Professional Services Editor

SA's financial services companies are realising the value of tapping into the rural mass market, according to recent research conducted by Ernst & Young.

The study shows that relatively flat growth in the broader financial services sector has forced banks and life assurers to seek alternative growth opportunities.

Mass markets are becoming increasingly attractive, especially where the right product mix is effectively and efficiently distributed.

Rakesh Garach, financial services partner at Ernst & Young, said most financial services companies had focused their efforts on the urban markets to achieve economies of scale. "Until now they had ignored the rural mass market."

However, this approach seemed to be changing rapidly, spurred on by the financial services charter, which required that product solutions be introduced for the mass market, said Garach.

Garach said financial services groups should consider extending their product range into the mass market to enhance profitability. At least one major local group was in the planning phase of setting up a rural banking network, he said.

Garach pointed out that it was however, important to ensure that distribution was efficient, especially in the light of relatively small inflows at client level.

The audit and business advisory firm's study identified distribution networks as one of the key factors currently determining success in the financial services industry.

Even the larger financial services players, particularly in the life assurance sector, were finding it difficult to achieve a viable market offering, unless the economics were sound, said Garach.

He said strategic alliances were also becoming important .

"This global phenomenon is necessary where no strong distribution channel exists."