CGAP partners with WIZZIT to bank the South African unbanked

Mergers, Acquisitions and Financial Results

CGAP, a microfinance group based at the World Bank, is supporting WIZZIT Bank to deliver banking services to poor people in South Africa’s small towns and rural areas. WIZZIT is a division of the South African Bank of Athens Limited.

Three major pilot projects run by WIZZIT Bank in South Africa are being supported by CGAP, which are all based on WIZZIT’s pioneering mobile phone-based banking system.

With a population of around 500,000 people, Motherwell is a bustling area of activity and a melting pot of African culture in Port Elizabeth, South Africa. “As with many similar peri-urban areas in South Africa, Motherwell is dotted with hundreds of small businesses and spaza shops, which service the community with everything from cold beverages, bread, milk, haircuts, beer and even clothing - forming the basis for the community’s economy,” Richardson says.

“Currently in Motherwell, there are an estimated five major suppliers that deliver dairy products, baked goods, beverages and basic commodities to between 10 and 20 wholesalers, which, in turn, service an estimated 555 spaza shops,” he says.

In the wholesaler-distributor relationship, it is generally accepted that the wholesaler will pay the distributor’s driver in cash for the delivery of a consignment of stock. The driver then takes the cash back to the distributor’s head office where a number of people in a secure counting room sort any counterfeit notes form real notes and count remaining money.

This cash is then collected by a cash management company and deposited at the bank for a fee. Apart from the costs associated with handling cash, the security aspect is one that remains top-of-mind for employers. With truck drivers sometimes carrying tens of thousands of rands at a time, they are soft targets for hijackers and thieves, who operate quite extensively in these peri-urban areas.

“Utilising the same mobile phone-based banking technology, WIZZIT has introduced a unique and innovative payment system that allows wholesalers to pay money directly from their WIZZIT bank account to the distributor’s bank account for goods purchased - eliminating the need to pay the delivery drivers in cash,” Richardson points out.

“In addition to eliminating cash, the system avoids any form of fraud (i.e., through manipulated SMS confirmation messages) at all times by requesting the confirmation code form the driver - which authenticates the transaction.”

As part of the funding received by CGAP for the rollout of this payment system, wholesalers will be incentivised to promote WIZZIT amongst their spaza shop customers to both utilise it as payment channel for buying goods and for selling goods to consumers.

A major feature of the WIZZIT system is the ability to buy cellular airtime, which will introduce a cost-effective revenue generation opportunity for spaza shop owners - being able to sell airtime on the spot or give customers the necessary tool to buy their own airtime on demand.

Dunns a leading South African retailer aimed particularly at lower income earners in urban, peri-urban and rural areas, are trusted brands for clothes, shoes and other accessories.

Leveraging that “trusted brand” status amongst lower income earners, unbanked people will now be able to open WIZZIT bank accounts at selected Dunns retail outlets.

“Retailers such as Dunns and DFX face a challenge in the areas that they operate because up to 90% of the transactions that they conclude with their customers are cash-based, which means that these retailers incur huge cost and risk in handling cash on a daily basis,” Richardson explains.

“The obvious solution is to promote increased usage of debit cards amongst customers for everyday purchases; however, this in itself poses a challenge because the vast majority of people who shop at Dunns and DFX belong to a lower LSM and cannot afford to maintain or perceive that they do not qualify for even a basic bank account from one of the major banks.

“The benefits of using a debit card for purchases aside - such as lower bank fees from withdrawing ATM cash and increased security because money is safe in the bank - the ability to utilise a debit card to make a purchase has an aspirational quality that really appeals to consumers,” he says.

In addition, less cash on the premises means that Dunns has fewer security risks and spends less money on processing and handling the cash until it is finally deposited into its bank account.

To promote the adoption and usage of WIZZIT bank accounts and debit cards in Dunns stores, customers will be incentivised in an attempt to convert them from cash to card based purchases.

The initial pilot project at Dunns will be in selected stores, after which the project will be rolled out to the remaining 289 Dunns and DFX stores nationwide.

The funding received from CGAP will aid the rollout of an extensive marketing campaign, as well as training staff on the principles of bank accounts, how they work, how they benefit customers and how to open a WIZZIT account.

Covering an area of just under 124,000km2, Limpopo Province is South Africa’s 3rd most densely populated province. And of the estimated 5.4m people living in the province, around 80% are unbanked - essentially excluding the vast majority of its residents from meaningful participation in the country’s economy.

As part of the strategy to help reduce the huge dependency on cash in this area, it has identified the critical need to bank the unbanked majority that live in the province.

“WIZZIT, having successfully brought mobile banking to many unbanked people in other parts of South Africa, is taking its mobile banking model into Limpopo, where it hopes to give the people who live in the province easy and affordable access to full transactional banking,” Richardson says.

“Apart from the aspiration value that a bank account has for the man on the street, it’s much safer than storing and carrying cash around - particularly on or around payday. Opening a bank account if you’re a consumer is as easy as making a call to a dedicated call centre and collecting their bank card from their nearest Post Office.

This model is particularly exciting as this is the first time a bank in South Africa has embarked on a direct sales strategy to ensure that people living in even the remotest parts of the country are able to easily apply for and own a fully-functional transactional bank account.

WIZZIT will be able to reach more un-banked people by expanding on its WIZZKid model and its ability to engage directly with people on-the-ground on a face-to-face basis - as well as utilising the Post Office - the largest branch infrastructure in the South Africa with 2800 outlets - 288 of them in Limpopo Province.

“Employers can also benefit hugely from WIZZIT’s entry into Limpopo because they can contact a WIZZIT bank business consultant to come to the business’s premises and open accounts for all its employees,” he adds.

Utilising WIZZIT’s online payroll system, iWIZZ, they can easily pay their employees directly into their WIZZIT bank accounts with a few easy mouse clicks. Money transfers are instantaneous and the business saves money on bank fees immediately by not having to withdraw cash to pay its employees.