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  • Focus note: Why Retailers?

    Prepared for FinMark Trust

    March 2015

  • Focus note: Why Retailers? 2015

    1 | P a g e


    Retailers in South Africa play a critical role in the provision of financial services. 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. As credit providers, retailers enable borrowers to purchase

    merchandise that would otherwise be unaffordable. They also facilitate access to insurance, often on more

    competitive terms than similar products made available through traditional channels. In addition, they process a high

    proportion of money transfers that link geographically dispersed financial households.

    FinMark Trust, in collaboration with Cenfri, commissioned two studies to explore this concept. These studies

    examined the business case for retailers to offer financial services and the user case for consumers to take up these

    services. The target market for the analysis was lower income individuals defined as those in Living Standard

    Measures one through seven1.


    Figure 1: Retailers by dominant payment mechanism and purchase frequency

    1 The SAARF LSM (Living Standards Measure) divides the population into 10 LSM groups (10 being the highest to 1 the lowest), based on living

    standards using criteria such as degree of urbanisation and ownership of cars and major appliances.

  • Focus note: Why Retailers? 2015

    2 | P a g e

    The research identified four retailer types; namely, Fast Moving Consumer Goods (FMCG) retailers, cash-based

    clothing retailers, credit-based clothing retailers, and furniture and appliance retailers.2 The format of the core retail

    business has an impact on the financial services offered by these retailers. By and large, FMCG retailers focus

    predominantly on offering high volume transactional services including money transfers, till point cash withdrawals

    and third party payments. Clothing and furniture and appliance retailers focus on credit and insurance products. The

    figure below indicates the clear clustering of financial services offered around dominant payment mechanism (cash

    versus credit) and purchase frequency.

    Retailers clearly depend on efficient financial mechanisms to support sales activities. They need to process payments

    at till point and so require an interface into the banking system. In the case of credit retailers, they rely to a large

    degree on financial services to facilitate retail sales by making purchases more affordable for consumers. Beyond

    simply facilitating existing sales, retailers can add to profits through the sale of financial services and leverage

    financial services to influence customer behaviour, by attracting more customers into the store and by shaping their

    behaviour or directing purchases. A third motivation stems from the retailers ability to leverage existing assets and

    infrastructure in order to enhance profitability. At the core, the primary motivation for retailers to offer financial

    services is to increase revenue and bottom line profits.

    The three main categories of drivers for increased profits are discussed in more detail below:

    1. Increased foot fall

    Retailers offer financial services that are in demand within their target markets in order to draw a greater number of

    customers into the retail environment more frequently. This includes both attracting new customers into the store

    and increasing the number of interactions with existing customers.

    Example: Shoprite Money Market. Shoprite offers a range of financial services through in-store Money Market3

    counters, including money transfers, bill payments and insurance. To quote from its 2007 Annual Report; Money

    Market forms part of the Groups non-core value-added strategy aimed at increasing consumer traffic in its stores.

    The main focus of the services offered is adding value to consumers shopping experience by providing convenience

    and saving the consumer time, so turning outlets into destination stores(Shoprite, 2007).

    Box 1: When becoming a destination store back fires

    PEP Stores4 launched its cash back service in 2008 and a money transfer service in early 2011, servicing clients from till

    points. These services proved to be exceptionally popular, so much so that demand for financial services negatively

    impacted on the retail environment, causing long delays at till point and resulting in stores running out of cash. After

    extensive basket and store level analysis both services were re-designed to curb the high demand to sustainable

    levels. Purchase thresholds were introduced for the cash back services and access to money transfer services was

    limited to PEP Club5 members only.

    2 An interactive market map of financial services offered through retailers in South Africa is available in the Retailers Financial Services database on

    XtracT found here:

    3 The only financial service offered at till point is a cash back (cash withdrawal) service 4 PEP is a cash-based clothing retailer that offers high frequency transaction services which are more typically offered by FMCG retailers. 5 Any PEP customer can join their loyalty programme, the PEP Club. Club members earn points that they can use to enter various competitions.

    PEP Club members with a PEP sold sim card earn double points

  • Focus note: Why Retailers? 2015

    3 | P a g e

    2. Driving more profitable customer behaviour

    Financial services can be used to drive more profitable customer behaviour either by encouraging customers to

    increase basket size or to incorporate higher margin products into the basket. This is best illustrated through

    providing access to attractive financial services conditional on customers meeting certain criteria. Examples include

    meeting spend thresholds, becoming a credit customer or belonging to a club or loyalty programme.

    Example: PEP Club. PEP has implemented these strategies most visibly. Shoppers who spend a minimum of R50

    ($5.00) in store can withdraw cash at the point of sale and only PEP Club members can send money through PEPs

    money transfer service. Membership of the PEP Club is open to all customers but Club members are encouraged to

    take up a PEP sold sim card by offering double points to customers who have a sim card purchased at a PEP store.

    This provides a further benefit as PEP earns commission on all airtime purchases associated with sim cards purchased

    at PEP (in-line with agreements with respective Mobile Network Operators).

    Example: Pick n Pay Mobile Money. More recently Pick n Pay, in its partnership with MTN, launched a mobile bank

    account called Mobile Money. The offering allows customers to withdraw and deposit cash, send money, purchase

    pre-paid electricity and airtime, pay for goods and services at selected pay points, receive money by way of electronic

    funds transfer and link debit orders. A recent amendment to product pricing has seen Pick n Pay offer free Mobile

    Money transactions to customers who purchase and RICA6 an MTN sim card at Pick n Pay.

    3. Leveraging existing assets and infrastructure

    Retailers have invested in physical store networks and payments infrastructure in order to operate their core retail

    businesses. In addition, they often have strong and trusted brands and some have existing lines of communication to

    their customers through club newsletters and magazines. Credit retailers in particular have rich client data that can be

    mined to inform merchandising decisions, financial product design and to generate sales leads. All these assets can be

    leveraged to provide financial services that offer good value to customers and generate high profits for the retailer.

    Example: Edcons insurance offering. Edgars and Jet stores of the Edcon group7 have utilised client data and credit

    infrastructure to offer a wide range of insurance products including funeral insurance, motor and household insurance,

    legal expenses insurance and even dental accident insurance. Its insurance products are offered to account holders

    only and entry level premiums are relatively low. According to Edcons 2012 annual financial statements, the retailers

    insurance division has 5.6 million active policies, in 2014 the retailer made R739 million in profits from their insurance

    policies (Edcon, 2012 & 2014). Products are actively marketed in-store to clients who come in to pay accounts,

    through the Edgars and Jet Club magazines which have very wide readership (the Edgars Club magazine has a

    readership of 1.4 million and the Jet Club magazine has a readership of 4.5 million8) and through its outbound call

    centres which generate leads off the existing client base.



    The business case for retailers to offer financial services hinges on a sufficiently large segment of customers taking up

    6 The Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) makes it compulsory for

    everyone in


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