Looking at the attitude of consumers towards financial institutions, it is clear a level of mistrust of consistently there, it would seem SA consumers shun banks. While most have bank accounts, the fees and costs involved in using their money seems like a waste, driving them to use accounts for saving and cash for spending.
Although more than 70% of South African adults have bank accounts, only 24% make more than three transactions a month, be it withdrawals, deposits or card swipes. Many consumers seem to be much more willing to run the risk of losing cash, whether error of theft, to avoid the fees associated with using a bank account. With this idea running rampant, more than 60% of all purchases are being paid for in cash. This is according to research done by Boston Consulting on the state of financial services in South Africa. The research reveals some of the key reasons why South Africans are not the biggest fans of banks.
Perceptions of high fees limits the usage of banking services
The banking fee structure in South Africa is worryingly high. Sitting around four times higher than that of Germany’s, Australia’s and even India, this high operating costs of banks in our country mean we have to pay more. These fees makes people feel they need to spend money in order to spend their money, the redundancy is killing the banking culture. From a more modern side, cyber crime has also increased to an extent that consumers are worried about banking security. The added protection against these crimes also increase costs within the industry.
There is a general sense of mistrust in banks’ motives
Many consumers, especially those within the low income segments, have a deep seeded mistrust in the formal financial sector. With a history of fear and exploitation, many still see banks as money hungry businesses rather than a helping financial hand. Judging from past experiences and stories, taking into account the ways in which the banking system have abused power – such as inappropriate marketing and selling or financial products, “tricking” poor people into investments under the guise of a sure thing.
The extensive financial illiteracy creates and environment whereby the poor of the country are vulnerable to certain levels of exploitation simply because they do not understand better. Unfortunately this is a show of a long term dip in our education, no longer preparing school leavers or giving them the needed life-orientated skills.
Fraud concerns negate the convenience of cashless transactions
Largely due to the increase in cyber crime and card fraud, many people have a mistrust of digital transactions, whether it be drawing from an ATM or buying products online with a credit card. Even though many in the low income bracket do not use these methods often, due to lack of familiarity mostly, they still prefer the face to face transaction as they feel it better facilitates a trustworthy deal.
Lack of trust: People value a sense of community with trusted advisers
Many South Africans have turned to trust-based savings and investments plans like stokvels. With 40% of consumers joining this type of system, according to the National Stokvel Association of South Africa, the trust in community is higher than in banking institutions. As a mechanism for saving, stokvels offer safety nets to consumers for when money is tight or when help is needed – taking away the interest and debt elements, the risk is much lower when looking towards the future of your credit record. The flexibility and support structure of these systems is something that cannot be found in the banking industry for the most part.
Banks require too much paperwork and response times are slow
With endless forms to sign, documents to verify and hoops to jump through to transfer money, open accounts, access accounts…pretty much anything within a bank requires endless effort and paperwork. This is a big deterrent to consumers who would rather not spend their precious free time standing in a bank. With everything operating on the banks time, catering to their 3pm closing time and no leeway given to clients, this is an infuriating process that many can do without. It has also opened the door for back room lenders who put consumers at high risk, but they do not require streams of forms and documents, rather offering an efficient although not effective solution.
With all this in mind, it is fairly easy to see why consumers shave lost faith and trust in banks. Arguably the only sector that seems to see the business ahead of the consumer, there are not many consumers who enjoy putting their money in banks. With the need for an inclusive, transparent system, South Africans desperately need to increase financial literacy and develop an understanding of the banking system. Investing in banks is sadly a key part of modern business, and something all participants in the economy should fully understand.