Standard Bank of South Africa's innovative E Bank program demonstrates how a commercial bank can use market information to bundle services needed by the urban poor—and valued by the poorer clients to justify a fee high enough to cover costs.
Much of the research on financial services in low-income countries has focused on microcredit programs. Much less attention has been paid to the design of depository services, although many more low-income people use depository services than get access to credit. Having access to depository services is important for household well-being: to safeguard funds, to save for large purchases, and as insurance against unexpected expenditures.
Economic reform programs in recent years have encouraged banks to push up nominal interest rates to keep deposit rates positive in real terms and to motivate savings in financial assets. But once deposit rates are positive in real terms, banks typically increase minimum deposit size or find other ways to discourage small depositors because of the high costs of maintaining and servicing low-balance accounts. Traditional passbook savings accounts, the main product used by low-income households, are being phased out because of high costs.
After South Africa's move to democracy in 1994, it was politically imperative that the country's major financial institutions help redress the historically weak system of services for low-income people. Paulson and McAndrews describe one of the more interesting experiments. In 1993 Standard Bank of South Africa created an affiliate, called E Bank, to deliver basic banking services to the urban poor.
E Bank provides a package of financial services designed specifically for low-income clients, offering greater convenience for the user while keeping under control the costs to the bank of providing services. E Bank combines the innovative technology of modified ATM services with staff available to help all clients. By rethinking the needs of the basic banking customer, E Bank was able to bundle services valued by poorer clients to justify a fee high enough to cover costs.
This paper—a product of the Financial Sector Development Department—is part of a larger effort in the department to explore ways to expand financial services in low-income countries. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Ann Thornton, room F6K-258, telephone 202-458-0409, fax 202-522-3198, Internet address athornton@worldbank.org. The authors may be contacted at jpaulson@worldbank.org or Jamie.Mcandrews@NY.Frb.Org. (22 pages)
The full report is available in PDF format.