©BANKSETA 2008 Paper to Plastic Accelerating the move from cash to card ENABLING SKILLS DEVELOPMENT IN THE BANKING SECTOR BANKSETA 3σ3σ

©BANKSETA 2008 What is the problem with cash? –Replacing bombed ATM machines was estimated between R million in 2007 –In 2007/8, 395 cases of cash-in-transit robberies were reported –Approximately 64% of cash circulates outside the banking system limiting revenue –Cash costs banks potentially > 400% more than using card POS –Human resources are diverted from other valuable activities CRIME REVENUE COSTS RESOURCES

©BANKSETA 2008 What is not in scope? Plan to lower cash usage but not eliminate it Targeted approach not general (segments and geography) No focus on POS coverage and access No detail design specifications Primarily debit card focused

©BANKSETA 2008 We are recommending … IssueRecommendationBenefit Pricing uncertainty Balance uncertainty No incentive for increasing card usage Increase pricing communication Certainty and confidence in leaving the money in the bank account Balance readers and cell phone balance enquiry Loyalty programme on debit card Confidence in using the card knowing how much is available in the account Clarity of what will be charged for service Avoiding embarrassment at the POS Create benefit for increased usage

©BANKSETA 2008 We will cover … The benefits of cards The Canadian and SA payments environment Key learnings from our research Our proposed solution

©BANKSETA 2008 Increased card usage benefits banks, customers and merchants For banks – improved efficiency, lower costs, less risk and better CRM data For customers – lower costs, less risk, time saving and access to credit For merchants – risk management, outsourcing, higher retail sales and lower cash management costs

©BANKSETA 2008 Cost savings for banks are significant Banks can save > R6m, per million transactions, if card POS is used instead of branches Banks can save > R1,7m, per million transactions, if card POS is used instead of ATMs ChannelSwedenNorwayUSAEuropeUgandaAvg. cost ZAR (exch. 7.7) In USD Branch n/a6.78 ATM (on & off us avg.) POS (on & off us avg.) n/a Per 1 million transactionsZAR Saving using POS Illustrative Branch cost 6,776,000 6,237,000 Illustrative ATM cost 2,310,000 1,771,000 Illustrative POS cost 539,000 Source: Swedish Riksbank, Norges Bank, BAI, Forrester, Genesis Note: Selected averages attempted to be a realistic proxy for SA

©BANKSETA 2008 Cash is bypassing banks In South Africa, cash is bypassing the banks where 25% of banked (3,6m) withdraw all of salary as soon as paid

©BANKSETA 2008 The bulk of spend is concentrated around retail

©BANKSETA 2008 Cash dominates low value transactions In Canada transactions under $26 are cash based with debit dominating the $26 - $100 spend category Debit card ‘sweet spot’

©BANKSETA 2008 In SA retail dominates spend patterns too In 2006, 61% of spend was concentrated in retail Note: Numbers are greater than 100% as certain individuals have more than one source of income

©BANKSETA 2008 In SA ‘cash is king’ In SA, 91% of groceries are paid for with cash Only 4% of customers use debit card

©BANKSETA 2008 Customer behaviour will be the biggest challenge It is unlikely that cash will be removed totally in the short term The bulk of spend is concentrated in retail Mass market –Banked people in SA increased to 60% of the adult population in 2007 with new entrants having low financial sophistication and preferring cash –Customers are uncertain of charges –Customers fear embarrassment at point of sale because they are not certain of their account balance Middle market –There is currently no incentive for customers to increase debit card usage

©BANKSETA 2008 Our proposal is based on a systematic approach Segmentation Customer Attitudes Activation Obstacles Cash to card Focused strategy

©BANKSETA 2008 Two broad market segments need to be targeted Mass market profile Low financial sophistication Low to middle income Low technology awareness and usage Predominantly rural and township Middle market profile Financially sophisticated Middle to high income High technology awareness and usage Predominantly city and suburbia

©BANKSETA 2008 Two broad market segments need to be targeted AwarenessEducationTechnologyPricing Joint Ventures Incentives Marketing campaign Benefit of using cards How to use cards Financial education In store balance readers Mobile phone balance enquiries Bundled transactions packages Partnering with retailers where spend is concentrated Loyalty program on debit cards Mass market – previously un / under banked, generally low financial sophistication Middle market – banked, sophisticated

©BANKSETA 2008 Existing channels can be leveraged to increase awareness and education Short message services (sms) can be leveraged Mobile phones Program to encourage the cardholder to take a brochure describing the key benefits, features and access provided by a debit card Brochures This activity also leverages the bank’s existing statement delivery infrastructure Statement Messaging & Inserts In-branch and store displays and marketing support efforts by staff In-branch/store displays Use the ATM display as a tool to remind the cardholder that their card can be used at the point of sale ATM Messaging For people who collect a receipt from the ATM after withdrawing cash AwarenessEducation Technology Pricing Joint Ventures Incentives

©BANKSETA 2008 Enhanced technology and pricing will allay customer fears Banks to offer a transparent but bundled amount of transactions for a fixed fee Debit card pricing that is competitive with cash withdrawal can drive the required behaviour Pricing Card balance readers need to be deployed at key retailers Inexpensive cost per unit currently less than R100 Can easily be integrated into existing POS infrastructure Cell phone based balance enquiries need to be promoted Technology AwarenessEducation TechnologyPricing Joint Ventures Incentives

©BANKSETA 2008 Loyalty on debit card is an opportunity in SA Retail loyalty program and rebates for debit Incentives Shoprite Checkers, Pick ‘n Pay, Edcon, Foschini Marketing and education campaigns, loyalty programs Deploying balance readers Joint Ventures AwarenessEducation Technology Pricing Joint Ventures Incentives

©BANKSETA 2008 Moving from cash to card makes financial sense Banks can generate significant savings by migrating customers from cash to card An effective, achievable and cost effective strategy can be deployed to achieve this goal