Bankable Frontier Weblog

This blog regularly follows the evolving roll out of basic bank accounts in several strategic emerging markets, such as South Africa and Brazil. SA banks’ Mzansi accounts have to date appeared to many like an unqualified success—over 1.3 million new accounts opened in less than 9 months. This is potentially a 10% increment in the total number of banked people in the country, since most of the accounts were opened by people who had at least not banked at that bank before (although they may have banked elsewhere). Mzansi has been one of the few large scale initiatives targeting improved access launched since the Financial Sector Charter was signed in 2003. It has been cited by senior politicians, such as the Minister of Finance in various speeches, as an example of the fruits of the charter, so there is a lot riding on it.

However, an article by Rob Rose in South Africa’s Business Day newspaper on 1 August 2005 is the first since the launch to raise questions which qualify the success to date. These questions point to some important issues which are at the heart of the banking the unbanked process. Rose lists three main areas of growing criticism of the Mzansi process, which I comment on in turn.

1.      Banks have dragged their heels to allow debit order functionality which would allow account holders to pay bills or make transfers electronically.  In fact, one Mzansi issuer, the state owned Postbank does offer this feature; that the other private issuing banks do not, demonstrates their concerns that they may cannibalize their existing (higher fee) account base. In Brazil, electronic payment functionality usually does exist for basic accounts.  The underlying issue here is whether the transaction banking market can be segmented into markets for basic and extended functionality. The answer in most markets is probably yes. In SA’s case, it is made more complex because the market already has three tiers, with a ‘basic plus’ level between basic (Mzansi) and full service/ checking. At the ‘basic plus’ level, offerings such as E-Plan have brought debit card accounts to millions of formally employed citizens in the 1990s. A relatively high fee structure has made these accounts money spinners for some banks at least. If this account class is submerged into Mzansi, valuable fee revenue will be lost. And yet this is probably inevitable. The longer banks drag their feet on this, the more they may all lose in the long run by looking defensive and greedy at a time when they are making record profits. However, if they move fast on this, some may even benefit while others lose: a bank such as Nedcor, which has a very weak offering at the ‘basic plus’ level, hence the least to lose, could be a big winner by introducing an extended Mzansi offering.

2.      Banks are now reluctant to allow insurers to use the Mzansi brand for a low end basic insurance product. If true, this is a change on views expressed by banks at the time of the launch of Mzansi. At one level, insurers seem to be seeking a free ride on the back of a very visible new low end brand created at some expense by the banks –by some estimates more than $2m has been spent at industry level creating Mzansi, let alone individual bank marketing and product development budgets. On a narrow view of the issue, banks may be entitled to withhold such rights. However, a mean spirited response here may miss the much bigger potential value created by the Mzansi brand—which is to create a publicly accessible and trusted ‘face’ for appropriate basic financial services. Consumer education initiatives may be built around the brand. There are even positive spin offs to banks from demand for other financial services: people who want Mzansi insurance policies will probably need to have and use Mzansi accounts to pay, which would generate bank fees. In holding on to the early success of the new Mzansi brand too long, banks may in fact damage it. The brand should be licensed (even at a charge) to other financial product categories which share target market and appropriate features.

3.      The account is not cheap: this has been pointed out in a previous blog, relative to say, Brazilian basic account offerings. However, more importantly, Rose says that the account is not even as cheap as the basic bank account issued by private bank Capitec (see previous blog post on Capitec) which has decided to stay outside of the Mzansi process. In other words, if one small bank can come up with a comparable offering which is cheaper than the best effort of the big four banks combined, the presumption is that the big ones must be overcharging. The Mzansi response is that it is a more accesible product than Capitec’s because of interoperability at all 5000+ big bank outlets . The key underlying issue here is: a race to the bottom on account fees is hardly desirable for anyone—not even the consumer in the long run, since service reliability will undoubtedly suffer and the banking system will be debilitated. Mzansi issuers can already compete on the price of most individual transactions.  They should use this to the full, exploiting their different appetites and comparative advantages, while extending the key interoperability privilege to all—including Capitec. In this way, the range of possible pricing will vary—from low to high as with normal debit or credit cards—and the brand will not be tainted by disputes around the overall pricing regime.

Rose’s conclusion: “What all this illustrates is that the jury is still out on Mzansi. And the recent behavior of banks in coveting the Mzansi brand, and seeking to protect their margins in this low cost initiative will again bring their commitment to transforming the industry into question.” 

Rose’s article suggests that this important new initiative is entering a critical phase. Its early success may be its own worst enemy right now. Flushed with success, the main Mzansi issuers may lose sight of the real prize for banks:  that they are regarded by government and civil society as partners in a national development effort, with the continued freedom to price products and select customers as they chose. The alternative would be very costly to all. Any wavering now on the part of banks who either think in 2005 that they have now ‘done their bit’ or else are jealous to protect the unexpectedly valuable brand or product created, will rapidly sour the positive environment created by the Financial Services Charter. It would also waste a golden opportunity.

In my view, the time is right for the Mzansi brand and process to be devolved as fast as possible: from the being a somewhat loose industry consortium run within the Banking Association to a dedicated association, similar to VISA or Mastercard, but with a narrower focus on reaching new customers with appropriate financial services. This body would set the rules for interoperability, which could include Capitec and others, and determine the usage of the brand, which could include insurers (at a price). Only such independence around a far sighted vision of broadly accessible financial services will ensure that Mzansi realizes the opportunity it still has.  “If you love something, set it free…”