Banned FNB savings product to be piloted in the US

The FNB Million-a-Month Account (Mama) concept is being tested in the United States as a way to increase savings.

Peter Tufano, professor of financial management at Harvard Business School, with a group of academics from Harvard and Princeton, spent time in South Africa understanding the FNB product.

In an interview with the Mail & Guardian Tufano said he was impressed that not only had such a large number of accounts been opened through the product but that it encouraged savings across the board, showing diversity in income and geography.
“This is unusual for a savings product. I thought it was an extraordinarily exciting product,” he said.

Yet this is the same product that in March this year was forced to close when the National Lottery won a judgement to prevent FNB from offering cash prizes to account holders as it was competing with the Lotto, which is a state monopoly protected by law. Within the three years of launching, the savings account attracted 900 000 customers with an average balance of R1 600. It was by anyone’s standards a huge success.

In his judgement Judge JA Nugent of the Supreme Court said that the account successfully attracted many people who would otherwise have kept their money under the mattress or in a glass jar. In offering 114 monetary prizes a month to depositors, ranging from R1-million to R1 000, FNB made significant inroads into attracting the unbanked and increasing savings. Tufano said that there are 20 countries around the world that use a similar model, although it might take many forms, such as bonds issued by government—the Premium Bond Programme in the United Kingdom, for example—or sometimes the product offers non-cash prizes.

Tufano said what was remarkable about the Mama was “the real care with which they launched and marketed it from the name, to advertising, prime-time draws and branch-level incentives. They thought really hard about how to create a new retail savings product that had not existed. The attention to detail was excellent.” He said what is also remarkable is that even once the prizes were stopped, people still continued to save in the accounts.

Robert Keip, chief executive of FNB Savings and Investment Products, said that there are still about 750 000 active accounts, which further demonstrates the success of Mama. Tufano, through his organisation to promote savings, Doorways to Dreams Fund (, has worked with credit unions in the US to test a similar product that will be launched in Michigan in 2009.

From there he intends to work with the government to create a national savings product. He said the legal environment in the US is similar to South Africa, which might make it difficult to launch the product, but he says they will “use the Mama experience to show [the regulators] that the impact on savings can be enormous”.

Unfortunately, FNB was unable to convince our government that national savings should be a priority over a national lottery. In his judgement Judge Nugent said that historically lotteries were prohibited because of their propensity to draw money from those who could least afford it.

The judge quoted from a comment made in England by Lord Widgery CJ in Reader’s Digest Association Ltd vs Williams. “The evil which the lottery law has sought to prevent was the evil which existed where poor people with only a few pence to feed their children would go and put these few pence into a lottery and lose them, and this, sociologically, was a bad thing.” The judge commented that the Lotteries Act does not view the loss of a few pence as undesirable, but rather “what is undesirable is only that it should be lost to someone other than the National Lottery, which is obliged to pay part of its net income to worthy causes”.

The idea that the National Lottery is doing good by providing money to welfare projects seems to offset the social injustice of taking money from mostly poor, desperate people. Apart from the fact that there has been controversy about whether or not these payments to qualifying projects are taking place timeously, there has been no proof that Mama had any effect on the Lotto inflows.

The government chose to destroy rather than build on what has proved to be a successful savings initiative which encouraged more than 900 000 people to save rather than put a few rands into the lottery only to lose it. The judge believed he had no choice but to rule in the National Lottery’s favour, because the National Lottery has a monopoly on collecting money from the general public in this manner. All other lotteries that have a subscription are prohibited—no matter how meritorious.

The National Lottery is governed by the ministry of trade and industry, not the finance ministry. Had the National Lottery fallen under the finance ministry FNB might have had a more sympathetic ear. If the US government gives its approval to the product in the interests of national savings, it might be worth FNB’s while to petition our government to re-instate the product.

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