July is 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 credit providing 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 ensuring that companies 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 Chief Executive Officer at Credit Life Insurance brand, Yalu. ‘In theory, this stops service providers from concealing contract details within the fine print, or from talking in a generally confusing way about a product or service. Yet, the Credit Life Insurance space is rife with this ambiguity.’
Credit Life Insurance 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 many consumers unwittingly pay the maximum possible premium every month - leaving some room for saving if they were to choose an alternative provider.
Yalu customer Theeran Chetty shared how he had to think about savings differently. Instead of focusing on reviewing his spending habits, which is usually the advice given by financial services providers, he looked at his financial portfolio, specifically his debt. He will save R11 481,32 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.’
‘Theeran’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.’
‘The process was extremely easy and painless,’ confirms Chetty. ‘Other than saving money, this was the deciding factor for me. I don’t have the time or patience for offers which require a lot of admin.’
While the NCA ensures that consumers like Theeran Chetty are able to take advantage of a transparent information environment to switch providers and save money, Sokhulu explains that consumers are usually not aware of this, therefore ongoing education is essential for a genuine savings culture to exist 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 and review their costs and fees.’
Illustrating Sokhulu’s point is a ticker on the Yalu website offering a running total of the amount existing Yalu customers can save over the lifetime of their Credit Life Insurance policies. The figure currently stands at over R35 million and counting.
‘We also keep count of how much our customers are losing out on in savings, simply because their current service providers delay the switching process, a task that only requires an acceptance of the new policy and a cancellation of the existing one,’ adds Sokhulu. ‘The total across the different providers comes close to a million Rand. This is money that should be in South African pockets right now, but isn’t, purely because, in certain circumstances, a few brands aren’t meeting their contractual commitments and obligations to customers.’
‘Sadly, a decision to switch providers often has to be matched by an insistence that financial service brands do the work 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.’
Issue date: July 2019
