WITH all the hype around “FinTech” and the “Fourth Industrial Revolution”, large banks around the world and in South Africa are grappling with the challenge of prioritising strategies that will ensure not only their financial growth, but their survival as organisations.
FNB is no exception. “Due to the proliferation of cash as a payment instrument in South Africa, this task is arguably even more challenging for banks who incur costs to run the infrastructure to process this cash through bank branches and ATMs among other channels” said Michael Vacy-Lyle, CEO of FNB Business.
According to Vacy-Lyle, research shows that most of the cash in the SA economy changes hands as the preferred payment method in what is known as the “informal sector”, sometimes also referred to as the “township economy”.
This is the segment of the South African economy that consists mainly of lower-income individuals who often earn their income in cash, and in-turn use this cash to spend at businesses using this cash. A regular example of this is a worker who earns a cash wage, and then spends part of or all this cash with local community businesses such as general stores or taverns.
The term “informal” came about mainly referring to such cash trade not entering or being visible to the formal financial system, which includes not being deposited into bank accounts. Often this cash is originated via the formal financial system such as salary payments or social grants but is withdrawn as cash to pay for goods and services.
“Many global business banks and digital business banks often see the cash situation as highly unfavourable and even as a ‘no-go’ due to the number of unknowns and nuances pertaining to this informal sector,” he said.
“FNB Business sees this is an incredible opportunity, a South African situation which needs to be embraced, better understood and solved for, not ignored. It’s unfair to label businesses in this sector as informal just because they trade in cash. These businesses and their networks are very sophisticated and well established.”
In line with this approach, FNB Business have changed the way they refer to the informal economy, preferring to call it the “Unseen Economy”.
“The way we see it is that we have a duty as a financial services institution to help business owners in all segments of the South African economy, by offering them products, services and solutions which are relevant and will enhance not only their business, but their communities.”
He acknowledged that it can be a tough sell convincing a business in this sector that only deals in cash and has a very healthy and established business to adopt formal financial services products.
“Through many customer immersion exercises including literally walking the streets and interacting with businesses, we have changed the way we see this segment. We want to help businesses in this market by providing them with relevant financial products and solutions, offering real value. We want our products to become so relevant to this market that the benefit far outweighs the cost of the product,” Vacy-Lyle said.
“We are looking at innovative solutions that address the specifics of this market and take into consideration the risk. This includes lending to customers that don’t necessarily have any history of banking with us.
“We are also increasing card acceptance by businesses which will help displace cash usage and introduce rewards for consumers. Lastly, we are also designing for the broader supply chain integration to facilitate trade between these smaller businesses and larger businesses.”
He said FNB Business had made “great strides with innovative solutions that solve real angst” for business owners. Examples of this include its Instant Accounting software which it offers for free as an integrated accounting system within online banking, as well as its CIPC solution which enables businesses to be registered at account opening.
“We are incredibly excited and intent on solving for this customer segment, by offering relevant products and services that we truly feel will help businesses in this space. We have allocated significant resources and focus on making this work and are currently evaluating several business cases across transactional, lending and insurance that will see us launching several products into the market in 2018,” Vacy-Lyle said.