A World Bank retail banking study of transactional and fixed deposits has found shortcomings in the way South African banks treat their customers.
The South African treasury, which commissioned the study, said the banks’ behaviour was not necessarily in breach of legislation or regulations, but it could “fall short of fair treatment principles and international best practice”.
According to the diagnostic report, banking products are too complicated, making it difficult for customers to compare products, and, in some cases, bank fees are charged unfairly and terms and conditions are not disclosed appropriately.
The report, released for public comment on Tuesday, is a contribution to the Financial Sector Conduct Authority’s approach to regulating the banks’ conduct to ensure fairness and inclusivity.
Although lower-income customers form a significant proportion of the banks’ customers, most of the banks’ retail portfolios seem to be focused on the needs of their middle- to higher-income customers.
The report found that the banks are pricing electronic transactions such as withdrawals and bank deposits at cheaper rates to discourage customers from transacting at branches and ATMs, which ignored the needs of low-income earners, who still have a “great propensity to transact in cash”. This could be attributed to other factors, such as being unwilling to use electronic channels or because of the high cost of data, the report said.
Also concerning are the potentially unfair penalty fees for insufficient funds and debit orders.
The ombud for banking services told the World Bank it received a significant number of complaints from customers about penalty fees, especially those charged on debit orders. The ombud said currently, there is “no real legal restriction on the charging of penalty or unfair fees by banks in South Africa, such that they need to be limited to the cost or loss to the bank from the occurrence that triggers the penalty”.
The World Bank recommendations include the introduction of new standards for financial institutions to ensure that products are suited to customers and that there are tougher regulations to prohibit unfair terms and fees on accounts.
Tebogo Tshwane is an Adamela Trust business reporter at the M&G