US embassy cable - 04PRETORIA4833

UNCLAS SECTION 01 OF 02 PRETORIA 004833 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN, EINV, ECON, SF 
SUBJECT: SOUTH AFRICA: NEW BANK ACCOUNT FOR LOW-INCOME 
CLIENTS 
 
 
1. Summary.  The big four South African banks launched a new 
low-cost bank account named 'Mzansi' on October 25.  This 
bank account fulfills a part of the South African 
government's goal to increase low-income individuals' access 
to financial services, as expressed by the Black Economic 
Empowerment (BEE) financial services charter.  Most 
stakeholders hail the account as a positive initial step, but 
many have criticized the account's functionality.  At the 
same time, banks are concerned about middle-income clients 
switching to the low-cost account.  The future of retail 
banking competition is unclear, as traditionally high bank 
charges could face pricing pressure in light of this new 
account and emerging smaller banks catering to low-income 
customers.  End Summary. 
 
Account Details 
--------------- 
 
2. On October 25, South African banks launched the 'Mzansi' 
(a Zulu word meaning south) account, a new South African 
low-cost bank initiative.  The Black Economic Empowerment 
(BEE) financial services charter drove this new product 
launch as part of the South African government's (SAG) 
objective to increase access to banking for the over 13 
million 'unbanked' South Africans.  The four largest South 
African banks--Standard Bank, First National Bank, ABSA, and 
Nedcor--participated in the launch as well as Postbank, the 
savings division of the South African Post Office.  Nedcor's 
subsidiaries Nedbank, Old Mutual Bank, Peoples Bank, and Meeg 
Bank all participated in the launch. 
 
3. The Mzansi account offers bank fees that are 30% to 60% 
less than a typical bank account.  A valid ID document is all 
that is required to open an account.  Each bank is pricing 
its account services differently.  Account services that 
incur fees include ATM withdrawals, cash deposits, and check 
deposits.  The Mzansi account characteristics that remain 
consistent across banks include:  (1) free use of another 
bank's ATM; (2) no management fees; (3) at least one free 
monthly cash deposit; and (4) a debit card to use at 
retailers. 
 
Some Criticism But Plenty of Support 
------------------------------------ 
 
4. Various groups supported the Mzansi launch, but argued 
that the banks are not introducing the account in a practical 
form.  The Association of Black Securities and Investment 
Professionals (Absip), the South African Communist Party 
(SACP), and the think tank FinMark Trust stated publicly that 
the account should include electronic payment options to make 
a real difference.  This option would allow account holders 
to easily make payments for items such as insurance or 
housing bonds.  The banks recognize this need and predict 
that the functionality of the account will grow with time. 
The financial services charter council members hailed the 
account launch as a sign of progress and a unified front of 
its members, including Absip, the SACP, the Congress of South 
African Trade Unions (COSATU), banks, and government.  The 
SACP is pleased with this initial step, as it highlighted the 
'unbanked' population problem four years ago.  The financial 
services charter council will monitor progress of the Mzansi 
account going forward. 
 
Effects on Banking Market 
------------------------- 
 
5. Banks are concerned that the Mzansi account will 
cannibalize profits.  Their fear is that middle-income 
individuals will open Mzansi accounts and close their more 
expensive accounts.  To prevent switching, the account 
restricts activity and transaction amounts.  Nedcor set a 
R15,000 ($2,400) maximum balance and imposed a fee on excess 
transactions, taking a proactive approach to this potential 
problem. 
 
6. The Mzansi account introduces a measure of uncertainty 
into retail banking in South Africa.  Will the Mzansi account 
put pressure on banks to lower fees on other accounts?  One 
micro finance regulator described the Mzansi account as a 
preemptive move by the large banks to keep the smaller banks 
from expanding their low-income market share.  Capitec and 
Teba Bank, both supported by a USAID grant or credit 
guarantee, are two of these smaller banks.  Capitec, a niche 
bank and micro lender, decided not to participate in the 
Mzansi account, but already provides services to low-income 
South Africans.  Capitec offers low-cost accounts that 
provide more banking services to clients, including 
electronic payment options and higher interest rates.  Teba 
Bank, traditionally serving mineworkers, is expanding its 
product range to reach low-income clients outside mining 
communities.  The Mzansi account will not be a profitable 
venture in the short-term for the large banks, but it should 
bring the large banks new low-income customers that could be 
a future source of growth in retail banking.  The large banks 
are hoping to learn from the South African market so that 
they may apply this model elsewhere in Africa. 
 
Comment 
------- 
 
7. The challenge for the banking sector is to find the 
balance between making the Mzansi account practical enough 
for low-income clients, but restrictive enough to keep middle 
or high-income customers from switching accounts.  Adding to 
this challenge, is the race to attract the low-income market. 
 In three months, the four big banks and Postbank (South 
African post office) will launch their individual Mzansi 
account marketing campaigns.  As part of this effort, banks 
will be setting up more branches and ATMs.  One of the 
financial services charter goals for 2008 is to locate an ATM 
within 10 kilometers and full banking services within 15 
kilometers of 80% of the homes in South Africa.  The Mzansi 
account, combined with the ATM and branch expansion, promises 
to go a long way in meeting financial services charter goals. 
 End Comment. 
FRAZER