Banks chase R29bn prepaid-card market in SA

 

Pretoria, South Africa: In the US, prepaid cards represent a booming growth market that celebrities are queuing to endorse these cards. Last week, finance personality Suze Orman launched her prepaid card as a way to stay debt-free and avoid high banking costs. In launching the card, she follows in the footsteps of hip-hop mogul Russell Simmons and the famous Kardashian sisters.

In South Africa we haven’t gotten to the point yet where local celebrities are clamouring to get their names branded on prepaid cards, but it is a market that is showing so much growth potential that the widest represented prepaid industry organisation in the world, Global Prepaid Exchange, established an office in Cape Town late last year. It also represents a big enough market opportunity for the big banks in South Africa to sit up and take notice, expanding their prepaid offering to get a slice of the cake. According to Global Prepaid Exchange, the market is worth R29.4bn annually – almost half the
current market capitalisation of Nedbank, South Africa’s fourth largest bank. The term “market opportunity” is used to describe the estimated maximum potential annual load value that could be achieved in the market on prepaid products given current market conditions.

These cards, which come with a variety of applications that range from forex cards to gift vouchers to payroll cards for large corporates, are seen as a unique way to draw the unbanked masses of Southern Africa into the sphere of sophisticated financial services. Interestingly, though, with some of the cards presenting a cheaper option than a bank account with the grudge payment bank charges attached, even some already banked individuals are seeing these as a viable alternative.

In the South African context there are major prepaid opportunities in government disbursements, gift cards, corporate incentives and benefits, and payroll – each of which according to Global Prepaid Exchange, has a current market potential in excess of R2bn annually (see table for estimated values). Other opportunities are in the transport sector with, for example, pilots underway to introduce prepaid card payment options for the taxi industry.

Absa is already trying to tap into the first of these opportunities through government disbursements, via its subsidiary AllPay. AllPay makes payments to social welfare beneficiaries either in cash using biometric technology for security or on to the Sekulula (meaning “now it’s easy”) prepaid card. In November last year Absa reported that for the year to date R10bn was paid out in cash and R6.3bn on to Sekulula cards.

In its 2011 medium-term budget policy statement National Treasury stated that social welfare grants support 15.2m South Africans, almost a third of the total population. This is up from 2.5m in 1998.

In 2012 Treasury estimates that spending on social protection, paid out monthly to millions of South Africans, will amount to R160bn. Quite an opportunity if you can get the contract to have the money paid on to the prepaid cards that you issue. And the amount is expected to rise to R182bn in 2014.

Simon Just, head of consumer cards in Absa’s card division, told Moneyweb that prepaid cards provide complete certainty up-front of what you are paying in charges. Absa launched its general purpose prepaid card three and a half years ago and its customer base has been growing at more than 100% per annum ever since. These cards are even being snatched up by clients who qualify for or have other bank accounts already, due to the transparency of the costs attached. With the Absa prepaid card you pay one upfront fee of 2.5% when you make a deposit on to the card, thereafter there are no transactional fees.

“Different consumers are looking for different things. Sometimes we even have midrange customers asking for a simpler banking option as they know what they pay and their balances can’t be eroded (by bank charges),” Just toldMoneyweb.