This post is written by Nimrah Karim, SBI Associate Consultant based in Karachi, Pakistan.
In late January, members of SBI’s management and ADC practice teams were joined by representatives of United Bank Limited (UBL) and the Bill and Melinda Gates Foundation in Johannesburg, South Africa for the quarterly Advisory Group meeting for the UBL Omni Branchless Banking project. As most readers may already know, UBL Omni is the largest bank-led branchless banking provider in Pakistan, and has received generous financial support from the BMGF for a two year project to develop a strategy that will cater to the poor and underserved in Pakistan. The meeting was set up in Johannesburg to provide an opportunity to stakeholders of the UBL Omni project to learn about branchless banking initiatives in South Africa, home to some of the pioneering initiatives in this space. To this end, the team visited ABSA Bank and WIZZIT to candidly share the realities, challenges, and learning from experiences in branchless banking in both South Africa and Pakistan. Some key insights are highlighted below.
Low-limit Accounts: In 2004, South African commercial banks were mandated to offer minimum know-your-customer (KYC) requirement “Mzanzi” accounts to any customer that applies for one, thereby eliminating barriers for the formerly unserved in opening a bank account. While uptake has been strikingly successful—on its own, ABSA opened accounts for 7 million people, for whom many are first time accounts—the Mzanzi Initiative has proven to be largely unprofitable due to high inactivity ratios (42% lie dormant). Similarly, in 2005 the State Bank of Pakistan (SBP) required banks to introduce “Basic Banking Accounts” with a minimum set of banking services and no limit on minimum balance. While outcomes of this national initiative are not clearly documented (and would make for an interesting study), it is clear that the objectives of the SBP were not exactly met, since the low-income masses did not avail the opportunity. In the meantime, of the 160,000 branchless banking accounts opened in Pakistan in the past two years, only a third are active. These experiences depict that promoting uptake and regular usage of accounts targeting low income groups is a common challenge. Within our forum, a consensus emerged that a heavy focus on customer education is required to address the problems of low uptake and inactivity, coupled with effective communication of the value propositions of account services, and more strategic focus on part of the providers and the regulator in shaping these initiatives.
Payments Services: Over-the-counter payments services of South African providers, such as money transfer, airtime purchase, and bill payments, cannot be used by non-account holders. In Pakistan, regulations allow more flexibility, and branchless banking providers have been pushing transaction services more aggressively than accounts due to the former being more lucrative.
Account Opening Procedures: In South Africa, regulation does not allow non-bank employees to open accounts; ABSA accounts are opened at their branches, at a post office, or by leveraging a cutting-edge technology solution in the form of a Samsung Galaxy tablet. The latter method, or “Remote Opening Capability,” enables sales agents to open accounts at the point of contact with their customers, and can also be done in very remote areas without cell phone network coverage because the application can be saved on the device until network connectivity is established. WIZZIT, being a “virtual” bank without any branches, deploys a sales force of 8,500—WIZZkids who use mobile phones to open customer accounts and complete KYC forms, and follow up with visits to their kiosks to make photocopies of forms and photo IDs. In Pakistan, regulation allows non-bank employees, or “agents” to open accounts on behalf of the bank. It would be worthwhile to investigate the cost of using human resources within the bank vs. outsourcing this job to a third-party, or to agents, as is the case in Pakistan.
MyCity Cards: ABSA has introduced “MyCity cards,” which can be purchased from a store without any KYC procedures, and are available for use on local transportation, to tap and pay. The card can be activated to enable use of ABSA’s full suite of banking services, by visiting the post office or an ABSA branch and completing KYC procedures. What’s interesting about this is that a simple, off-the-shelf purchase activates a virtual relationship with the bank. In other words, purchase of the card and its regular use is the first hook. If at some point, the consumer finds the need for a bank account, it is already in his wallet – it just has to be activated.
The learning tour was a meaningful opportunity for the delegates to learn how different branchless banking implementations approach financial inclusion, the lessons learned, and the challenges faced. The visit also let the team witness first-hand how the government’s policy position significantly influences the way the branchless banking space evolves. It will be interesting to note how the key differentiating elements between the South African and Pakistani markets will shape the success of branchless banking in both countries.