Call for transparency on South Africa’s transaction fees

Anyone who has opened a bank account in a developed country will have an anecdote about the efficiency of service in those countries. 

My story involves being laughed at by a banker at Barclays in Cambridge when I asked how much it would cost to withdraw money at an ATM. “Why would we charge you to take your own money out of the bank?” he asked. Why, indeed.

So I felt vindicated when I heard that national consumer commissioner Mamodupi Mohlala-Mulaudzi questioned the transparency of bank fees for withdrawals at ATMs.

Mohlala-Mulaudzi complained that low-income earners are most affected by charges at ATMs and said people who receive grants should not be expected to pay them. The commission has recommended banks display withdrawal fees on ATM screens before the customer concludes the transaction. 

The picture doesn’t look good for South African banks. The ombud for banking services, advocate Clive Pillay, has said that not only do South African banks charge more for services than their international counterparts, they also offer lower interest rates on positive balances.

Charging more
Pillay pointed out that, when it came to current accounts, South African banks charged fees for more services than their international counterparts.  

“Transactional fees are applied for each service except where the customer elects to have a bundle of services of which a composite monthly service fee is charged,” he said. 

In a perfect world customers would have fewer charges on their accounts overall and nobody would get charged for something as simple as a cash withdrawal at an ATM. It’s these small, frequent charges that slowly grow to be a major irritation.

Among the local banks, excluding transactional packages that require a monthly service fee and allow a certain number of “free” transactions, the numbers work out roughly as follows:

Absa charges R3.85 per withdrawal with an additional charge of R1.10 per R100. Nedbank similarly charges R3.50 for withdrawals plus R1.20 per R100 withdrawn, and Standard Bank charges R3.90 per withdrawal plus an additional 1.17% of the value drawn.

Capitec charges a flat rate of R4 and FNB charges R5.70 per R500.

These fees increase significantly if you use an ATM that does not belong to your bank, with some banks charging a penalty fee that is more than double the usual rate, in addition to the charge per R100 withdrawn.

Helping you bank better
A tally by My Broadband’s Quinton Bronkhorst shows that to withdraw R1 000 at an ATM, South Africans pay anywhere from R4 from Capitec at a Capitec ATM to R22.30 from Standard Bank on a non-Standard Bank ATM.

Banks will tell you that they’re dropping their prices and simplifying their accounts to help you bank better. They will tell you to cut your costs by withdrawing cash at a till point at a retailer or at one of their own ATMs. Or they will tell you to make fewer withdrawals of larger amounts of cash. Because what every South African needs is to stuff a wad of cash down their shirt and hope nobody mugs them on the way home.

The bottom line is that there is a not insignificant charge associated with accessing your own money from your own bank, and an indeterminate penalty fee when you get your money from another bank’s ATM.

Overseas banks, in comparison, make no claims on the money you choose to transfer from your account to your pocket.

There’s no fee for a basic Barclays account in the UK and if you use your debit card to withdraw cash from a Barclays ATM, it’s free. If you’re using a non-Barclay’s ATM, you receive an on-screen warning about the charge before you complete the transaction.

The US’s largest bank, Bank of America, charges customers a monthly transaction fee but it gives customers alternatives for avoiding the fee. Depending on the type of account you have, the bank might waive your monthly fee if you maintain a certain minimum daily balance or if you choose to receive paperless statements and to make all your deposits and withdrawals at an ATM.

Withdrawals at an ATM are free, unless they’re conducted at a non-Bank of America ATM. This incurs a flat $2 fee.

Notifying customers
Australia’s largest bank Westpac has no ATM fees, regardless of whether you use a Westpac ATM or not. Its day-to-day account comes with a nominal $5 monthly charged, which is waived if there is a single deposit of at least $2 000 before the end of each month. So if you had say your salary deposited into your bank account each month, you wouldn’t be charged for transactions.

One argument why notifying customers of the costs of withdrawing money from an ATM wouldn’t work is practical – each bank would need to know what the others charge individual customers for withdrawals. This is complicated because banks offer so many different transaction packages.

So far only Capitec has supported the idea of displaying the actual withdrawal fee. But then it can afford to – Capitec customers pay a flat fee for cash withdrawals, which essentially eliminates this complication. 

According to spokesperson Charl Nel, Capitec gets 130 000 new customers each month, so perhaps there is something in this flat fee structure that other banks could learn from.

But Capitec is a small bank among the country’s big players and it is among the Big Four that change would need to happen for consumers to see the benefits. 

Environmental context
Cas Coovadia, managing director of the Banking Association of South Africa has defended local banking practices. Coovadia said fees and charges must be considered within the context of the environment, which is influenced by factors like bandwidth costs and security challenges as well as regulatory constraints.

“Full transparency is the ideal. However, given the particular business models in banking, and the nature of relationships between banks acting as agents for each other, the issue becomes much more complex,” he said.

Coovadia said recent disputes between banks before the Advertising Standards Authority show the level of competition for customers between banks. “This is good for customers because competition drives down costs. I don’t believe we are heading for a price-war but we are certainly heading for an increasingly competitive environment,” he said.

Coovadia said that given the online real time service, the wide distribution of service points, the costs of infrastructure such as equipment, data links, security at the installation, and Saswitch service – which allows customers to draw money from any ATM – ATM withdrawal fees were reasonable.

“There is no such thing as “free banking”. Banks are commercial entities that need to earn a reasonable return to provide the services they provide and to maintain and increase shareholder investment. Any cost-free service in one area has to be made up through increased costs in other areas,” he said.

This is a fair point but it doesn’t mean that no-fee withdrawals are beyond the realm of possibility in South Africa.

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