©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT...
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Transcript of ©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT...
©BANKSETA 2008
Paper to Plastic
Accelerating the move from cash to card
ENABLING SKILLS DEVELOPMENT IN THE BANKING SECTOR
BANKSETA
3σ
©BANKSETA 2008
What is the problem with cash?
– Replacing bombed ATM machines was estimated between R9 - 35 million in 2007
– In 2007/8, 395 cases of cash-in-transit robberies were reported
– Approximately 64% of cash circulates outside the banking system limiting revenue
– Cash costs banks potentially > 400% more than using card POS
– Human resources are diverted from other valuable activities
CRIME CRIME
REVENUEREVENUE
COSTSCOSTS
RESOURCESRESOURCES
©BANKSETA 2008
What is not in scope?
• Plan to lower cash usage but not eliminate it
• Targeted approach not general (segments and geography)
• No focus on POS coverage and access
• No detail design specifications
• Primarily debit card focused
©BANKSETA 2008
We are recommending …
Issue Recommendation Benefit
• Pricing uncertainty
• Balance uncertainty
• No incentive for increasing card usage
• Increase pricing communication
• Certainty and confidence in leaving the money in the bank account
• Balance readers and cell phone balance enquiry
• Loyalty programme on debit card
• Confidence in using the card knowing how much is available in the account
• Clarity of what will be charged for service
• Avoiding embarrassment at the POS
• Create benefit for increased usage
©BANKSETA 2008
We will cover …
• The benefits of cards
• The Canadian and SA payments environment
• Key learnings from our research
• Our proposed solution
©BANKSETA 2008
Increased card usage benefits banks, customers and merchants
• For banks – improved efficiency, lower costs, less risk and better CRM data
• For customers – lower costs, less risk, time saving and access to credit
• For merchants – risk management, outsourcing, higher retail sales and lower cash management costs
©BANKSETA 2008
Cost savings for banks are significant
• Banks can save > R6m, per million transactions, if card POS is used instead of branches
• Banks can save > R1,7m, per million transactions, if card POS is used instead of ATMs
Channel Sweden Norway USA Europe Uganda Avg. cost ZAR (exch.
7.7)
In USD 2002 2001 1996 2003 2006
Branch 0.68 2.12 1.07 2.26 n/a 6.78
ATM (on & off us avg.) 0.47 1.13 0.27 0.25 0.22 2.31
POS (on & off us avg.) 0.07 0.35 n/a n/a 0.07 0.54
Per 1 million transactions ZARSaving using
POSIllustrative Branch cost 6,776,000 6,237,000 Illustrative ATM cost 2,310,000 1,771,000 Illustrative POS cost 539,000
Source: Swedish Riksbank, Norges Bank, BAI, Forrester, Genesis Note: Selected averages attempted to be a realistic proxy for SA
©BANKSETA 2008
Cash is bypassing banks
• In South Africa, cash is bypassing the banks where 25% of banked (3,6m) withdraw all of salary as soon as paid
Other forms1%
Cash64%
Into bank35%
©BANKSETA 2008
The bulk of spend is concentrated around retail
Categories of debit spend in Canada 2006
26%
20%
13%
9%
5%
5%
22%
Supermarkets
Specialty Clothing
Department Stores
Gas Station
Hardware / Gardening
Restaurants
Other
©BANKSETA 2008
Cash dominates low value transactions
• In Canada transactions under $26 are cash based with debit dominating the $26 - $100 spend category
Debit card ‘sweet spot’
©BANKSETA 2008
In SA retail dominates spend patterns too
• In 2006, 61% of spend was concentrated in retail
Note: Numbers are greater than 100% as certain individuals have more than one source of income
©BANKSETA 2008
In SA ‘cash is king’
• In SA, 91% of groceries are paid for with cash• Only 4% of customers use debit card
Selected retail spend patterns in SA
0
20
40
60
80
100
Cash Debit Card Credit Card Store Card Other
Payment type
%
Groceries
Clothing
©BANKSETA 2008
Customer behaviour will be the biggest challenge
• It is unlikely that cash will be removed totally in the short term
• The bulk of spend is concentrated in retail
• Mass market– Banked people in SA increased to 60% of the adult population in 2007
with new entrants having low financial sophistication and preferring cash– Customers are uncertain of charges– Customers fear embarrassment at point of sale because they are not
certain of their account balance
• Middle market– There is currently no incentive for customers to increase debit card
usage
©BANKSETA 2008
Our proposal is based on a systematic approach
Segmentation
Customer
Attitudes Activation
Obstacles
Cash to card
Focused strategy
©BANKSETA 2008
Two broad market segments need to be targeted
Mass market profile
• Low financial sophistication• Low to middle income• Low technology awareness
and usage• Predominantly rural and
township
Middle market profile
• Financially sophisticated• Middle to high income• High technology
awareness and usage• Predominantly city and
suburbia
©BANKSETA 2008
Two broad market segments need to be targeted
Awareness Education Technology PricingJoint
VenturesIncentives
• Marketing campaign
• Benefit of using cards
• How to use cards
• Financial education
• In store balance readers
• Mobile phone balance enquiries
• Bundled transactions packages
• Partnering with retailers where spend is concentrated
• Loyalty program on debit cards
• Mass market – previously un / under banked, generally low financial sophistication
• Middle market – banked, sophisticated
©BANKSETA 2008
Existing channels can be leveraged to increase awareness and education
• Short message services (sms) can be leveragedMobile phonesMobile phones
• Program to encourage the cardholder to take a brochure describing the key benefits, features and access provided by a debit card Brochures
Brochures
• This activity also leverages the bank’s existing statement delivery infrastructure
Statement Messaging & Inserts
Statement Messaging & Inserts
• In-branch and store displays and marketing support efforts by staff In-branch/store displays
In-branch/store displays
• Use the ATM display as a tool to remind the cardholder that their card can be used at the point of sale
ATM Messaging ATM Messaging
• For people who collect a receipt from the ATM after withdrawing cash
Awareness Education Technology PricingJoint
VenturesIncentives
©BANKSETA 2008
Enhanced technology and pricing will allay customer fears
• Banks to offer a transparent but bundled amount of transactions for a fixed fee
• Debit card pricing that is competitive with cash withdrawal can drive the required behaviour
PricingPricing
• Card balance readers need to be deployed at key retailers• Inexpensive cost per unit currently less than R100• Can easily be integrated into existing POS infrastructure • Cell phone based balance enquiries need to be promoted
Technology Technology
Awareness Education Technology PricingJoint
VenturesIncentives
©BANKSETA 2008
Loyalty on debit card is an opportunity in SA
• Retail loyalty program and rebates for debitIncentives
Incentives
• Shoprite Checkers, Pick ‘n Pay, Edcon, Foschini• Marketing and education campaigns, loyalty programs• Deploying balance readers
Joint VenturesJoint Ventures
Awareness Education Technology PricingJoint
VenturesIncentives
©BANKSETA 2008
Moving from cash to card makes financial sense
• Banks can generate significant savings by migrating customers from cash to card
• An effective, achievable and cost effective strategy can be deployed to achieve this goal