Banks urged to reconsider pricing model

Kudzanai Gerede
Local banks have been urged to be innovative and revise their conventional bank pricing model in order to compete with mobile money operators who are now dominating financial services sector for reasons of both remaining viable and enhancing financial inclusion for the country’s massively unbanked population.

This was said by Cenfri Technical Director Mr Hennie Bester while presenting the findings of the survey titled “Making Access Possible (MAP) Diagnostic” at a Harare hotel on Monday.

MAP is a comprehensive market assessment of retail financial services with the goal to assist government identify key priorities and opportunities to extend access to financial services.

The MAP framework has been developed in partnership with Cenfri, FinMark Trsut and the United Nations Capital Development Fund.

In his presentation, Mr Bester said local banks are in “trouble” as they faced massive public isolation as the new mobile money transfer platforms have provided much more preferred conditions for a population largely involved in informal occupations which has seen the mobile money transactions record a 72 percent growth in 2014.

He said the popularity of mobile money transfer platforms were currently necessary as the economy was largely informal and most people lived on remittances from the diaspora but warned of the dangers it has on undermining banks who are critical in any thriving economy as banks they play an intermediary role of lending money in critical areas of the economy which demand a large depositors’ base which is currently lean.

“It is very clear that between 2011 and 2014 the mobile money as a platform has by far surpassed the bank in terms of volume transactions, value of retail transactions, credit and savings as a preferred provider and people do that because it’s convenient to them and because they like the pricing model and I think for the country it’s important for that type of platform to exist in a very difficult time were people rely on remittances.

“In terms of the long term future of the country, if that trend is going to undermine your banking sector which it already has, in terms of the ability to intermediate funds like take deposits from people and lend it, that is not going to be good once your intermediation starts to be active again, so I think the banks have to reposition themselves and their pricing models in order to up their customer base,” said Mr Bester.

He said the economy had taken a shift from a formal to an informal driven one and called for banks to adjust to these changes especially tapping from a large rural base that was living on remittances and could not afford to service a bank account.

Mr Bester said that there was need for banks to invest in banking infrastructure and establish more point of sales to lure the 70 percent population in the rural areas into financial participation and also urged banks to stop profiteering on account based charging system on depositors’ money but to do so on transaction based system as the case with mobile money platforms.

“Banks will have to price for that much needed infrastructure in the rural areas and that should have to be transaction based, setting up ATMs or more banking agents so they can deliver services.

“That will call for a great deal of resources and it can strangle banks if they go it alone, they got to form a consortium to achieve that and they got to wake up to that reality.

“They have to increase their transaction based revenue but they have to remember that people don’t want to pay monthly account retainer fees and they have alternatives like Ecocash, Telecash and One wallet, so banks will have to rearrange their pricing model and that will need a lot of mind shift,” he added.

The survey showed that 30 percent of Zimbabwean adults had bank accounts and of their overall figure, 25 percent of the banked had dormant accounts (accounts not being used) in 2014 up from 4 percent in 2011.

Mail box accounts (accounts used to receive and immediately withdraw money e.g salaries) declined from 70 percent in 2011 to 64 percent in 2014 mainly due to loss of jobs and shunning of banks by most customers.

Used accounts (those that store money for days or more in their banks which allows banked to afford lending) realized a drop from 25 percent in 2011 to just 9 percent I 2014, which accounted for the reason why banks had little to lend hence facing challenges.

The survey further pointed to 3.3 million Zimbabweans in the diaspora, who present a ready market for banks to tap into through remittances back home which mobile money operators were taking advantage of.

Minister of Finance and Economic Planning, Patrick Chinamasa also castigated the banks for their failure to create innovative means to tap into the country’s booming informal sector as banks continued to subscribe to the conventional models. He said there was more money circulating in the informal sector than it was in the formal sector.

“The banking sector has no idea on how to handle the informal sector. They do not have strategies. It has never happened to them. We must find strategies to supply this demand. This survey will give us key findings on the basis of which we can make informed policy in order to root this sector as mainstream of the economy, said Minister Chanamasa.