South Africans find financial products too expensive and do not understand them

South African consumers find financial products in the country are too expensive and they do not understand them, although they feel that financial institutions usually treat them well and meet their needs.

These were some of the findings of the Financial Sector Conduct Authority (FSCA) Financial Customer Behaviour and Sentiment Study that was conducted for the first time to determine whether financial institutions uphold the Treating Customers Fairly (TCF) outcomes and consumer behaviour and sentiment.

The TCF is an outcomes-based regulatory and supervisory approach designed to ensure that regulated financial institutions deliver specific, clearly set out fairness outcomes for financial customers from product design and promotion, through advice and servicing, to complaints and claims handling.

Some of the findings clearly demonstrated that South African consumers are not financially literate. Financial customers said they find it emotionally and cognitively taxing to look for and take up a financial product.

ALSO READ: Savings Month: is a tax-free savings account a good idea?

No understanding of terms and conditions

They often feel overwhelmed and often do not understand the terms and conditions. Most of them reported that they had at least one product and/or service that they do not fully understand, such as store cards, insurance, medical aid, credit cards and funeral policies.

When it came to paying for financial products, almost half (47%) of respondents said the costs of financial products and/or services were “much too high”, while 19% said the costs were “too high”. Individuals older than 40 were also more likely to report that costs are “much too high”.

Single women were also unhappy with financial institutions, with 12% of the unmarried female respondents saying that financial institutions sometimes treat them badly. When probed further, they reported that their financial institutions were dismissive of the complaints that they made or were unwilling to answer their questions.

Married women, on the other hand, found it extremely difficult to switch products and sometimes struggled to resolve complaints themselves but noted that their husbands were subsequently able to resolve their complaints.

Could this be because, relative to men, women are more likely to wait to read documents before signing?

ALSO READ: How to ensure your financial service provider is legit

Positive findings as well

The research did also reveal positive findings, indicating that although there are still areas of concern, the regulator and financial sector have made good strides in driving positive outcomes for financial customers.

Some of these findings include:

• Customers generally see financial institutions in a positive light, with 33% indicating that “financial institutions always treat me really well” and 42% feeling that financial institutions “mostly treat me really well”.
• Customers believe that financial institutions offer products and/or services that can or will meet their needs, with 88% of respondents saying their financial products and/or services meet their needs extremely well (20%) or well (68%).
• Generally, less than 30% of respondents indicated that financial institutions did not have their best interests at heart, although this was higher for credit providers and providers such as mobile money providers.

The research also provided more nuanced information, revealing many areas where further work is clearly needed to improve customer outcomes. Even where customers initially gave positive feedback, further research findings paint a more layered picture.

For example, while many respondents indicated that they received easy to understand information from their financial institution, 40% of respondents also indicated that their understanding of products and services was either neutral or that they do not understand their products and services.

Customers also said they wanted to own investment products because they view owning investment products with wealth and financial resilience but they also indicated that they do not understand how these products work very well.

ALSO READ: How to protect yourself when buying insurance

Fair treatment for customers

It was also interesting that only around 20% of respondents indicated that pension products were important to have, which the FSCA regards as a sign that saving for retirement is not viewed in the same light as investment products although they contribute to financial resilience.

Another key finding from the survey is that customers that believe their financial institutions uphold a culture of treating customers fairly. This improves customer outcomes and drives deeper financial inclusion, ensuring that financial products and services make a meaningful difference to people’s lives.

The research forms part of the FSCA’s focus on building its data capabilities to inform its work regarding policy, regulation and supervision. Other initiatives include developing comprehensive Conduct of Business Returns, establishing a Consumer Advisory Panel and developing indicators to evaluate conduct outcomes.

A key element of the study involved illuminating financial customer behaviour during their engagement journey with financial institutions, with the research seeking to understand drivers, thoughts and motivations that inform customer behaviour.

Understanding these behaviours and their underlying drivers will assist in formulating appropriate policy and regulatory responses to key challenges.