July was national savings month in South Africa, and there is a clear link between the implementation of the National Credit Act (NCA) in our financial services sector and the country’s overall ability to create a sustainable savings culture.
The NCA came into effect in 2006 and changed the way businesses interact with South Africans. One of the most important functions of the act is to create a level playing field between brands and consumers. It achieves this by forcing companies to meet clear communication and information transparency standards.
“Companies are required by the NCA to ensure that they communicate clearly and simply with consumers,” says Nkazi Sokhulu, co-founder and CEO at Credit Life Insurance brand, Yalu. “In theory, this stops service providers from hiding contract details within the fine print, or from talking in a generally confusing way about a product or service.”
Credit life insurance, for example, covers borrowers against their debt in the case of retrenchment, disability or death. This type of insurance is often (but not always) legally required for certain types of debt and is generally provided by the same financial institution offering the loan. Many borrowers don’t know much about their credit life insurance policies, including the fact that they have the right to choose their own provider. The fees charged for such policies can vary dramatically, and as a result a lot of consumers unwittingly pay the maximum possible premium every month.
Yalu customer, Theeran Chetty, offers a case study in how consumers can access hidden monthly revenue. He will save R1 765 over the lifetime of his credit life Insurance policy, after switching to Yalu. “I was interested in seeing whether it was a worthwhile consideration,” he says. “In addition to the potential savings shown on the mobile application, I was quite impressed with the convenience and ease offered. I decided to try it out.”
“Theera’s savings were created by a combination of awareness and ease of use,” says Sokhulu. “His story illustrates how important it is to educate consumers about all the possibilities that are out there to save money on existing contracts and policies.”
While the NCA ensures that consumers like Theeran Chetty are able take advantage of a transparent information environment to switch providers and save money, Sokhulu explains that strong, ongoing education is still necessary for a genuine savings culture to be enabled in South Africa.
“Consumers should know what other, cheaper alternatives exist,” he says. “But it’s equally important that they understand the terms and conditions of their existing agreements, and that they are equipped to demand that their current service providers stick to the legal terms of their contracts.”
“We also keep count of how much our customers are losing out on in savings, simply because their current service providers have delayed doing the paperwork that enables a switch to a new provider,” adds Sokhulu.
“Sadly, a decision to switch providers often has to be matched by an insistence that financial service brands do the necessary paperwork within legally required time frames,” Sokhulu concludes. “This isn’t the way it should be, but if we improve education and awareness levels there is no doubt ordinary South Africans will be in a much better position to grow their savings by making sure providers meet their legal obligations.”