackerman and Boland insist that in terms of the law, the supermarket giant does not have to register as a bank, but others are less certain.
In terms of the Banks Act, only registered banks can take deposits, but Pick ‘n Pay argues that it will only be taking deposits on behalf of Boland Bank, which will administer the accounts.
The Council of South African Banks and the Financial Services Board disagree. While they say they welcome free competition, “the playing fields must be level”.
Registrar of Banks Christo Wiese was surprised to hear that Pick ‘n Pay had linked up with Boland Bank, which is part of the rival Pepkor group. But he admitted that if all that Pick ‘n Pay would be doing was facilitating the payment of deposits and withdrawals, registration might not be needed.
It would, however, have to comply with all the payment mechanisms and procedures and not accept deposits on its own behalf.
“We have not been approached at all on any of these issues. We will debate it among ourselves and see what the implications are once we are approached,” Wiese said.
“Banking is a service industry, after all … and what we do is ensure that the depositor’s money is under prudential supervision so that the depositor’s money is safe.”
On Pick ‘n Pay’s ability to offer better interest rates, Wiese said: “That is a matter of costing and I can’t comment on that.”
Banking is not new to Pick ‘n Pay, however. It already offers a credit card to about 50 000 customers and a debit card to 20 000 people. It also runs a savers’ association for about 17 000 staff members, which has provided many with their first opportunity to enter the formal banking arena.
The group also runs Transwitch Services, which allows customers to pay for their shopping and draw cash at Pick ‘n Pay stores. It accepts cards from all banks apart from First National Bank and Nedbank which have refused to join the scheme.
Gareth Ackerman said that potential products being considered included long-term savings accounts, hospital cover, unit trusts and possibly funeral benefit products.
“One has to look at products that are going to be easy for consumers to understand,” Ackerman said.
“The fundamental issue is that we will not be a manufacturer. We will be a distributor of products. We will be out in the marketplace looking for the best provider of a particular product that we will design. Our relationship with Boland will hinge on our first product only and if they are the right people to do the second product, they will do the second product.”
Analysts have said that although it was difficult to quantify the effect that the introduction of financial services would have on Pick ‘n Pay’s results, it should add significantly to the already large contribution of interest income to pre-tax income.
They said it looked as though Pick ‘n Pay would target middle- to low-income earners who have not had access to banking facilities before. By aggregating their savings, it would be able to offer account holders more competitive interest rates and lower bank charges, as well as credit cards.
But analysts did not see Pick ‘n Pay emerging as a major competitor to ordinary commercial banks. “I think that in the short term the general public will maybe see them as a white knight,” said one analyst.
Problems expected to be encountered in implementing the scheme included maintaining liquidity and increased congestion at the tills as more transactions were undertaken.
“What will they do on a Thursday afternoon before Easter and a few thousand people want to withdraw R200?”
Ackerman said he would love it. Pick ‘n Pay’s technology would be used to process the transactions, and it would get a fee for any money paid out.
“The stores take an enormous amount of money, especially at month-end and, quite frankly, the less money left in the tills at the end of a day, the better it is for us from a security point of view and even from a cash-handling point of view,” he said.
There would only be additional congestion when people made financial transactions that were not part of a shopping transaction.
“Most customers will pay for their merchandise when they leave the store, so whether they do it with cash, credit card, debit card or Pick ‘n Pay card, it is not an additional transaction, they will simply switch from one form of transaction to another.
“If they take cash back, we have done time and motion studies and the exercise lasts about 11 seconds. So sure, if you have 2000 customers all doing that, it is a lot but perhaps the same as two extra cans of beans.” People would, however, be encouraged to make direct debit transfers to Pick ‘n Pay rather than deposit money at the tills.
Ackerman admitted the banks were not happy about this move on to their turf, but said Pick ‘n Pay did not envisage taking a major share of their traditional market. “But I think that the banks have to worry about it in the sense that they will have egg on their faces because we will come in with superior interest rates, lower costs and people will question their own banks,” he said.
“But in terms of market share profitability I can’t think that we will make a difference.”
He said insurance companies have reacted more enthusiastically to Pick ‘n Pay’s move into financial services. “They do not care what you brand the unit trusts, they just want to do business. They are much more positive and commercially viable.”