Presentation outline

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(No Transcript)
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Presentation outline

• Background
• The National Basic Banking Account
• The National Money Transfer Product
• The way forward

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Derek Coopers Nedlac Address

• The financial sector is like the oil in an
  engine. Without oil the economic engine will
  function defectively, if at all. So all the parts
  of the engine are entitled to know whether the
  oil is going to play its role enthusiastically,
  or reluctantly. On this auspicious occasion, we,
  the financial services sector, therefore commit
  ourselves to working in partnership with
  Government, labour and the community to bring
  about those changes.
• For us, this day is a very significant one that
  signals a new beginning. We would like to express
  our confidence in our social partners, and we
  commit ourselves to working in service of the
  broad interests of the economy of which we are
  merely a reflection. The time for excuses
  political, practical or otherwise has passed,
  and has been replaced by an urgent need for sound
  decisions and delivery in all sectors.

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Transformation in outlook

• Position pre 2002
• Harsh Reality We thought 1994 legitimised the
  maintenance of the status quo.
• Despite ongoing efforts to harness technology and
  appropriate processes the industry has been
  singularly unsuccessful in delivering a banking
  product for low income earners which satisfies
  all stakeholders
• Position post Summit declaration
• Shift to maximising our contribution to
  sustainable development
• Committed to establishing nation-wide access to
  basic financial services
• Jointly research economics of basic financial
  services
• Development and utilisation of sustainable
  institutions to serve poor communities

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Government requirements

• Clear commitment to social and economic
  development of all South Africans
• Views access to financial services as key
  prerequisite and driver for social and economic
  development
• Recognises simultaneous need for market
  efficiencies and maintenance of market stability

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Banking industry requirements

• Constantly engaging in and developing new markets
• Have begun to service under-serviced or unbanked
  on increasingly commercially sustainable basis
• Through Interbank initiative reviewed current
  offerings and extending first-order offerings
• Solution within framework of commercial
  sustainability in long term

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Current products and services

• The needs of under-banked market met to extent
  but not adequately
• 6 million individuals access banks current entry
  level products
• Basic-banking remains inaccessible to significant
  segment of population
• Reasons for remaining outside formal banking
  industry varied
• Not all reasons are due to non-existent or
  inappropriate banking solutions

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Reasons for being unbanked

• People do not have enough money
• People are not regularly employed
• Bank charges too high relative to the market
• Difficult to open accounts too many
  requirements and increasing
• Minimum amount in account
• No need for account
• Traditional banks and access point not always
  convenient
• Staff dont speak own language
• Source FinMark research

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High level principles

• Preferred engagement of market in competitive
  space
• Co-operative solutions required where needs not
  met by market
• Access to as many South Africans as practical
• Subscribe to sound business practice
• Accepted by market through appropriate
  consultative process
• Complimentary to existing community-based and/or
  banking solutions
• Existing infrastructure to be used as far as
  possible
• SAPO and Postbank to play appropriate role
• Public-private partnership
• New technologies and innovations encouraged

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International best practice

• Focused on opening of bank accounts
• Basic products offered
• Limited transactions allowed
• Impetus from central government
• Not seen as income generating
• Role of incentives/subsidies
• Rewards for participating
• Post offices and current infrastructure part of
  solution

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Key issues relating to accessibility

• Reach
• Price
• Empowerment
• Upgradability to other financial services at an
  appropriate time
• Advanced money transmission
• Credit
• Insurance
• New channels and delivery approaches

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Business solutions

• Address those barriers to banking that are within
  control of banks (and SAPO)
• Solution would need to be
• Specifically targeted at core needs
• Ensure a lower affordability threshold
• Improve geographic access through wider
  distribution footprint
• Be simple to understand
• Ensure client trust in solution

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Targeted at the core needs

• Two key requirement sets identified
• Access to and ability to store value, to preserve
  the principal savings amounts and obtaining
  reward/return for such stored value over time in
  affordable and accessible manner
• Access and ability to transfer value from
  unbanked to unbanked, from banked to unbanked
  anywhere in South Africa
• Addressed through design of two new products
• National Banking Account (NBA)
• National Money Transfer Product (NMTP)

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Improved geographic access

• Commitment to improving physical access in
  business solution
• Extending access component of Financial Services
  Charter. 2008 80 of LSM 1-5 effective access to
  savings products
• Extending combination of branches (mainly in
  terms of SAPO outlets), ATMs and Points-of-Sale
  into presently under-represented areas
• Interoperability key feature in extending
  footprint. Proposed that Saswitch transactions be
  available at all participating banks or outlet
  branches (second phase)
• Single charge structure for all ATM transactions
• Role of 2nd and 3rd tier banking organisations in
  terms of extending access

