Amidst the backdrop of the FinTech hype and the Fourth Industrial Revolution, it\u2019s a challenging task for large banks around the world to prioritise which strategies to invest in to ensure not only their financial growth, but their survival as an organisation.<\/p>\n
\u201cDue 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\u201d said Michael Vacy-Lyle, CEO of FNB Business.<\/p>\n
Irrespective of which research paper you read, most of the cash in our economy changes hands as the preferred payment method in what is known as the informal sector – sometimes also referred to as the township economy.<\/p>\n
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.<\/p>\n
A regular example of this is a worker who earns a cash wage, and then spends part or all this cash with local community businesses such as general stores or taverns (spaza shops or shebeens).<\/p>\n
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.<\/p>\n
Often this cash is originated via the formal financial system such as salary payments or social grants, but is withdrawn to pay for goods and services.<\/p>\n
\u201cMany global business banks and digital business banks often see the cash situation as highly unfavourable and even as a \u201cno-go\u201d due to the number of unknowns and nuances pertaining to this informal sector,” said Vacy-Lyle.<\/p>\n
FNB Business sees this is an incredible opportunity – a South African situation which needs to be embraced, better understood and solved for, not ignored.<\/p>\n
So much so, that FNB Business has changed the way it refers to this economy: it sees it as the ‘unseen economy’ \u2013 and has adopted a multi-pronged calling to lead and provide innovative solutions to business owners in this segment that will ultimately help them to grow for the betterment of these communities.<\/p>\n
\u201cThe 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,\u201d he said.<\/p>\n
It is 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.<\/p>\n
“These businesses use the cash they receive from customers to pay their suppliers for stock \u2013 so they are very content with how they operate and often don\u2019t see the benefit of depositing cash and paying banking fees or keeping formal records of their business.”<\/p>\n
FNB said it has already begun development of products it plans to launch into this market.<\/p>\n
\u201cWe 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\u2019t necessarily have any history of banking with us.<\/p>\n
“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,\u201d said Vacy-Lyle.<\/p>\n
Innovative solutions include FNB’s 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.<\/p>\n
\u201cWe 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.<\/p>\n
“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,\u201d said Vacy-Lyle.<\/p>\n