Bankable Frontier Weblog

The Banking Association of South Africa recently announced that 1 million new Mzansi basic bank accounts have been opened since its launch last October: this was an average of over 6000 new accounts per working day. Most of these were by people who were not previously banked, adding 4% to SA’s banked population and probably taking it right up to the 50% mark. (The earlier milestone announcements around Mzansi have also been covered in this blog.) The latest milestone has even attracted the attention of The Economist.

Meanwhile, one Brazilian bank, Banco Popular, mentioned in another recent announcement that it had opened 1.4 million new basic accounts in nine months of operating at a commercial scale. This is an average of over 7000 accounts per day over a very similar period to Mzansi issuance; and adds perhaps 1% to Brazil’s banked proportion. A previous blog post on Brazil discussed some of the financial access issues there.

A fascinating race of sorts is developing to bank the unbanked in these two upper-middle income countries, which share many similarities: among others, developed banking systems and governments which prioritize the problems of social and economic exclusion. Because of these and other common interests, SA and Brazil have formed, with India, an intercountry Dialogue Forum (the so-called IBSA Forum) supported by a trilateral commission. The Forum discusses issues of common interest in the international and development arena.

Will the Forum discuss the bank account race, I wonder? What makes the race so interesting to watch are the different public-private dynamics and the different approaches being taken.

First, in terms of public and private banking: in SA, Mzansi accounts are issued largely by the country’s four large privately owned banks, although around a quarter of openings todate have taken place through the only national state retail banking institution in SA, Postbank. In Brazil, Banco Popular is a newly created subsidiary of the giant state-owned Banco do Brazil, and competes with another massive state owned retail bank, the Caixa, to issue basic bank accounts. Not that the Brazilian private sector is out of the race: Bradesco, through its Banco Postal alliance with the Brazilian Post Office, also offers basic bank accounts; and Limonbank is a relatively new startup in the same space. There is no obvious crowding out of public by private in Brazil, while SA banks fear their viability in this market in competition with state-owned Postbank. In SA, too, however, there are other private basic bank account offerings which do not fall under the Mzansi brand, as reported in a previous blog.

Second, the Brazilian banks are expanding their presence mainly through the use of others’ infrastructure: using point of sale type devices in the premises of banking correspondents, who are mainly retail stores, to open accounts, take deposits and withdrawals. Banco Popular, for example, already reports 6000 points of presence (and a very small staff) after not much more than a year; the Caixa (12 000 plus) and others have many more. In SA, the outreach happens through bank branches and bank ATMs primarily, with most of the large banks recently reporting large increases in their spending on infrastructure to raise their coverage. This is an expensive approach, compared with the Brazilian one, given that the ratio of branches and ATMs to country area is not markedly different in the two countries.

Given these differences in ownership and approach, how does this translate into product features and cost to the consumer? Menus of bank charges are complex and notoriously difficult to compare, especially across country. Banks in both countries appear in general not to charge for opening the basic accounts, but they do charge per transaction (around $1 for an ATM withdrawal is quite common in both countries), at least after certain usage thresholds are reached. The big difference lies in the thresholds: while SA banks allow only one free cash deposit into an Mzansi account per month, Brazilian banks typically offer a larger bundle of transactions free. For example, Banco Popular allows twelve: four withdrawals, four statement enquiries and four deposits.  However, other Brazilian banks at least charge an active account maintenance fee which ranges from around $2 per month upwards, although this may be bundled with free transactions; Mzansi has no monthly fee.  In terms of convenience of access, the services offered via Brazilian banking correspondents on basic bank accounts are much wider than currently supported by Mzansi; although it is envisaged that Mzansi’s offering will evolve.

It’s the basic bank account derby!  (Photo from http://horseracing.about.com/)

The ‘race’ to bank the unbanked is barely two years old in both countries. Yet already the results reported suggest high performance by the participants, public and private. This race is well worth watching by all with an interest in expanding access to financial services.