Banks back their charge structures

South African consumers have a limited choice when it comes to meeting their banking needs. Whether you require a savings product, credit card or home loan, you are most probably going to queue at one of the country's big-four banks: ABSA, First National

Banking competition in the local market is small and often forced to piggy-back on existing bank infrastructure. The result is that the so-called banking competitors are actually increasing transaction volumes for the existing banks, indirectly adding to the revenues earned by the big four.

While South Africa benefits from a first class banking transaction system, we should never discount the negative impact of an overly 'protected' industry. The big-four banks apply such anti-competitive pricing strategies that they effectively operate as a banking monopoly. The danger, as telecoms users have long been aware of, is sub-standard service at (when compared internationally) inflated prices.

Big investigation into bank charges

Continued consumer activism resulted in a number of investigations into excessive bank fee structures. The Competition Commission announced as far back as July 2006 that they would investigate pricing in the financial services industry.

Financial publisher Finweek also completed a number of surveys into banking costs in South Africa. Their most recent contribution was released in August 2006 and confirmed what most local consumers already knew- that banks were profiting handsomely at their expense.

Of course, there are two sides to very story. In this case we have the banks, on one side, who believe that their fee structures are globally competitive and fair. On the other side, the struggling South African consumer feels his wallet getting lighter every time he so much as walks past an ATM.

All of these investigations relate to whether or not South African banks are applying fair practice in determining their banking transaction fees. Investigations also aim to determine whether the major banks are practicing price collusion which would constitute anti-competitive behaviour.

Difficult to compare transaction fees

One of the major concerns with current banking fee structures relates to the complexity of the system. Consumers are essentially unable to compare like-for-like banking products on a cost basis. This negates the need for price competition amongst banks. It is probably also the reason that most bank advertising focuses on niche product rather than competitive cost.

Banks also create additional fees from time to time- and apply these fees indiscriminately across their customer bases. One such fee, recently introduced, is known as a 'Ledger maintenance fee'. This fee is applied to all accounts which have an overdraft facility, whether the facility is used or not. Most banks charge customers between R17.50 and R50 per month depending on the size of this facility.

It should be noted, this fee is applied despite the already health interest rate levied on the overdrawn balance.

First National Bank takes small steps

First National Bank has taken some early steps in the war against high bank costs by announcing the scrapping of a number of its bank charges, the standardisation of annual credit card fees and the reduction of a number of other fees. It seems though, that all of these changes are carefully calculated to limit the impact on the banks annual revenues.

Unfortunately, the poorest consumers are hardest hit. There are far too many stories of low income earners being charged excessive amounts to draw bank statements or make cash withdrawals at ATMs. That a bank can allow a R10 or R20 transaction fee on a withdrawal of the same amount is an appalling blight on fair financial practice. We welcome the day when local banks, like those in the UK, can offer free ATM withdrawals across their networks.

Banks are unlikely to change significantly unless they are forced to do so. Right now, despite consumer concerns and various regulatory enquiries, the banks appear intent on maintaining their profit advantage. Their billion rand profits will remain intact- and you, the consumer, will continue to pay over the odds for the privilege of banking with one of South Africa's big-four!

Editor's thoughts:
Banking consumers have been complaining about high service charges and low service levels for decades. Have you ever considered changing your bank account due to either of these issues? Send your comments to gareth@fanews.co.za.