A recent study performed by researchers at the Boston Consulting Group found that South African consumers don’t trust banks. Although South Africa is the largest economy on the African continent, our country is plagued by high levels of unemployment, income inequality and a poor education system. While mistrust, high prices and lack of relevant services are high among the reasons many South African consumers don’t trust banks, other factors include:

  1. High fees limiting the usage of banking services

The fee structure of South African banks is four times higher than countries like Germany, India and Australia. This is due to the high operating costs of banks, and the propagation of cybercrime. Since 2015, South African businesses have lost approximately R5.8 billion to cybercrime. While all businesses have taken steps towards combatting this threat, banks spend thrice as much on IT security than non-financial organisations of the same size.

While more than 70% of adults have transactional accounts, only 24% make more than three monthly transactions. This includes withdrawals, deposits and card swipes. Many consumers are willing to risk the loss and theft of their cash, in order to avoid bank fees. This has resulted in more than 60% of all purchases being made in cash.

  1. Mistrust in the motives of banks

Inappropriate marketing and selling of financial products have shown that people on low incomes are highly susceptible to rapacious commercial interest. Because of this, many South Africans have a deep mistrust of the formal sector that is rooted in fears of exploitation.

When the South African Social Security Agency (Sassa) started paying social grants directly into bank accounts, financial institutions began targeting recipients with products such as funeral coverage and micro-loans. The costs of these products were then automatically deducted from the recipients’ accounts. Because of this, many grant recipients were left with very little money to survive, causing public outrage and the subsequent investigation into the legality of the activities of financial institutions.

Underprivileged South Africans are particularly vulnerable, due to widespread financial illiteracy which exacerbates the sense of mistrust and exploitation by these financial institutions.

  1. Consumers don’t trust faceless, cashless transactions

Some people in the low-income bracket do not use mobile and internet banking. This is largely due to lack of familiarity, and the fear of fraud involving ATMs and internet banking. This group has also expressed a preference to face-to-face transactions, because there will be a better chance for recourse in the event that any issues arise, compared to using digital technology.

  1. Some people prefer stokvels and other community funds

Approximately 40% of South African households use trust-based models – such as stokvels – according to the National Stokvel Association of South Africa. With stokvels, members regularly contribute an agreed amount which is then divided among them. For many South Africans, stokvels provide a safety net for emergencies and offer an aspect of social interaction for the purpose of entertainment or advice. Community-based organisations such as these still provide the flexibility and support structure that is perceived as lacking in the banking industry.

  1. Banks require too much paperwork

The financial services industry has created barriers for consumers to gain access to products such as loans. When applying for a loan at a bank, consumers need payslips and bank statements, and the waiting period for approval can be extremely long. This is restrictive to people who fall into the low income bracket who may often need money instantly, but do not have access to these documents.

Despite the progress that has been made by formal financial institutions, regulatory requirements make it difficult for some consumers to apply for loans, and therefore, in a pinch, many South Africans turn to loan sharks, or friends and family.

  1. Banks don’t support the informal economy

According to a survey conducted by Statistics South Africa, more than 1.5 million people were running small, informal businesses in the country. These informal businesses do not easily satisfy the requirements of the formal financial sector. When small business owners want to open business banking accounts or apply for loans, they have to provide proof of registration. Oftentimes, the registration fees are too expensive for business owners, thus limiting the use of such services by businesses.