Financial Services Trends and Innovations in South Africa: Lessons for the United States

This paper explores the definition and characteristics of the unbanked in South Africa, and draws parallels with the United States (U.S.). The paper identifies the following common characteristics in both countries:

• Approximately 17.5 million South Africans and 22 million U.S. households are still unbanked;
• Many households are underbanked;
• The unbanked in both countries tend to be low-income.

Private sector innovations play a prominent role in the transformation of the financial services sector. The paper lists the following private sector innovations that have helped the unbanked gain access to financial services:

• Broadband satellite Automated Teller Machine (ATMs) terminals;
• Million-a-month accounts that provide a chance to win Rand 1M;
• Pre-authorized debit cards that allow retailers to deduct purchase amounts from a preauthorized amount;
• Portable banking devices that allow the distribution of benefits to social welfare recipients.

The paper concludes that:

• The South African experience is instructive for the U.S;
• Public-private partnerships can play a crucial role;
• Creative incentives encourage very low-income people to access financial services;
• Low-balance accounts in low-density locations can still be profitable;
• Future efforts should make products multi-functional and easy to port and use.