Grocers extend offerings in financial services
● Financial services have become the battleground for growth as food and clothing retailers as well as mobile network operators increase their offerings to become one-stop shops for consumers. Banks and retailers are also tapping into other areas, including offering cellphone data and voice packages by piggybacking on the network infrastructure of MTN and Cell C.
Euromonitor analyst Christele Chokossa said retaining shoppers’ loyalty is increasingly difficult in South Africa because of challenging socioeconomic conditions and rising competition among client-facing operators. As a result, adding value to services through diversification or strategic partnerships is gaining momentum, especially when there is room for incremental income.
Diversifying to new areas “aims to create a one-stop shop and synergy that meet various shoppers’ demands and consolidates brand equity,” Chokossa said.
“The trick is not to lose focus by prioritising sectors where the business has a relatively low advantage.”
All Weather Capital portfolio manager Chris Reddy said companies realise there is an opportunity to “gain a greater share of the client’s wallet by offering other products to their existing client base”.
“This not only helps diversify the revenue streams but also helps to retain the client.”
Recently, grocery retailer Shoprite said it was making inroads in the financial services sector with plans to launch a bank card for its money market account to enable its customers to withdraw cash at ATMs.
With more than 30-million customers, the retailer is expanding its money market facility, which started as a service for sending and receiving money, to have most capabilities of a transactional banking account including savings and salary payments.
Shoprite’s other non-grocery products include cellphone data and voice services through K’nect, and an events and transport ticketing platform through Computicket. It has also launched a lending facility for its suppliers. Shoprite, which has 24.7-million customers using its Xtra Savings loyalty card, is eyeing huge growth of its Money Market bank account, which has 2.6-million customers.
“I am going to be bullish to say I want at least 15-million accounts. Not all will be primary accounts as we are focusing on people with R10,000 or less. Some people will use it to save and some to receive salaries and move it over into other accounts to pay debts,” Shoprite’s GM for financial services, Jean Olivier, said in a recent interview with Business Times.
He said the retailer wanted to help customers save on banking fees so they can spend their hard-earned money on other things that matter to them. The Money Market banking service charges a flat R5 fee for cash withdrawals. Every other transaction is free, and there are no monthly fees. The company is in discussions to have a Money Market bank card that can be used for withdrawals at ATMs and also payments at other retailers.
Chokossa said Shoprite already has a relatively large consumer base collecting grants or remittances from its stores. Hence expanding to a complete banking service by converting them into a banked population would likely add convenience to its services while improving competition with Pick n Pay, which already offers TymeBank services.
TymeBank’s debit card is linked to Pick n Pay’s Smart Shopper loyalty programme, thus enabling customers to earn points. Pick n Pay also provides cellphone voice and data through Pick n Pay Mobile.
Chris Gilmour, an investment analyst at Salmour Research, said consumers want to be able to purchase so many things and are pretty agnostic about the payment medium, hence the movement by retailers and telecommunications companies into what was once the strict preserve of the banks. “Tesco and Sainsbury’s in the UK have been doing this for many years and it’s now a nice profit addition to the business. So expect local retailers to increase momentum in this field,” he said.
Mobile network operators are also diversifying into financial services, including offering insurance and lending, and are facilitating billions of rands in transactions.
In the quarter to end-June, Vodacom reported that service revenue from financial services in South Africa was up 4.5% to R672m, with a customer base of 13.1-million. MTN SA’s fintech ecosystem continued to grow, with 5.4-million registered Mobile Money users.
Telkom and Vodacom have also announced new lending products to boost their financial services portfolios. Telkom Business launched Telkom Lend, a platform that enables small businesses to apply online for funding. Vodacom introduced its VodaLend Cash Advance service, aimed at underbanked consumers who need quick and barrier-free access to funds.
Ofentse Dazela, director for pricing research at Africa Analysis, said the strategy of venturing into non-traditional areas is working as some companies are already reporting growing trends in the e-commerce space. “The strategy will probably remain viable in the longer term, for as long as customers are not expected to pay a premium price for such services,” he said.