The greater percentage of adults with a bank account in the higher living standards measure (LSM) groups, in contrst to the much lower percentage in the lower LSMs. Figure 1: Distribution of the unbanked in terms of the Living Standards Measure Source adopted from AMPS, 2006 cited by Fick (2007) Figure 2, further shows the relative positioning of the different role players within the industry, base on their degree of differentiation and market segmentation. Investec is only included in the position map for comparative purposes and would not form part of the analysis.

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According to Coetzee (2010) the provision of retail banking product and services to the low-end market has in the past been somewhat neglected by the big four South African retail banks (standard, ABSA, Nedbank and FNB). The big four banks have started considering the lower end market since early 1990’s, with the government and community groups (the external environment) putting pressure on the banks to improve access to finance for all South Africans, especially to the low income individuals Figure 2: A graphical representation of the major competitors and their relative positions in the South African banking industry.

The size of the market is an indication of the latest published income attributable to equity holders. While the government has through the Financial Sector Charter, exerted pressure on the banks to respond to the lower-end market in South Africa, by making financial services accessible, meaningful progress has been hard to some which Keraan (2010) says some was due to lack of appreciation for the full breath of innovation that is required across the critical banking areas of product, distribution and process.

Keraan (2010:1) further points out that there is significant wealth to be made in the lower income markets, pointing to the following examples; * The social welfare system in South Africa paid out R69 billion in 2009 to the grant recipients all over the country. While most of this money is banked, the lack of affordable and accessible banking infrastructure means that the dominant behaviour amongst recipients is to simply withdraw most of the cash from their accounts once it has been deposited. With the local taxi industry responsible for the commute of an estimated 21 million potential banking customers and turns over roughly R45 billion per annum, most of which is unbanked cash. * The unbanked market segment represent 13 million adults in South Africa and is an equivalent of R54 billion every year that is completely unbanked at this stage. The lower end market is seen as a profitable proposition for banks. Even though it is perceived as being risky due the negligible knowledge on how bank products function, the mere size of the market holds promise as to the volume of untapped client.

By providing financial services that are relevant to the unbanked communities and people in the informal economy can improve people’s lives. This requires creating low-cost banking models based on highly efficient banking infrastructure which allow operational cost savings to be passed on to customers, which is found by banks to be challenging more so because most of the South African banks are not simply geared to profitably bank lower income markets . Nevertheless, several emerging players were extending payments and banking services to lower income markets in South Africa.

The discussion will look at the following banks (role players) and their strategies as regards the lower-end market industry in South Africa as further depicted in Figure 3: * ABSA bank ABSA has proved its mettle through the years in the South African banking environment and their vision is to become the no. 1 bank in South Africa and selected African countries. Two significant concepts indicate that ABSA could well make a success of gaining market share in this segment. 1234 Branches are aptly named due to the 4 simple transactions that can be done in these smaller sized branches.

These branches are additional to their vast, existing infrastructure and indicate a firm intent to take this market by storm. ABSA also recognised that money on the move is a crucial aspect to master in this market, hence the Cash send concept. ABSA definitely has the resources to make this a success. They have the required vision to understand that this market has huge potential and mature enough to adapt their strategy to move to simpler banking solutions aimed at the mass market. In addition to this they own a stake in Blue Financial Services who specialises in icrofinance in 30 African countries and 300 branches. This is a prime example of a dynamic strategy * Nedbank Nedbank has always been known for their elite customers and focus on the upper segment of the market. They have never shown intention to move to a low-cost strategy, but rather to supply a more sophisticated product to a selected demographic group. It is difficult to find any concrete evidence that they intend to fiercely contend this market.

They do however provide a product called the “Transactor plus account” which do not require a minimum income as prerequisite. This account charges a monthly fee of at least R26,00, excluding transactions. Nedbank do not intend simplifying the banking experience or expanding their existing infrastructure in terms of ATM’s or branches for the purpose of penetrating this market. It has to be said that Nedbank will struggle to appeal to the low-income segment through their existing “green banking” focus, or a vision which strives to be “admired” by their clients.

It would therefore concluded that Nedbank will not be successful in growing market share in this segment through their current strategic intent. * Standard Bank Similar to ABSA, Standard bank has been around long enough to understand the challenges that an emerging African market holds. Huge infrastructure, sufficient financial resources, and lean organisational structure translate into a success story waiting to happen in this segment of the market. Standard bank introduced their Bank Shops relatively early, after the success of Capitec became evident.

They moved swiftly to adapt their strategy to cater for this profitable market. In addition to the Bank Shops, they have introduced Loan Centres serving the credit provider purpose in this market (Ndzamela, 2011). There is a clear intend to tap this market and their size and established infrastructure might just prove to be the recipe for success. Their strategy is to drive transactional volumes which should prove to be profitable. * FNB FNB is probably the only one of the “big 4 banks” who has successfully penetrated this market through innovative strategy formulation.

At an early stage in the low-income banking life cycle they introduced the concept of Easy Plan branches. This is not a unique concept, but was a pioneer in the implementation of these simplified branches. As with Standard bank, they intend pushing transactional volumes to the limit, which is really what this market is about. Additional products were introduced to cater for this market in their Smart Account bouquet. It is the opinion of the group that, apart from Capitec, FNB will be the most successful player in this market. Their slogan “How can we help you? will appeal to potential customers as a no-frills bank, similar to Capitec. Their inherent goal is to increase transactional volumes * Capitec In terms of the low-income banking segment of the market Capitec bank is the clear leader. It is one of the successful banks entering the lower end market. The reason for this is due to their ability to integrate their organisational structure, resources and positioning in such a way as to grow their market. They follow an aggressive strategy towards reducing operational costs in order to transfer those savings to the customer.

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