| Wed 23 Apr 2003, 8:51 | | Welfare boost for low-end banking |
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Welfare boost for low-end banking
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Financial Services Correspondent
IN A step expected to expand access to financial services for the rural poor, Standard Bank and First National Bank (FNB) have inked a deal with Eastern Cape's government to pay social welfare grants into low-end bank accounts, slashing bank costs of welfare recipients.
As part of the deal, the 70000 Eastern Cape social grant recipients who bank with Standard Bank or FNB will have their monthly bank maintenance fees paid by the provincial government and also receive at least two free withdrawals a month.
In the case of FNB, all transactions will be free ATM and over the counter withdrawals.
With Finance Minister Tre- vor Manuel having spoken of the urgent need to expand access to financial services to the poor, this cost-saving measure is expected to lure the rural poor into the banking system.
Grant recipients receive about R600 a month, yet a recent unpublished survey by nongovernmental organisation FinMark Trust estimates it costs R40 a month to operate a basic low-end bank account.
A recent FinMark survey showed the poor saw high bank charges as the main problem with banks. Government and banks have been grappling with the riddle of how to effect a lowcost savings account to draw the 60% of SA's population without accounts into the banking system and Eastern Cape's deal is an intriguing starting point.
Although the new payment deal will only be open to Eastern Cape social welfare beneficiaries with Standard Bank or FNB banks accounts, the banks hope to extend this to the other eight provinces.
Absa also recently piloted its "Sekulula" debit card, enabling social grant recipients to access cash from ATMs and retailers. Although initially only piloted in Gauteng this month, Absa plans to extend this nationally "within a few months". There are no maintenance charges on that Absa account and the first two transactions are free.
In the instance of the Standard and FNB deal in Eastern Cape, both grant recipients and government benefit from the deal through lower costs.
According to the intergovernmental fiscal review, government incurs monthly costs of between R16,50 and R31,50 in paying out R5,6bn to grant recipients nationwide, who qualify through disability, old age, or for other reasons.
By paying into the basic Standard Bank card account, Eastern Cape's government now pays R13,50 a grant as against the R31,50 previously paid while grant recipients have their accounts subsidised.
For the 70000 recipients, Standard Bank says it will reduce the cost of travelling to collect grant money and time spent standing in queues. The risk of theft is also reduced as grant money is kept in the bank account until withdrawn.
Facing pressure to expand access, many banks have flighted new low-end transactions accounts targeted at the poorer sector of the market.
Standard Bank says response to its low-end product, the E Plan account, has been "astounding" with 40000 such accounts opened monthly. There are now about 3-million E Plan accounts linked to Mastercard's Maestro debit card
Equally, the FNB SmartAccount is witnessing 26000 new accounts being opened a month, also after account closures have been deducted. There are now 1,88-million FNB SmartAccounts, all linked to Visa's Electron debit card.
FNB Retail Customer Solutions CEO Michael Jordaan says this type of payment mechanism is ultimately the way to go as "more welfare money will ultimately reach recipients".
Jordaan says he expects a boom in new low-end bank accounts being opened once retailers begin accepting debit cards routinely at point of sale.
Apr 23 2003 06:58:04:000AM Rob Rose Business Day 1st Edition
Wednesday
23 April 2003
