Beyond bricks and mortar: Leveraging mobile platforms to expand access

By year-end 2011, the South African banking sector boasted nearly 2700 branches, 10,000 ATMs and 100,000 point of sales (PoS) terminals, making for more than 10.7 commercial branches and 60 ATMs per 100,000 adults in the country, according to figures from the IMF. Yet a significant gap in access to banking services remains between well-covered urban areas and more remote zones such as townships and the countryside. Although results in the mobile and internet banking space have remained lacklustre compared to markets like Kenya, banks are fine-tuning their technology strategies to achieve cost savings.

New Avenues

While the share of South Africans banked in the formal sector has grown from 63% to 67% in the year to end of 2012, the challenge now is to increase the means of interaction with clients to encourage more active use of transaction banking services. Internet payments have grown steadily, with the number of shoppers buying products online rising from 53% to 58% in the two years to 2012, according to the MasterCard “Worldwide Online Shopping Survey”. With roughly half of banks’ costs composed of wages and staff benefits – which grew 12.6% year-on-year (y-oy) in the first half of 2012 according to PwC – new channels like mobile and internet banking represent one of the most promising ways for lenders to control costs while driving new revenue growth. FinScope’s annual survey on access to finance found that in 2012 some 88% of banked adults withdrew money from an ATM more than once a month, while only 13% used mobile banking. A more encouraging 25% of respondents withdrew cash from a retail shop using their bankcard.

Mobile Platforms

With a mobile penetration rate in excess of 100% both traditional and smartphones would seem like the ideal channel through which to serve existing customers and develop low-cost transaction-banking services for the 23% of South African nationals who are still unbanked. First introduced in August 2000 with an SMS-based banking service rolled out by Absa Bank, the technology has evolved significantly, with the launch of wireless access protocol (WAP) platforms – based online – in March 2006.

Launched in 2005, Standard Bank (Standard) and MTN’s partnership (MTN Banking) invested an estimated $80m in establishing a mobile banking platform.

The core was the MobileMoney service providing money-transfer services to clients without a bank account.

Following regulatory action alleging infringement of “know your customer” (KYC) rules on due diligence and anti-money laundering, as well as pre-existing technology patents from 2010, Standard subsequently bought out MTN’s stake and fully incorporated the division.

Introducing the AccessAccount platform designed by SAP in March 2012, Standard opened a transactional bank account through a smartphone application that allows agents to open accounts for customers within six minutes. By being able to access clients in more remote areas like townships and rural zones, the platform signed up some 550,000 previously unbanked clients within the first six months of operation.

New Competition

Just as Standard took control of its mobile platform in 2010, Nedbank partnered with Vodacom in August 2010 to replicate the M-Pesa platform, successfully established in Kenya, in the domestic market. A similar platform for transferring money, M-Pesa signed up some 1m clients by late 2012, although only a minor share of these accounts were estimated to be actively used. While the service has signed agreements with several retailers, allowing them to open accounts and handle cash transactions, it only signed up around3000 agents (for a population of over 50m), far fewer than Kenya’s 30,000 agents for a population of 40m. Since 2012 the service has sought to shift its focus to the upper segments of the market in order to improve usage. “South Africa is a market with a very developed banking infrastructure. There are already a lot of mobile wallets on the market whereas in Kenya, the M-Pesa mobile money service was established in an environment where there were no other alternatives,” Mike Brown, CEO of Nedbank, told OBG.

First National Bank (FNB) rolled out its “e-wallet” platform in 2009, a service allowing payments to all major banks, nominated recipients like major retailers, municipal authorities and utility companies, buy prepaid airtime and withdraw cash from FNB ATMs. By September 2012 the bank claimed 4m clients had signed up to the service, which handled R1.6bn ($195.04m) in transactions in the last year.

Smaller specialist banks have also diversified service channels, with unsecured lenders like Capitec and African Bank in particular making a big push. South African Bank of Athens launched its mobile platform Wizzit in 2004, claiming 250,000 clients by 2012, while Capitec registered 2m mobile clients. Capitec published a study in 2012 that found that 39% of surveyed clients used the internet to access their accounts and 5% used its mobile banking platform, compared to 32% through ATMs and 24% through PoS.

FNB was the first to introduce a smartphone application in July 2011, claiming to have some 200,000 users conducting 2m transactions in the first year. Its affiliate Rand Merchant Bank launched its own banking application in April 2012, while Nedbank and Standard followed soon after. Absa is set to unveil its own mobile application in 2013 following delays in back-office equipment. Absa puts the number of customers using its mobile platform at 3.6m, although it claims some 1.3m page views on its mobile banking site, higher than the 700,000 recorded by FNB, according to both banks’ statements in September 2012. Banks have often waived mobile transaction fees to encourage the medium’s use, although mobile banking is still driven by younger customers. “You sit with this divide of middle age to older people still wanting face-to-face contact and younger people preferring virtual interaction. We’re comfortable migrating over time,” Riaan Stassen, CEO of Capitec Bank, told OBG.

Rules & Security

Mobile banking and mobile money platforms have had to comply with KYC due diligence rules and the anti-money laundering measures enforced by the South Africa Reserve Bank’s (SARB) Financial Intelligence Centre. The evolving regulatory framework has focused on prioritising interoperability between mobile networks and banks.

While internet transactions have traditionally only been allowed for credit (not debit) cards, mobile banking has lowered the barriers to payment. Most banks have adopted security systems based on unstructured supplementary service data communication channels, which operate on all phones and networks. Financial institutions are in the process of applying e-certificates as encryption for transactions.

In most cases, a network of agents accredited by banks to open mobile money accounts and handle cash transactions acts as the key point of interaction with clients, placing the onus of KYC regulations on the agents. In addition, steps have been taken to contain risks of abuse, with the SARB placing a cap on the value of transactions and account balances, usually at around R5000 ($609.50) and R25,000 ($3047), respectively, while the stricter KYC rules have also been waived.

Enter The Retailers

Although the growth of mobile money and banking has remained more marginal than in markets like Kenya, promising developments are coming from relationships with major domestic retailers. Partnering with retailers running extensive branches offers banks a ready distribution network. Standard’s partnership with Spar in 2010 paved the way for growing links between banks and retailers, allowing for payment via mobile phone at any Spar outlet. Rather than a push from telecoms operators, retail chains like Shoprite, Spar and Pick’n’Pay have launched instant money transfer schemes in 2012 and linked to mobile money platforms to accept payments.

Interest in the retailers has not come from bank-led platforms only. In November 2012 MTN’s MobileMoney platform announced its partnership with Pick’n’Pay and Boxer outlets, with payment processed by the Bank of Athens and the retailers installing the infrastructure to receive payment via a mobile phone. Free of charge for MTN clients, the operator charges minimal fees for use by customers of other networks. Meanwhile PostBank, a division of the South African Post Office which offers limited banking services, is expected to earn the right to provide full retail banking services from 2013, and this could prompt intense competition for the major retail banks in rural areas and townships.

While mobile banking has not had as much of an impact in South Africa as elsewhere on the continent, banks will still focus on improvements and new means of catering to clients as a way of driving growth. Authorities and banks are also likely to take a more holistic approach. “No one can say financial services are inaccessible anymore, as banks have made a big push into mobile banking, with innovative channels like telephone banking and partnerships with retailers like Shoprite,” Elizabeth Lwanga-Nanziri, CEO of the South African Savings Institute, told OBG. “But the short-term planning nature of many households, unstable sources of incomes and low financial literacy levels might hinder growth of active participation in the financial system.”