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Editorial licence - lekker ne I dont think so

03 May 2006 Angelo Coppola

Hmmm, it seems that all is not as it seems when it comes to bank charges. Its not really about the bank charges, but the whole question of ATM charges, the national payment system, unit processing costs and economies of scale.

Most banks will freely admit that they have been driving consumer traffic out of the branches where the infrastructure and personnel costs are high to the ATM network, but consumers pay for the pleasure of using this channel. And the banks justify this charge as having to recoup their capital investment.

Last week FNB announced that they were to begin deploying 500 in-store ATM machines countrywide, which will add to the existing 2 600 ATMs and 1500 Mini-ATMs FNB has nationwide.

According to the FNB statement FNB currently has a 28% share of SASWITCH volume, and enjoys the best reach for ATM access for LSM 1-5, in terms of the Financial Sector Charter targets.

Here comes the problem. It appears that the banks are making money hand over fist in the ATM environment. According to one source, who happens to be a retired banker there are two key issues: unit processing cost and economies of scale.

A clue to how much the banks are making in this channel can be found in the transactions volumes they declare. As our source explained it: There is no difference in processing a transaction withdrawal of R50, or one valued at R5000.

In other words the banks charge a sliding scale of fees in percentage terms, based on the amount that you withdraw. The fee increases the more you withdraw and for no apparent reason.

And according to our source there is not one banker that can justify this mark-up. The unit processing cost is the same, regardless of the amount.

The other argument that the additional cost incurred by the bank to install the ATM has to be recouped in the first place is also a moot point. The banks made that capital investment back many decades ago.

He does concede that there should be some maintenance cost incurred by the consumer, but nowhere near the profit margins they (the banks) are currently making. Charging a flat fee per transaction should cover the cost of maintenance and security equipment installation.

The other issue is of course the economies of scale debate. In the UK for instance this argument has been dealt with. There are no charges for using an ATM.

When one considers that a vast number of consumers use the ATM network to withdraw cash. Also consider that in the majority of cases its the very people that the Financial Services Charter (FSC) was developed to empower, and one can see that there is some injustice here.

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