Cablegate: South Africa: New Bank Account for Low-Income

This record is a partial extract of the original cable. The full text of the original cable is not available.



E.O. 12958: N/A

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

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

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.


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.

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