South Africa enjoys a high rate of financial inclusion, and consumers are generally positive or neutral about its financial institutions, though investment, pension and insurance products remain poorly understood. Furthermore, when dealing with financial services providers, South Africans prefer face-to-face interaction and they dislike call centres.
These are some of the findings of the recently released South African Financial Customer Behaviour and Sentiment Study by the Financial Sector Conduct Authority (FSCA). The study involved a survey of 1 200 respondents across all provinces and population groups, supported by FinScope 2021 and 2022 surveys, the Human Sciences Research Council (HSRC) Financial Literacy in South Africa Baseline Survey 2020, social media sentiment analysis based on the DataEQ database, and an analysis of complaints data from financial sector ombuds.
The study examined the various stages in the consumer’s journey when dealing with financial services providers: searching for the right product, signing up, using it, and exiting it.
- Consumers’ attitudes towards financial institutions are generally positive or neutral, unless there are specific pain points, and they believe providers on the whole are good at handling complaints and providing information. However, they may be settling for products and services that do not precisely meet their needs. The study found that many people tend to have financial products or services “in the background” (examples might be a retirement fund or insurance policy) and do not engage with providers unless they encounter problems.
- Financial inclusion is high but limited. According to the Finscope 2022 research, the inclusion level has reached 98% of adults in South Africa, which, the FSCA says, “is no small feat and sets South Africa apart from many developing countries”. However, actual engagement with financial products and services is much lower than this figure implies. Inclusion is mainly into the banking system: half of South African adults do not have savings or insurance products. Even banking is limited to basic transactions: most people use their accounts only once or twice a month, often to withdraw all the money deposited by their employer.
- Engagement with new products appears to be life-stage driven. For instance, when young consumers begin earning and buy their first car, they will take out vehicle insurance to cover it, and when they start a family they will buy life cover.
- Income levels are a strong indicator of product take-up. Important also is the stability of income, especially for products that require a monthly contribution, such as insurance.
- In-person engagement remains important. The HSRC survey found a strong preference for physical channels: about 50% of customers prefer ATMs and a further 20% prefer bank branches, compared with 20% who prefer online banking. The social media research showed high positive mentions for in-branch engagements and high negative mentions for call-centre engagements.
- Levels of trust differ across institutions. Cash loan, insurance and money-transfer providers are the least trusted providers. On the other hand, over 80% of respondents indicated high levels of trust in banks.
- Consumers have an aspirational desire for investment products, equating investments with wealth and financial stability. However, the study found that investment products are not well understood. Further, only one in five respondents said a pension fund was important to them, indicating that retirement savings aren’t viewed in the same light as investment products, although they contribute towards a household’s financial stability.
- People regard formal and informal savings as fulfilling different needs. Informal savings mechanisms, such as stokvels, are used to save for foreseeable, necessary expenses, whereas formal savings are regarded more abstractly, “as an amount of money that you should not use”. Thus, unlike informal saving, which is goal-oriented and has clear usage guidelines, formal saving has negative associations.
- Costs are perceived to be high. Nearly 7 out of 10 respondents considered the costs of financial products as either “much too high” or “too high”; respondents older than 40 were more likely to report that costs are “much too high”, showing that age is a differentiator.
Implications for the industry
The study shows that the industry is moving towards prioritising customer outcomes, in line with the Treating Customers Fairly principles. Other implications include:
- •Product information must be understandable, and customers should be able to meaningfully compare options and products.
- Providers of formal savings instruments need to emphasise their safety, flexibility and accessibility and consider the importance of goal-driven savings in designing these products.
- Driving a move from physical to digital channels requires trusted individuals to help new users over the adoption threshold.
- Insurers and loan providers solicit most negative sentiments. “This requires additional efforts on the part of insurers and loan providers to clearly communicate terms and conditions, as well as the reasons for rejections,” the report concludes.