Digitization of Banking Sector - en route to a cashless Africa.

Branchless Banking in South Africa

28-Feb-2019 | CGAP Research

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. You can see all our postings here for Brazil, Mexico, India, Pakistan and Ghana. Today we continue with our analysis of South Africa and share this summary note on the branchless banking industry.

South Africa has often been used as a case study by those with an interest in financial inclusion. The country has an advanced banking infrastructure with nearly 10,000 ATMs and over 100,000 POS devices deployed. The Government has for a long time been committed to expanding access to financial services to the bottom of the pyramid and around 63% of South African adults now have a bank account, higher than the other countries featured in this series. They have employed a number of policy levers that have helped to achieve this:

The “Mzansi account” – a basic entry-level bank account which has attracted 6 million customers – was launched in October 2004 by the four largest banks as well as the state owned Post Bank as part of a compact between government and the private sector. Recent evidence, however, suggests that a large number of these accounts are dormant and banks complain that the accounts are not profitable. Policy makers and banks are now looking for other approaches to advance the access frontier.

Government payments of R88 billion (USD 11 billion) are made to 14 million individuals – approximately one-quarter of all South African adults every year. Recipients can choose to be paid into a bank account which is the mechanism that has been chosen by one-third of recipients. This has been one of the primary drivers of uptake of banking services, but there is still un-tapped potential to offer financial services to beneficiaries.

The government has also made efforts to promote an enabling environment for innovation. A proportionate approach to KYC procedures for account opening has been introduced by removing the requirement for customers to give proof of address when opening low value accounts and non face-to-face account opening is permitted. The regulatory framework also allows for the use of agents to provide banking services beyond the branch network.

The private sector also sees a huge opportunity in South Africa – a country which accounts for nearly one-third of sub-Saharan Africa’s GDP. But there is still some nervousness about innovating without clearer guidance from the regulator, especially around account opening procedures. Nonetheless, there are some interesting developments in South Africa that are being watched around the world:

MTN and Standard Bank launched one of the first branchless banking services anywhere in the world in 2005 and invested an estimated USD 80 million in the service, but fell afoul of the regulator around their application of KYC standards and saw very low uptake. As a result MTN quietly exited from the service in 2010, although Standard Bank is employing lessons that they learned from the exercise in their Inclusive Banking roll-out.

CGAP’s partner Wizzit has been one of the earliest pioneers in the branchless banking space and provides a debit card and mobile-enabled bank account via its bank partner, South African Bank of Athens, to a quarter of a million customers.

Vodacom have partnered with Nedbank and in August 2010 after several delays they announced the long anticipated launch of M-Pesa in South Africa. They have signed up several retail chains including PEP stores that will open accounts and do cash-in and cash-out transactions.

First National Bank has developed a product that allows their customers to send money from their account to the “mobile wallet” of an unbanked recipient in an effort to bridge the gap between the banked and the unbanked.

Shoprite and Spar have both launched over-the-counter domestic remittance services and may consider offering additional services off the back of this success.

An overview of the landscape for branchless banking in South Africa can be downloaded here.