Banking fees are a disincentive to save, according to Gabriel Davel (below) of the National Credit Regulator. In his submission during the public hearings held by the Banking Commission recently, he demonstrated that it actually costs people to save money in a bank account and that it could actually be cheaper for people to access credit rather than to save.
Based on a savings account with an initial deposit of R500 with eleven monthly contributions of R100, if the customer made three withdrawals of R250 plus a final withdrawal at the end of the period, fees would have absorbed between 4% and 19% of the amount saved,
after taking any interest earned into account. Capitec was the one exception where the customer would have received a net interest return of 4% during the year.
Davel also raised the issue of penalty fees. For example, banks charge between R35 and R50 for returned debit orders. Davel questions whether this has any relation to the actual cost of processing the debit order. This is an issue that has been raised by consumer bodies in that banks themselves seldom understand their actual costs.
A bank employee admitted to the Mail & Guardian that banks generally calculate their fees on a product based on what their competitors are doing rather than on the actual costs.
While the banks may know their total overhead costs, their pricing structures and cross-subsidisations make it very difficult to price accurately for individual transactions.
The fact that the banks are at least watching each other, which has resulted in a price war this year, suggests that there is a level of competition when it comes to bank fees.
According to the submission by Nedbank retail MD Rob Shuter, when the Competition Commission launched its inquiry Nedbank was already working on improving its competitiveness.
“We started with banking fees because that is what our research told us needed attention, but we have also made a significant investment into the expansion of our distribution channels in order to increase Nedbank’s presence in areas where we have been under-represented.”
Shuter said Nedbank’s bank fees would continue to receive attention in the months ahead as part of the bank’s efforts to increase its relevance and appeal.
Yet, according to a submission at the hearings by the Banking Ombudsman, Neville Melville, a marketing promotion undertaken by the Ombudsman showed that over 50% of the 42 073 respondents raised bank charges as a way that banks could improve their offering.
In light of more aggressive pricing by the banks, the conclusion Melville reached was that the real issue was around transparency.
According to Melville, market forces could provide very real downward pressure on fees and charges.
However, the ability of bank customers to take advantage of competitive offers is inhibited by the lack of understanding around the products and costs.
Melville used the example of his daughter who was set a school project to compare the different banking products in terms of interest rates and costs.
Melville said that it was impossible for her to make the comparisons based on the documents and pamphlets she received from the banks.
A survey conducted by the ombudsman showed that, apart from transparency, people often felt unable to change banks in order to take advantage of better offerings.
Of the people surveyed, 27% felt trapped with their current bank. There is a perception that it is difficult to move banks and Melville says that there are also often hidden costs involved. Perhaps more disconcerting for banks is the fact that 36% of customers were actively looking to change banks.