13 March 2018 – There are many opinions about the future of banking in South Africa, let alone about the broader financial services sector on a global scale. Amidst the backdrop of the “FinTech” hype and the “Fourth Industrial Revolution”, it’s a challenging task for large banks around the world to prioritise which strategies to invest in to ensure not only their financial growth, but their survival as an organisation.
“Due to the proliferation of cash as a payment instrument in South Africa, this task is arguably even more challenging for banks who incur costs to run the infrastructure to process this cash through bank branches and ATMs among other channels” says Michael Vacy-Lyle, CEO of FNB Business.
Irrespective of which research paper you read, most of the cash in our economy changes hands as the preferred payment method in what is known as the “informal sector”, sometimes also referred to as the “township economy”.
This is the segment of the South African economy that consists mainly of lower-income individuals who often earn their income in cash, and in-turn use this cash to spend at businesses using this cash. A regular example of this is a worker who earns a cash wage, and then spends part of or all this cash with local community businesses such as general stores or taverns (“spaza shops” or “shebeens”).
The term “informal” came about mainly referring to such cash trade not entering or being visible to the formal financial system, which includes not being deposited into bank accounts. Often this cash is originated via the formal financial system such as salary payments or social grants, but is withdrawn as cash to pay for goods and services.
“Many global business banks and digital business banks often see the cash situation as highly unfavourable and even as a “no-go” due to the number of unknowns and nuances pertaining to this informal sector. FNB Business sees this is an incredible opportunity, a South African situation which needs to be embraced, better understood and solved for, not ignored. It’s unfair to label businesses in this sector as informal just because they trade in cash. These businesses and their networks are very sophisticated and well established,” says Vacy-Lyle.
So much so, that FNB Business have changed the way they refer to it – they see it as the “Unseen Economy” – a multi-pronged calling to lead and provide innovative solutions to business owners in this segment that will ultimately help them to grow for the betterment of these communities.
“The way we see it is that we have a duty as a financial services institution to help business owners in all segments of the South African economy, by offering them products, services and solutions which are relevant and will enhance not only their business, but their communities,” he adds.
It is a tough sell convincing a business in this sector that only deals in cash, and has a very healthy and established business to adopt formal financial services products. These businesses use the cash they receive from customers to pay their suppliers for stock – so they are very content with how they operate and often don’t see the benefit of depositing cash and paying banking fees or keeping formal records of their business.
“Through many customer immersion exercises including literally walking the streets and interacting with businesses, we have changed the way we see this segment – we want to help businesses in this market by providing them with relevant financial products and solutions, offering real value. We want our products to become so relevant to this market that the benefit far outweighs the cost of the product,” Vacy-Lyle explains.
Although many banks have indicated their intention and even attempted to enter this segment, FNB has already begun development of products it plans to launch into this market.
“We are looking at innovative solutions that address the specifics of this market and take into consideration the risk. This includes lending to customers that don’t necessarily have any history of banking with us. We are also increasing card acceptance by businesses which will help displace cash usage and introduce rewards for consumers. Lastly we are also designing for the broader supply chain integration to facilitate trade between these smaller businesses and larger businesses,” he says.
FNB Business has made great strides with innovative solutions that solve real angst with business owners. Examples of this include its Instant Accounting software which it offers for free as an integrated accounting system within online banking, as well as its CIPC solution which enables businesses to be registered at account opening.
“We are incredibly excited and intent on solving for this customer segment, by offering relevant products and services that we truly feel will help businesses in this space. We have allocated significant resources and focus on making this work and are currently evaluating several business cases across transactional, lending and insurance that will see us launching several products into the market in 2018,” concludes Vacy-Lyle.