FinScopeTM SA 2005 Survey Findings Launch 25 October 2005

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FinScopeTM SA 2005Survey FindingsLaunch25
October 2005
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FinMark Trust Perspectives

• Mark Napier
• Chief Executive
• FinMark Trust

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FinScope Objectives

• Track changes between 2004 and 2005 (based on 16
  age group) with emphasis on the financial sector
• Understand factors influencing the financial
  services sector employment, poverty, access to
  services, living standards and the like
• Understand who is engaging in the financial
  services sector who is using what?
• Understand the reasons people are not using
  financial service categories
• Determine how people are engaging with financial
  service categories
• Understand the different needs and behaviours of
  people through segmentation the Financial
  Services Measure (FSM)

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2005 syndicate members
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FinScope 2005 suppliers
Prof. Dawie Stoker
Graphical report sponsors
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FinScope Robust study

• Nationally representative sample of 3,885
  respondents
• Area based sample, drawn by and results and
  weights verified by Prof. Dawie Stoker

Unemployment figure based on those people who
are unemployed and looking for a job
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Financial Sector Charter targets

• Effective access - 20km to nearest service point
• LSM 1 5 80 access to transaction products and
  services
• LSM 1 5 80 access to bank savings products
  and services
• LSM 1 5 (a percentage to be agreed) access to
  life assurance products and services
• LSM 1 5 1 plus 250 000 access to formal
  collective investment savings products and
  services
• LSM 1 5 6 access to short term risk
  insurance products and services

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Financial Sector Charter Personal income by LSM
group
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Financial Sector Charter Population by LSM
10
Financial Sector Charter Racial dispersion by
LSM grouping
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Financial Sector Charter LSM 1-5 by geographic
area type
79 of population falls into LSM 1-5
3.4m
52 unbanked
4.4m
60 unbanked
71 of population falls into LSM 1-5
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Financial Sector Charter Insurance penetration
by LSM group
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Financial Sector Charter LSM 1-5 in summary

• 63 (19m) of adult population
• 79 of whom have monthly incomes of less than
  R1,000
• but of whom 21 (4m) have incomes of between
  R1,000 R6,000
• 94 black
• 10,3m living in rural areas
• 68 unbanked 95 uninsured, long or short
• 3,1m child grant recipients (total 3,6m)

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Access strand of financial services
Developmental frontier
Formally served (55)
Financially excluded
Black Female 30 44 years Tribal land LSM 1- 4
Black and coloured 16 29 years Tribal, rural
and urban informal LSM 1 - 6
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Challenges to extending the access frontier

• Poverty
• Unemployment
• Physical access
• Financial literacy
• Negative perceptions

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PovertyPersonal income
Three quarters of population receives income of
less than R2,000 pm

• 39 of average household incomes less than
  ltR2,000 per month
• Average household size of 4 suggests 2.50 a
  day per head

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PovertyGone without basics
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Unemployment
Unemployed 31
Formal 27
Informal 13

• 8,6m people are looking for work (1 person in
  every second household)
• 42 are between 18-29
• More than 89 of those working full time in
  formal sector are banked
• 80 of those who are unemployed are not banked

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Physical accessHave access to a bank nearby
Brazil and SA equivalent branch and ATM density
per 1000 sq km but almost half by population
density

• Physical access to banking tracks the
  formal/informal divide
• Takes twice as long (37mins) for people in
  tribal land to get to a bank
• Costs of banking have to take this into account
  
• Insurance 22 say nowhere close to make
  payments/buy service

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Financial literacy

• Low awareness of terms such as debit card,
  insurance and interest rate payable
• Personal visit by financial services company
  (48) is preferred medium of communication
• A third of population want to learn how to be
  able to save more
• Thirst for knowledge is greatest between FSM3
  and FSM5
• Face-to-face money advice?

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Negative perceptions and experiences

• Banking
• service fees (61)
• long queues (68)
• only 51 say banks show respect
• Insurance
• cannot get money quickly (25)
• only 11 say insurance companies show respect
• Microlenders
• dont understand how they work (30)
• not understanding when payments cant be made
  (20)
• too much credit and service fees too high (17)

• Not surprising that negative perceptions exist
• Uniformity of views is striking

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Life insurance

• Backdrop
• death or serious illness of main wage earner
  likely (14)
• 20 have lost a family member in the household,
  40 outside the household
• job loss of main wage earner also likely for
  14
• 78 have no medical cover
• perceptions of precariousness
• Perceptions not all negative
• 17 dont use but would like to
• Trust in life companies as preferred source of
  advice

• Surprising that penetration of formal insurance
  is as low as it is only 13 have some form
  of life product (4 in LSM1-5)
• 33 do not want life insurance

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Life insurance

• 69 say they cant afford it
• Skipping premiums to make up the difference
  later not an option for a quarter of people
• Low levels of understanding
• One third do not understand how life insurance
  companies work
• 43 would want to be sold insurance by a broker
  or a company representative
• Affordability concerns suggest need for trust
• Consequences
• More affordable products
• Product innovation to meet needs (eg job loss)
• Distribution needs to retain some personal contact

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Short term insurance

• Low penetration
• 92 have never had car insurance
• only 6 have household contents
• short term insurance virtually non-existent in
  the black population
• even FSM4 (90 banked, full time formally
  employed) 3 usage
• Reasons for not insuring
• affordability (46)
• dont need it (30)/nothing to insure (5)
• 31 say they dont understand how it works

• Short term insurance mainly a white and Asian
  market
• Will consumerism change peoples attitudes
  towards short term insurance?

