Despite increasing adoption of digital financial services, millions of people worldwide remain unbanked or underbanked. They either do not have access to bank accounts or they have limited access to services like cheque accounts, credit cards, loans and other financial products like insurance, despite having a bank account.
In South Africa, about 40 million people hold traditional bank accounts – well above the average for sub-Saharan Africa. That said, about 5,2-million people – 23,5% of the country’s population – remain unbanked. This means they do not have affordable access to useful financial services, are unable to participate in the digital economy, and often pay more for informal financial services like loans from moneylenders.
Peach Payments head of partnerships Anine de Kock says: “Significant strides have been made to improve access to financial services in South Africa, but we are still not reaching those who need it most – the lowest income earners who do not have convenient access to financial services that can make their lives easier and less expensive. Where they do have access, they are often not adequately educated on how to make use of these services.
“For example, a lot of low income earners are paid in cash, which is unsafe and can be inconvenient. If they want a loan they have to go to a moneylender and pay exorbitant rates, because even if you are permanently employed, you can’t get a loan without a bank account.
“Low income earners who do have bank accounts often run their finances based on incomplete or inaccurate information. For example, people think that if you have an account from X bank you have to withdraw at X bank’s ATM, and do not use much cheaper options like withdrawing from a retailer while paying for groceries.”
Freedom of choice
Financial inclusion is about far more than just being banked, De Kock says. It’s also about having freedom of choice and giving lower income communities the same human right of choice that more affluent communities enjoy.
Bridging these gaps is critical to enabling all South Africans to effectively participate in the digital economy.
“Many South Africans get their pay or their social grant and immediately withdraw all of the money from their bank account to ‘stop the bank taking it’ or to stop their debit orders from going off. They don’t see it as exposing themselves to additional risk by holding cash, or that they are limiting their ability to transact online and gain the accompanying advantages,” De Kock says.
“If you’re in a small town, for example, you may only have access to one local clothing retailer – usually Pep. Which means your choice is limited and you have to pay what they ask for whatever they have. If you had access to online shopping, however, you could order the product of your choice from the retailer of your choice, and get Pep’s Paxi delivery service to send it to the branch nearest you and collect it at your leisure,” she explains.
She believes South Africa’s retailers, payment systems and platforms have tried to bridge these gaps with low or no-cost money market type accounts, wallets or vouchers available from payments providers.
One recent initiative that supports financial inclusion is the South African Reserve Bank’s launch earlier this month of PayShap, a low-rand-value, real-time rapid payment platform, which makes digital payments more convenient and reduces the reliance on cash in the economy.
Financial education
Local businesses and government, she says, should collectively work harder to make it easier for people to access the financial services they need. It’s important to ensure that people understand how these services work and how they can use them to make their lives better.
“Financial education is required to educate vulnerable consumers around debt management and transaction fees, for instance. We’ve made a start but we’ve not solved the problem yet, and it’s one we need to address if we’re going to develop as a country that builds human rights into its economy.”