/ 1 July 2011

Banking on spaza shops

Banking On Spaza Shops

Standard Bank is the latest bank to reveal its banking solutions for low-income earners with what it describes as “inclusive banking”.

The idea is to bring banking to the people, literally. The banking model of bricks-and-mortar branches carries high infrastructure costs for banks and travel expenses for clients. Although the cost of the transaction may be R2, the travelling costs can be in the region of R30, which is one of the main reasons 15-million South Africans are not using banks.

Standard Bank’s solution is to partner with spaza shops in townships and rural areas to offer a bank shop. Customers can open an account at their local spaza shop to deposit and withdraw money as well as buy airtime and electricity.

During a site visit to three of the 130 bank shops in Khayelitsha, Cape Town, the interest among residents was evident. Apparently believing that I worked for the bank, a local resident told me: “I like your style. Standard Bank is getting closer to us.”

Khayelitsha’s estimated one million residents have access to only 12 bank branches and 64 ATMs, of which more than half belong to Standard Bank. The bank shops have nearly tripled their access.

In the short time we were there, a new customer signed up every few minutes. Their main motivation was that the Standard Bank mobile money account carries no monthly fee. The costs of transacting are relatively low: no deposit fees and a withdrawal fee of 1% of the value — R1 to withdraw R100 — with a minimum fee of 50c.

“FNB eats my money and it’s too far,” one new customer gave as the reason for opening an account. His plan is to withdraw his cash from FNB each month and deposit it into his Standard Bank mobile money account.

Another customer complained about Nedbank’s high fees, whereas one woman, who has an account with both FNB and Capitec, said she liked the fact that she did not have to provide proof of her address. The mobile money account takes advantage of the Financial Intelligence Centre Act’s exemption 17, although customers will have to register their accounts if they want to carry higher balances.

Lessons from the past
Since its launch in October, Standard Bank has signed up 400 000 customers for its mobile money account and is getting about 45 000 new clients a month through it 8 000 bank shops. It aims to roll out lending and savings products over time.

Although this may sound like a banking revolution, mobile providers such as Wizzit and MTN banking (a partnership between Standard Bank and MTN) have been there before, and the mobile money account borrows heavily from their models. These providers learnt that it is one thing to get clients to open bank accounts but quite another to get them to transact.

At present, only about 48% of bank-shop accounts are active — by definition, this means the account must have a positive balance and there must be at least two transactions a month.

The bank-shop owners reveal that the bulk of these transactions tend to be the purchase of airtime and electricity. They say customers are not yet comfortable with depositing and withdrawing cash through their cellphones, and it will take time to get them used to a new way of banking. Unless there is enough education and the critical mass necessary to create a word-of-mouth network, these accounts could just lie dormant, costing the bank money.

That said, the concept of inclusive banking has proven extremely successful in other parts of the world such as India, Brazil, Mexico and Bangladesh. The concept is that you tap into the infrastructure of the community and keep the money circulating within that community. FNB’s strategy to place mini-ATMs in rural shops, with the money dispensed by retailers, has also proven successful, especially for paying out grant money.

Leon Barnard, head of inclusive banking at Standard Bank, believes it will become a major revenue stream for the bank by 2015. Its strategy is to tap into the bank’s existing client base of big manufacturing and agricultural businesses, which pay cash wages, by offering workers low-cost mobile banking. This is a refreshing change from the previous attitude that considered low-cost banking a social cost rather than an opportunity.

How it works in practice
To deposit money, customers hand over, say, R50 to the spaza-shop owner and supply their bank account number, which is the same as their cellphone number but with one additional digit.

The shop owner uses his or her cellphone to transfer R50 from his or her account to that of the customer, who immediately receives an SMS to confirm the transfer and new balance. To withdraw money or pay for an item, customers transfer funds to the spaza-shop owner’s mobile money account and receive the cash or item.

Spaza-shop owner are effectively managing the cash that simply circulates through their customer bases. This reduces the cost of cash management for the bank.

When opening a mobile money account at the store, clients also receive a debit card that can be used at any merchant for a cost of R2 a transaction. Compare this to Standard Bank’s ATM fee of R4.90 or R7 at another bank’s ATM.

When buying airtime at bank shops, customers receive the full rand value of the airtime purchased. In turn, shop owners earn a commission on the sale of the airtime, which provides them with additional income.

Bank shops facilitate money transfers to other bank shops throughout the country. The R10 cost is the same as a money transfer through Checkers-Shoprite, but the difference is that customer does not have the transport costs of travelling to the nearest retail centre.