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Simple to understand

• National Banking Account
• Simplified in comparison with other entry-level
  offerings
• Restricted to basic services, i.e. deposits,
  withdrawals and enquiries.
• Pricing standardised - common prices for branch
  and ATM transactions
• Account opening procedures streamlined
• National Money Transfer Product
• Simplified in comparison with other entry-level
  offerings through
• Pricing being standardised across bank and SAPO
  network
• Transaction origination and receipt standardised

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Ensuring client trust in solution

• National brand
• Originating banks logo - leveraging high levels
  of trust that exists in major brands
• Each participating bank to review customer
  interfaces and ensure customer segment made to
  feel welcome and educated in effective
  utilisation of new account
• Effective customer education by government
  critical success factor

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National Banking Account

• Standardised first-order banking product
  meeting most basic savings and transmission needs
• Functionality identical across banking industry
• Standardised and simple pricing
• No monthly maintenance fee
• Modest interest rate structure
• Capital preserved for clients that save
• Transactors pay only for transactions incurred

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NBA - Business model

• Each bank develops NBA product on existing
  platform
• ATMs remain interoperable at SASWITCH level i.e.
• Withdrawals
• Balance Enquiries
• Further phase of project
• Saswitch functionality may be enhanced
• acceptance of deposits
• provision of mini-statements
• Saswitch functionality may be extended to branch
  tellers
• Saswitch functionality may be extended to POS
  devices

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NBA - Functionality

• Transactions specifically included
• Deposits
• Receive Electronic Fund Transfers (EFTs)
  (including Social Grants)
• Cash withdrawals
• Balance enquiries
• Mini Statements
• Debit card transactions
• Transactions specifically excluded
• Outgoing EFTs
• Full monthly statements via mail
• Stop orders
• Debit orders
• Bill payments
• Inter-account transfers
• OTC self service cheques

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NBA - Increases in pricing

• Charges
• Average CPIX for previous 12 months - annually
  effective 1 January
• Interest rates
• To be reviewed by Banking Council changes in
  Prime interest rate

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NBA Other issues

• Card standards
• Magstripe
• Debit card functionality
• Branding
• National brand adopted as hero brand
• Bank brands adopted as subservient brands
• Card association brands will be adopted as long
  as done without increasing cost of delivery
• Product management
• Vest either with Banking Council or a Steering
  Committee

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Decentralised model

Interoperable at enhanced SASWITCH level
Deposits
Withdrawals
Balance Enquiries
Mini statement

Enhanced Saswitch Settlement functionality

Each bank develops
NBBA p
roduct on
existing platform

Each Bank enhances
SASWITCH
F/E to acknowledge
Saswitch transactions
Bank 1
Bank 2
Post Bank
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Decentralised model

• Pros
• Full utilisation of existing capabilities
• Limited new development quicker implementation
• Propagating existing branding and national
  branding
• Solution within banks experience
• Seamless upgradability
• Utilises existing management structures
• Facilitates innovation, best international
  practice and competitive energy
• Banks embrace and build direct relationships with
  low income market
• Cons
• Development required for branch interoperability
• Duplication of development
• Slightly lower level of interoperability

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Need for money transfer
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National Money Transfer Product

• Ability to transfer funds using banking
  infrastructure
• Product features
• Bank account not required
• Originated/received anywhere including SAPO
  branches
• Attractive for receiver
• Safer cheaper
• Continuity and integrated for payer and payee
• Delivery channel Branch, ATM - possibly other
  channels
• National only
• Per day limits for amounts and transactions
• Accessibility
• Broad reach
• Interoperability to exist between role players

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Next steps

• Approvals
• Transformation Committee of Banking Council
• NEDLAC partners and Financial Services Charter
  participants
• Implementation
• Product
• Areas of competition vs. areas of co-operation
• National brand
• Department of Social Development Agreements with
  other "mass" users
• Technology effect on product
• Regulatory, legal and tax
• Competition Commission
• National Treasury - tax exemption
• FICA exemption
• South African Reserve Bank- Regulatory acceptance
  of structure     
• Governance rules for ongoing management, new
  entrants etc

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Next steps (continued)

• Implementation (continued)
• Card
• Card associations
• POS distribution network
• HANIS-project and EMV developments
• Infrastructure
• Setting targets and establishing methods of
  measurement
• Deciding between joint infrastructure as opposed
  to shared infrastructure
• Determining role of other service providers
• Extending functionality
• Timing
• Before end 2004

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Thank you