FNB throws down the challenge

FNB CEO Michael Jordaan has suggested that, based on a rough estimate, the 75% of South Africans who do not bank with FNB could save around R3bn annual in bank fees by switching to FNB and the bank has now offered two months free banking to new customers.

This comes on the back of a new bank survey released last week which showed that for full banking services, FNB has the lowest banking fees out of the largest four banks (Nedbank, Standard Bank and ABSA).

The report by trade union Solidarity highlighted the huge difference in charges between the various banks and that switching banks would have a significant impact on annual bank fees.

Not surprisingly, overall Capitec came in with the lowest banking fees with the average middle income earner who spends R10 000 a month paying around R50 a month in fees.

By maintaining a positive balance and earning Capitec’s very high interest rate of 7%, the fees net of interest earned could be even lower.

FNB comes out cheapest
However, in terms of full banking services FNB came in tops out of the big four. The finding was similar to the survey conducted by FinWeek earlier this year which showed Standard Bank and Absa as the most expensive.

The FNB EasyPlan account, which was not included in the Solidarity survey as it is a fairly new offering, is actually slightly cheaper than Capitec and the FNB Smart Account came in second at a cost of R62,84 a month.

Nedbank’s best offering is the Savvy Electronic at R90,25 and the cheapest Absa account comes in at R98,39 and Standard Bank at R111,95.

In terms of full service cheque accounts, based on this average customer profile, an FNB silver cheque account holder would spend R93.75 per month, Absa Silver account holder would spend R98,39, Standard Bank Classic cheque customer would spend R111,95 and a Nedbank Everyday current account holder R116,25 a month in bank fees.

According to FNB pricing executive James Fowle, FNB’s free banking offering is aimed at making it more convenient to switch bank accounts.

The catch
As people would typically need to maintain two accounts for a month or two whilst switching, FNB has reduced the financial burden by wavering their fees. However there is, as always, a proviso.

You have to deposit your salary into the account and use their debit order switch service in order to qualify for the fee rebate.

What is also great about the offering is that FNB can open the accounts virtually. In other words you do not have to go into a branch. The account can be opened telephonically and your bank card will be delivered to you, at which time the FICA documents will be verified. FNB is clearly trying to highlight how easy it can be to switch to a cheaper bank - so there is no excuse to complain about bank fees.

Although the offer is currently only available to people opening new accounts during November and December, Fowle told Smart Money that if it is a success, they may consider extending the offer.

Fuel rewards
Earlier this month FNB also launched their fuel rewards programme which will give their cheque account customers cash or ebuck rewards based on their monthly fuel spend. For some customers, this refund could more than offset their monthly bank fee.

For example, a customer with a silver cheque account unlimited option would pay R85 a month.

If they used their bank cards rather than cash, updated their personal details, managed their credit responsibly and banked with FNB for more than two years, they could easily receive 10% cash back on fuel spend.

So a person who spent R1000 a month on fuel (which made up no more than 20% of their total card spend) would receive a cash reward of R100 a month.

One does have to ask how exactly FNB is making money out of this.

Card transactions made simpler
Firstly there is the interchange fee on card transactions. FNB are trying to drive people away from cash towards card transactions. According to FNB by changing customer behaviour, around R2-billion of cash transactions could be migrated to card.

Although the customer’s fees for card transactions are often capped as part of a bundled fee option, the interchange fee paid by the merchant to the customer’s bank is around 1,09%.

So FNB could see an additional R21-million from interchange fees as well as general savings on the cost of cash transactions such as security and the opportunity cost of holding cash.

Fowle says the aim is to get a bigger share of the customer’s wallet by encouraging them to use more FNB products. The more FNB products you use (credit, home loans, savings and transaction accounts) the higher the potential reward. FNB makes money out of the interest earned both in savings and credit products.

FNB is also rewarding responsible customer behaviour so would hope to improve debt repayments and reduce dishonoured payments.

Fowle says they have already seen a change in customer behaviour as people calculate how to improve their rewards. Existing customers will receive their first rewards on December 1 and will be able to go online to track their points and find out how to earn more.

FNB to meet with DME
In response to the fuel rewards programme the Department of Minerals and Energy issued a statement that the programme goes against the spirit of the Petroleum Products Act which does not allow retailers to discount fuel prices.

FNB is meeting with the DME and Fowle says once the product is explained, FNB is confident that the DME will not have an issue with the product as it does not discount fuel. It is simply a cash reward programme that uses fuel spend as the measure.

Fowle says FNB used fuel as it is a grudge purchase and one that bites into people’s pockets so any upside to spending money on fuel would be welcomed by customers. He says the lifestyle/health type reward programmes tend to be overtraded and FNB wanted to differentiate its offering.

For further articles on the banking survey and fuel rewards go to www.mg.co.za/smartmoney

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