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Banked/unbanked

• Greater rate of growth in banked adults than in
  the population growth from the available
  population estimates in 2004 to estimates in 2005

increase
No. of banked adults in South Africa (2005) 14
324 508
4.0
No. of banked adults in South Africa (2004) 13
765 690
(Anyone who currently uses ATM/Debit/Credit
card, a Savings Book/Post-Office
Savings/Savings/Transmission Account,
Current/Cheque Account, Fixed Deposit, Garage
Card, Money Market account or a Mortgage, Mzansi
account 2005 only)
No. of previously banked adults in South Africa
(2005) 3 765 935
1.2
No. of previously banked adults in South Africa
(2004) 3 721 274
Unbanked
No. of never banked adults in South Africa
(2005) 12 621 808
-1.2
No. of never banked adults in South Africa
(2004) 12 767 299
No. of un-banked adults in South Africa
(2005) 16 387 743
-1.0
No. of un-banked adults in South Africa
(2004) 16 488 573
Total population size (2005) 30 712 251
1.0
Total population size (2004) / 30 254
264
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Banked/unbanked

• There is a slight increase in the percentage of
  currently banked people from 2004 to 2005
• LSM 1 5 shows the same percentage of currently
  banked people as in 2004 (32), and

• Growth is coming from FSM 3, black males, rural
  formal
• Emerging gulf between FSM1 and 2, and FSM 3 and
  above

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Characteristics of the unbanked
80 black 23 KZN 83 ltR1000 56 urban formal
12
89 black 23 KZN 93 ltR1000 43 urban formal
47
41
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Awareness of Mzansi(as at July 2005)
551,000 say they have the account 469,000 are
using it 193,000 (35) new to the banking
industry 90 of users say Mzansi is more
affordable 27 say they dont know enough about
it 68 say it is not for people with higher
incomes
2
11

• Undercount against BASAs figures
• a study of perceptions

54
33
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Reasons for not bankingBank vs Mzansi
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Cash

• 47 of money received does not end up in a bank

• Cash is bypassing the banks
• 25 of banked 3,6m - withdraw all of salary
  as soon as paid

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Cash

• Strong adherence to cash overall
• 83 of clothing purchases
• preferred payment means for life and short term
  insurance
• FSM 3-6 split loyalties towards cash
• Highest incidence of stokvels and burial
  societies
• but also of bank savings accounts
• Thirst for financial education highest in these
  groups
• Debit card usage - 92 of FSM5 have an ATM card
  but 67 have never had a debit card
• debit cards not in the Top10 of transactions
• ..but debit card usage now 14 (up from 10)
• 30 of banked population using debit cards

• Convenience of cash outweighs safety concerns
• Cash-based financial instruments in informal
  sector
• Tipping point for FSM3-6?

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Retail

• The most popular form of financial service after
  bank accounts
• ..but 28 say too much credit
• Strong demand from black population for funeral,
  education and savings products
• FSM 3-6 shows incidence of approximately 41
  store card usage
• LSM 1-5 shows incidence of approximately 38
  store card usage

• Clear evidence of potential for retail-based
  financial services
• Real competition for banks (Dedicated Banks
  Bill) or opportunities for alliances

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Cellphone access

• Usage rises through FSM tiers in total, 49
  either have their own cellphone or can access one
  through a friend
• Above average usage of pre-paid phones in FSM
  3-5

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Understanding cellphone banking

• Low awareness and understanding of cellphone
  banking among unbanked a marketing challenge

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Understanding technology
Total population

• People have mixed attitudes towards technology
• Most say they are prepared to use it but many
  people still prefer dealing with people face to
  face

• Trust levels are high for a new product
• Expectation that the cost of banking will fall
  with cellphone banking

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Summarising the changes

• Over half a million new bank accounts (up 4,
  mainly non-Mzansi) but the adult population is
  also growing
• Mzansi making an impact but creating mixed
  opinions
• Clear interest in cellphone banking as access to
  cellphones grows
• Retail financial services showing steady growth
• Informal product usage slowly declining but
  loyalties strongest in middle tier FSMs
• Much has not changed
• Low incidence of formal insurance
• Some (but not all) demographic indicators have
  got worse
• Life not close to ideal
• Gone without cash
• Loss of family members

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So what does it all mean?

• Access targets for banking now seem very distant
• Accessibility will far exceed active usage by
  2008
• 1 increase in banked
• 46 can easily live life without a bank account
  27 of currently banked people agree with this
  statement!
• Mzansi clearly not the silver bullet
• Adherence to cash continues
• Convenience of cash is compelling
• Where are the debit cards?
• Expectation of price competition
• Mzansi and cellphone banking
• Watch the FSM 3-5s!
• Many already banked but they are hungry for more
  products and more knowledge
• Need for cheaper, simpler products, especially in
  insurance
• Financial literacy
• Urgent need for financial literacy support across
  the industry
• Convenient access to money advice

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FinScope developments

• Spin out FinScopeTM South Africa
• Academic host
• Multi-funding deal
• Africa expansion
• Tanzania, Uganda, Zambia, Kenya
• Ghana, Nigeria
• FinScopeTM Small Business Study
• Pilot in Gauteng province
• FinMark Trust and Gauteng Enterprise Propellor

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Thank you