©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT...

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Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT IN THE BANKING SECTOR BANKSETA

Transcript of ©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT...

Page 1: ©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT IN THE BANKING SECTOR BANKSETA 3σ3σ.

©BANKSETA 2008

Paper to Plastic

Accelerating the move from cash to card

ENABLING SKILLS DEVELOPMENT IN THE BANKING SECTOR

BANKSETA

Page 2: ©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT IN THE BANKING SECTOR BANKSETA 3σ3σ.

©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

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©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

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©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

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©BANKSETA 2008

We will cover …

• The benefits of cards

• The Canadian and SA payments environment

• Key learnings from our research

• Our proposed solution

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©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

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©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

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©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%

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©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

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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’

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©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

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©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

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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

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Our proposal is based on a systematic approach

Segmentation

Customer

Attitudes Activation

Obstacles

Cash to card

Focused strategy

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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

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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

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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

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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

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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

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©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