A study to understand the user case for financial services offered by retailers in South Africa. The study sought to understand the nature of this demand through an exploration of why and how people use retailers to access financial services. By identifying the key factors that influence the decision to use financial services from retailers the study aims to position the current and potential role of retailers in servicing the financial needs of lower income individuals. The study by FinMark Trust explored these concepts through extensive qualitative and quantitative research across a range of retailer and product types.
Broadly speaking there are a number of factors that motivate customers to take up financial products offered by retailers:
Accessibility: Retailers are more accessible both in physical and functional terms than pure financial services companies (FSPs). Within pure FSPs, distribution is one part of the value chain and often seen as a cost to be minimised. Channel strategies mainly focus on driving the customer towards digital channels and out of branches. The contrast for retailers is that distribution is at the heart of the business model and, as part of this, they actively seek opportunities to bring customers in store. Additionally, there is a functional intersection for customers between their activities within the retailer and the financial services accessed.
Flexibility: While FSPs in general prefer to collect premiums and instalments by debit order, retailers allow customers to pay in cash in store. Many customers value the flexibility and control that in-store account payment affords them. In addition, there is a perception of greater flexibility of grace periods if payments are missed, along with additional repayment benefits such as receiving a receipt or a trip to the retailer to explore new merchandise.
Facilitates control: The close link between the financial services and the retail transaction enables retailers to design and deliver purpose-specific services that assist consumers with self-control by containing their access to finance to the arena of the retailer.
Convenience: Customers can access a portfolio of financial products with ease because of retailers bundling financial services with other offerings or leveraging existing data and collections mechanisms to sell and service products. Many of the products are of a short term nature, which adds to the appeal of a convenient access point for a short-term good.
Qualifying criteria: Credit products offered by retailers are perceived to be easier to qualify for than those offered by FSPs. In the case of insurance and money transfers, retailer’s products are often perceived to be more affordable than services offered by traditional FSPs.
Status quo: For certain financial services, such as clothing accounts and money transfer services, retailer offerings have exceptionally high rates of adoption. This serves to reinforce their status as the default provider.
The success of retailers in offering financial services reflects a strong alignment of supply and demand side factors. Retailers appear well placed to offer services profitably using models that align well with consumer needs. Their extensive physical footprint, trusted brands, administrative infrastructure and customer-facing staff are key assets that can be leveraged at low marginal cost to provide financial products and services. Further, the close link between the financial services and the retail transaction enables retailers to design and deliver purpose specific services offered at the right time and price that are convenient to take up.