First National Bank s MaMa Account: PLS in South Africa. Shawn Cole, Ben Iverson, Peter Tufano D2D PLS Conference 18 Nov 2011

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1 First National Bank s MaMa Account: PLS in South Africa Shawn Cole, Ben Iverson, Peter Tufano D2D PLS Conference 18 Nov 2011

2 The MaMa Account Offered from Jan Mar by First National Bank one of the 4 largest banks in South Africa Grand prize of R1,000,000 (about $150,000) each month Smaller prizes: 2 prizes of R100K, 20 prizes of R20K, and 200 prizes of R1K each month Account holder received an entry for each R100 held in her account Program was shut down in 2008 by a lawsuit brought by the National Lottery Board

(about $150,000) each month Smaller prizes: 2 prizes of R100K, 20 prizes of R20K, and 200 prizes of

3 Growth of MaMa

4 Growth of MaMa

5 Roadmap Will focus on these main questions: Who opens a MaMa account? Why is PLS attractive? How does PLS affect their banking experience? How does winning a prize change behavior?

6 Data We have three data sources: Monthly branch-level aggregate data on the number of MaMa and regular savings accounts, and total deposits Monthly account-level data for bank employees Monthly account-level data for MaMa prize winners Use FinScope 2005 survey to get characteristics of individuals that live near bank branches

account-level data for bank employees Monthly account-level data for MaMa prize

7 Who opens a MaMa account? Demographics matter: Men account for 51.4% of MaMa users, but only 46.8% of regular savers Asians were significantly more likely to open an account, kept more money in their accounts, and kept them open longer than other races. Blacks are least likely to open a MaMa account and are quicker to close their accounts. But, Blacks are the most likely race to have a regular savings account. Whites and those of mixed race appear to be in the middle.

8 Who opens a MaMa account? Income also matters: Bank branches in areas with 1 standard deviation higher income (R1,516 per month) have 5.6% fewer MaMa accounts and 7.5% fewer MaMa deposits. Propensity to open an account is hump-shaped in income: Middle-income bank employees were nearly 20% more likely to open a MaMa account than those in the lowest income decile. Top income earners were about 13% more likely than the lowest decile.

5.6% fewer MaMa accounts and 7.5% fewer MaMa deposits.

9 Did MaMa bring in unbanked customers? Branches in areas with more unbanked individuals have no more MaMa accounts than those in areas with fewer unbanked. Bank employees that do not have a regular savings or checking account are 4.3% more likely to open a MaMa account.

accounts than those in areas with fewer unbanked.

10 Financial Condition and PLS Using FinScope survey, we find that the following geographic characteristics predict high MaMa usage: a high number of individuals who feel pessimistic and disconnected a high share of individuals who feel they can t keep up with their debt payments A high share of individuals who often or sometimes go w/o food A large percentage of income spent on necessities Also, FNB employees with less savings and more borrowing are significantly more likely to open a MaMa account Suggests that the dream of a big win to ease financial constraints could be a driving reason for opening PLS account

individuals who often or sometimes go w/o food A large percentage of income spent on necessities Also, FNB employees with less savings and more borrowing

11 How does PLS affect savings? Branches that had high increases in MaMa balances also saw larger growth in regular savings deposits:

12 How does PLS affect savings? Bank employees who opened MaMa accounts held roughly R1,400 more in total savings by March 2008 than those who did not open accounts, and do not appear to have lower deposits in regular savings accounts. Some evidence that this is particularly true for those who were strong savers before MaMa was introduced. Can t say where new PLS deposits are coming from, exactly, but it does not appear to be cannibalizing regular savings.

not open accounts, and do not appear to have lower deposits in regular savings accounts.

13 MaMa balances over time

14 Effect of winning Prize winners are about 15-18% more likely to still have a MaMa account 1 year after winning than those who did not win. This doesn t vary much by the size of prize: Those that won R1,000 are 15.1% more likely Those that won R1,000,000 are 17.6% more likely. Winners also tend to keep significantly more money in their MaMa accounts a full year after winning, conditional on the amount held in their accounts before winning: 1K prize winners have R13K more than non-winners in their accounts 20K prize winners have R32K more 1M prize winners have R45K more

Winners also tend to keep significantly more money in their MaMa accounts a full year after winning, conditional on the amount held in their

15 Effect of winning on others Branches that have a millionaire winner see an increase of 40 extra MaMa accounts in the following month, an 80% increase from the average growth rate of 50 new accts/mo.: Change in # of MaMa accounts relative to other branches But, we don t find an increase in total MaMa deposits after having a millionaire winner.

16 Take-aways PLS attractive to a broad range of individuals Financially constrained individuals more likely to open PLS account PLS does not appear to cannibalize regular savings Winning has dramatic effect on both winners and those around them

account PLS does not appear to cannibalize regular savings

Can Gambling Increase Savings? Empirical Evidence on Prize-linked Savings Accounts

Can Gambling Increase Savings? Empirical Evidence on Prize-linked Savings Accounts Shawn Cole Harvard Business School and NBER Benjamin Iverson Northwestern University Peter Tufano University of Oxford