OPINION: The unbanked are keeping an estimated R12bn under mattresses
JOHANNESBURG - The role of financial services is to keep the lifeblood of an economy flowing efficiently to encourage economic growth and stability.
Supplying the industry with world class talent is a necessary prerequisite for the health of the system.
After the shock of the 2008 collapse, the World Economic Forum (WEF) set out to define the normative social role financial services should play in an economy.
“Finance plays a critical role for society at large, serving individuals, families, businesses, governments and civic institutions,” says the report. “The financial sector performs indispensable functions such as enabling saving and investment, providing protection from risks and supporting the creation of new jobs and enterprises. It is critical that the sector operates to provide these functions for society in a stable, sustainable way.”
To serve society best, financial services should promote financial and economic resilience, safeguard savings and the integrity of financial contracts, facilitate efficient allocation of capital to support economic growth, and provide broad access to financial products and services. It also needs to enable payments and the smoothing of cash flows, provide financial protection, risk transfer and diversification, collect and distribute information for better decision-making, and provide effective markets.
For the most part the financial services sector in South Africa does very well against this WEF checklist. Recent scandals have tainted the industry somewhat, but it does do what it is supposed to, and contributes 20% to the country’s GDP in the process. That isn’t to say it can’t do better.
There are major challenges facing the sector not the least of which is financial exclusion. This is a giant frustration for government, and though it offers opportunities to the financial services, it is remarkably difficult to remedy.
An estimated 12 million people in South Africa are excluded from financial services. This is a result of many variables, one being the reputation of the financial services industry, and another being the cost of such services. Providing services to this segment of the population would not only boost their individual financial health and sense of general wellbeing, but that of the economy more broadly. The unbanked are keeping an estimated R12 billion “under mattresses”. These are resources that could be flowing towards initiatives and projects that will do much to improve the livelihoods of the country as a whole.
Another major challenge that the industry faces is that it is serving a very diverse stakeholder base that is generally under informed and understands very little about how the financial services sector works.
Accenture recently published a report on a global survey they conducted into what people want and need from financial service providers, which identifies four “personas” in the market, each wanting different things from their service providers.
The “Pioneers” are tech-savvy, ethically-minded, young, high-earners, who are open to risk and welcome innovative products. “Pragmatists” aren’t interested in novelty customer experiences but trust financial advice and their banks to look after their financial wellbeing. “Skeptics” are risk-averse, tech-wary, and mistrustful of financial institutions, and they are frustrated, and dissatisfied with customer service and products. The “Traditionalists” are older, earn less, favour human interaction, avoid tech altogether, are wary of the new, and are slowly losing trust in their financial institution’s ability to look after their best interests.
To design financial products for all of these “personas” is extremely challenging. Of course, some people fall into more than one of these groups, making it even more complex a market.
But it is the role of financial services to serve all of these people. Not just because it will be good for their bottom line, but to ensure that money in an economy is flowing efficiently from those who have it to those who need it and to those development activities that build economies and improve wellbeing.
These are complex issues that require innovative thinking, problem-solving, and financial know-how. Serving such a complex market is where talent comes in.
And the truth is, in the financial services industry, talent is in short supply – especially in South Africa.
To illustrate the problem that we face locally: The University of Cape Town offers a Master of Commerce in Risk Management of Financial Markets and a Master of Philosophy specialising in Mathematical Finance. There are only a handful of programmes of this kind in the country, but in comparison to similar programmes in the US, they attract far fewer applicants. While these degrees are undoubtably high-end with strict entrance criteria it is critical that we are training graduates that can function at this level. Major players in the industry have found that graduates often require up to five years of specialised training before they bring value to the companies that have employed them. This is worrying, given the vital role financial services play and are expected to play in our economy.
The culprit here is a failing education system, a well-documented phenomenon in South Africa. It is deeply problematic that the school system is not producing enough high potential graduates that are proficient in mathematics. To fix this must be a priority for this government if it hopes to be able to inject new life into its sclerotic economy. Without a high-functioning financial services sector that effectively connects all South Africans into the beating heart of the economy, this country cannot hope to rise.
David Taylor is the Director of the African Institute of Financial Markets and Risk Management (AIFMRM) at the University of Cape Town.
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