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Admitting a problem is not even a tenth of the solution

22 June 2007 Gareth Stokes

South Africa's major domestic banks know there is a problem. They acknowledge the pressure coming from the public on excessive bank charges and realise that the consumer is fast growing impatient with their pricing practices... These are some of the 'b

76% of respondents see the retail banking environment as extremely competitive

The PWC survey revealed that 76% of the 21 banks surveyed believed the domestic retail banking environment to be extremely competitive. This revelation flies in the face of the current anti competitive pricing strategies employed by the 'big four' banks. If the environment was as competitive as they believed, then viable lower cost retail banking solutions would be a market norm.

Instead, millions of account holders in South Africa are left with the perception that banks do not encourage competition. Comparing retail products between banks reveals little, if any, price advantage from one to the other. In fact, there is hardly any point in shopping around for a better package because there simply isn't one.

It appears that banks continue to address competition with brand awareness strategies rather than implementing improvements in product offerings and product cost. Their actions appear to be self serving profit retention strategies rather than being designed to improve market share.

The rising tide of consumerism is largely ignored

Contrary to consumer experience, banks place the rising tide of consumerism high on their agendas. Two thirds of the respondents rated the importance of this trend as a four or five out of five in the 2007 survey. This is a marked increase from the position in 2005.

This survey result is difficult to swallow, given the findings of international consulting firm Capgemini and its research partners. Their report, released hot on the heels of the PWC survey, includes a scathing assessment of South Africa's banking fees. As an example, they sited the average South African cheque account holder as paying more than twice the global fees for similar services. The average local cheque account holder would fork our R1, 863 per annum, while the global average is a mere R732.

And there is little reason to believe this disparity disappears in other areas of the banking product environment. The war against consumer exploitation is proceeding at snails pace but at least admissions in the PWC report indicate some hope for the future.

Real competition is still miles away

International banks trying to carve a foothold on South African soil will struggle in much the same way as Neotel will struggle to take on Telkom. It takes years to wipe out an entrenched monopoly, and the same can be said for entrenched anti-competitive behaviour.

The PWC survey indicated that while all players (local and international) in the South African retail banking environment expected the banking pie to grow, they also expected to share in that pie in the same ratio. The 'big four' banks are certainly not too worried about losing support form their loyal South African following.

The truth is that changing bank accounts is a costly and daunting administrative nightmare. Most consumers will take a bit of extra abuse rather than going to the trouble of moving accounts for a modest cost saving.

Editor's thoughts:
South Africa has a Competition Tribunal which is supposed to investigate anti competitive behaviour among South African companies. It seems though, that the tribunal is more concerned with preventing corporate mergers than attacking anti competitive pricing strategies. Recent investigations include Mittal's steel pricing policies and the cell phone operators switching charges. Is it time for the Competition Tribunal to get tough on South African banks? Send your comments to
gareth@fanews.co.za

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