Switching banks makes more cents

Michael Jordaan, the FNB chief executive, has suggested that, based on a rough estimate, the 75% of South Africans who do not bank with FNB could save about R3-billion annually in bank fees by switching to FNB—and the bank is offering new customers two months’ free banking.

This comes on the back of a new bank survey that showed that, for full banking services, FNB has the lowest banking fees out of the big four.

The report by trade union Solidarity highlighted the huge difference in charges between the 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 about 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. But 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 that showed Standard Bank and Absa as the most expensive.

The FNB EasyPlan account, which was not included in this survey as it is a fairly new offering, is 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 a month, an Absa Silver account holder would spend R98,39, a 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 James Fowle, FNB’s pricing executive, the free banking offer is aimed at making it more convenient to switch bank accounts.

People would typically need to maintain two accounts for a month or two while switching, so FNB has reduced the financial burden by waiving its fees. But there is, as always, a proviso—you have to deposit your salary into the account and use FNB’s debit order switch service to qualify for the fee rebate.

What is also interesting with 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 available only to people opening new accounts during November and December, Fowle says that if it is a success the bank might consider extending the offer.

Fuel rewards
Earlier this month FNB launched a fuel rewards programme, which gives its cheque account customers cash or ebucks rewards based on their monthly fuel spend. For many customers, this refund would more than offset their monthly bank fee. For example, a customer with a silver cheque account unlimited option would pay R85 a month.

If he or she used bank cards rather than cash, updated his or her personal details, managed credit responsibly and banked with FNB for more than two years, he or she could easily receive 10% cash back on fuel spend. So a person who spent R1 000 a month on fuel (which made up no more than 20% of his or her total card spend) would receive a cash reward of R100 a month.

So how exactly is FNB making money out of this? First there is the interchange fee on card transactions. FNB is trying to drive people away from cash to card transactions. According to FNB, by changing customer behaviour, about R2-billion of cash transactions could be migrated to card.

Although the customer’s fees are often capped as part of a bundled fee option, the interchange fee paid by the merchant to the customer’s bank is about 1,09%. So FNB could see an additional R20-million from interchange fees as well as general savings on the cost of cash transactions, such as security.

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

FNB also rewards responsible customer behaviour and so hopes to improve debt repayments and reduce dishonoured payments.

Fowle says the bank has 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 can go online to track their points and find out how to earn more.

Fuel rewards ‘not a discount’
The department of energy has issued a statement saying that FNB’s fuel rewards programme goes against the spirit of the Petroleum Products Act, which does not allow retailers to discount fuel prices.

FNB plans to hold a meeting with the department. James Fowle, FNB’s pricing executive, says once the product is explained the bank is confident the department will not have an issue with it as it does not discount fuel.

It is simply a cash rewards programme that uses fuel spend as the measure. Fowle says fuel 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 wants to differentiate its offering.

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

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