With more than a third of the population unbanked, South Africa’s banks are vying to target the segment with low-cost banking products and offers. Gift Manyanga, CEO of First National Bank’s segment-specific branches, titled EasyPlan, discusses with Duygu Tavan the bank’s growth strategies in South Africa and abroad.
South Africa’s traditional banking market is characterised by fierce competition and pressure on margins. By contrast, the low-income market represents a significant growth opportunity with limited competition.
South Africa’s unbanked and underbanked population is estimated to keep around ZAR12bn ($1.8bn) ‘under mattresses’, according to the latest statistics from the South African Banking Association.
To close the gap between the high number of unbanked and semi-banked people, and low lending activity to the segment, First National Bank (FNB) started to roll out a dedicated range of branches, called EasyPlan, in 2009.
So far, FNB, the retail banking arm of South Africa’s third largest bank after Barclays’ subsidiary ABSA and Standard Bank, has opened 67 EasyPlan branches; it aims to open a further 83 units by year-end.
FNB has more than three million customers in the mass market, but, according to FNB, lending to the segment remained a small part of the bank’s business. The EasyPlan branch network has been designed to change all of that.
Easy Plan CEO Gift Manyanga told RBI: “With large numbers of South Africans coming into the banking space after 1994 [the time of the country’s first universal elections], a lot of people chose the big four banks because they had been there a long time.
“But the service [in this sector] was generic and considered to be one size that fits all. Yet, one segment of the market wanted the cheapest banking facilities.”
South Africa’s low-income segment consists of people who earn on average ZAR100,000 per annum. But Manganya said 70% of this segment in effect earn less than ZAR3,000 a month. It is this segment that FNB is catering for with the EasyPlan network.
“We understand what customers need and which environment they feel comfortable in. If the branch looks luxurious, this segment will feel intimidated. But if the branch looks clean, neat and welcoming, they will enter that environment.
“With Easy Plan, we make banking easier and simple for them in terms of pricing as well as operating hours; branches open as early as 7am and close as late as 7pm in the evening.”
The bank offers three main products:
- a basic transactional account with simple pricing and a monthly account fee of ZAR3.95;
- short-term loans that range from one month to 36 months from ZAR250, and offer fixed interest rates and instalment loans and;
- funeral cover.
The funeral cover in particular appeals to the unemployed, who receive funeral insurance of between ZAR5,000 and ZAR30,000 for ZAR15 per month, which the bank pays out within 48 hours of notification of death.
In addition, EasyPlan offers a fixed investment account, for which the client can set the amount to be saved and which they can withdraw with 30 days notice. Manyanga added that EasyPlan would not be raising its bank fees for at least 18 months.
The cost of launching and maintaining a branch network that, as of end-February had more than 60,000 customers and had sold more than 95,000 products by the end of January, is relatively low.
EasyPlan branches cost about ZAR850,000 to roll out, excluding the ATMs, which are paid for by the vendors. On average, a branch consists of seven customer advisors and the total network currently totals around 500 employees.
By the end of June 2012, Manyanga forecast that the number of EasyPlan branch employees would reach 1,500. By the middle of this year, FNB will open 33 branches and another 50 in the second half of the year.
Manyanga said that the success of the branch has, to date, been the result of word-of-mouth marketing.
“We wanted to wait until we had about 70 branches before we launched marketing campaigns. We did a lot of PR and ran advertorials in newspapers. In the next three months, we will hit the media with aggressive campaigns via TV, radio and press.”
In addition to its traditional banking line-up, mobile banking is a key element of Easy Plan’s simplicity-driven strategy.
Little wonder, given that more than 90% of the population has a mobile phone and more than a fifth in effect operate two handsets.
The bank introduced a mobile banking service more than five years ago.
“But with EasyPlan, we entrenched it more,” he said.
The bank launched e-Wallet, a mobile payment service, in November 2009 to offer banking services without the requirement of a physical branch network. So far, 435,000 out of FNB’s 2.4m mobile banking clients have signed up for the service.
But Manyanga emphasised that one of the biggest challenges in the m-banking market was to educate consumers not to reveal their PIN or threaten their financial security in any other way.
Clients can remit a cash transfer via the mobile phone handset while the recipient can then withdraw the money from an FNB ATM, without needing to run a bank account.
Manyanga is confident that the bank’s competitors, such as the country’s fifth-largest banking group, the fast-growing Capitec, are “far off” in terms of innovative banking services and products.
Real-time cash deposit ATMs are also part of the bank’s aggressive push to keep operating costs low by migrating consumers to the electronic self-service channels.
FNB has more than 5,800 ATMs, supplied by NCR and Diebold. The EasyPlan ATM network covers 155 units. Manyanga said that the bank was currently replacing older ATMs. It will also launch around 1,000 additional ATMs in the next 18 months.
“It is a continuous maintenance project.”
Manyanga also revealed that the bank was working on biometric verification for its ATM network.
“We are currently working on a project with the Department of Home Affairs to verify a customer directly through the department’s database. So we’re busy with the biometric service. Once that has been successful within the branch, we will look to migrate that to the ATMs.”
A biometric solution would also come in handy for FNB’s growth ambitions in the rest of Africa.
“We look at different banking models in different countries, but we want to establish EasyPlan in South Africa as a base, then start to expand this in the rest of Africa.”
As brand-awareness is an essential tool to acquire clients, Manyanga said that the bank would have to roll out a traditional branch first.
“In some markets, it will make sense to roll out EasyPlan, in others it will not.”
A major challenge for FNB’s African expansion is lack of formal identity systems in some countries, such as in Uganda – which is on FNB’s radar.
“A bank needs to be very clever and innovative to deal with such as system. You need a biometric solution from day one because that will be the only way to identify people.”
Manyanga said that another challenge was lack of formalised credit bureaus. As a result, FNB is partnering with South African credit bureaus to launch into new markets across Africa. In addition to Uganda, FNB is eyeing up possible opportunities in Ghana. It has also obtained a banking licence in Tanzania and is ready to open its first branch there by the middle of the year.
With GDP growth of 3% forecast for 2010 and 2011 in South Africa, FNB is targeting growth possibilities in countries where economic growth forecasts exceed that of its domestic market.
Unlike other African countries, South Africa is still dealing with the aftermath of the financial crisis.
“Across the rest of Africa, there are a lot of growth opportunities and challenges and needless to say, EasyPlan will be the key driver.”
All in all, FNB’s target for the next five years is to grow its market share in unsecured lending from 8% to 20% to be on a par with its 23% market share of the mass retail banking market.
EasyPlan belongs to the bank’s smart solution segment, which targets the lower income mass segment. Already, smart solutions contribute a fifth, or about ZAR1bn, of FNB’s annual profits.
Although the bank has not disclosed specific figures, Manyanga said that FNB expects a growth in smart solutions profits deriving from EasyPlan.