Stuff ff you
Banks still refuse to relent on fees – four years down the line
ABSA has emerged as South Africa’s most expensive bank in the 2008 Finweek Bank Charges Report. In our fourth annual investigation into like-for-like charges, Absa – the group with the country’s biggest retail banking footprint – also saw the biggest year-on-year increase in fees.
However, it’s not alone. Bank charges rose – in some cases by more than 20% – despite the growing threat of regulatory intervention and a public commitment by the banking sector to tackle charges and keep increases to a minimum.
Our investigation reinforces the findings of our three previous studies and supports several key conclusions of the Competition Commission-sponsored Jali report. It remains difficult, time-consuming and confusing to compare like-for-like charges across different banking institutions. There’s also no way to attribute a cost of transaction relative to the price charged for services. Despite promises of greater transparency in the years since we began our annual investigations, the world of bank charges remains as murky and difficult to navigate as ever.
There are literally hundreds of permutations and no single, accessible, accurate comparison mechanism for a like-for-like comparison of fees. Even using technologically sophisticated comparison websites provides no guarantee of success, as many of the assumptions required to input data need a level of interpretation. The publicly available information provided by the banks in some cases either contradicts data received from another area of the bank or is insufficient to make an appropriate choice.
The Jali investigation earlier this year cleared the banks of collusive behaviour and made no mention of their abusing their market dominance. While it set no specific timeframes for changes demanded by the investigation, it did lay out 28 recommendations on remedial action for banks to take with regard to charges.
“The regulatory environment is decidedly unpleasant at the moment,” says Sim Tshabalala, CEO of Standard Bank South Africa, who cautioned the 28 recommendations would take “some effort” to implement. He warned it would take time to alter SA’s ATM networks to charge consumers directly and cautioned there was broad industry disagreement in the banking sector over the proposed R5 standard fee for returned debit orders. “Those fees are legitimate and contracted,” Tshabalala says, indicating that banking sector players are prepared to dig in their heels on recommendations they find unreasonable.
For the first time since the small banks crisis of 2001, SA major financial institutions are beginning to feel the squeeze. Three banks – Standard, Absa and Nedbank – have published results to end-June. All have shown increases in non-interest revenue (NIR). A large proportion of NIR is made up of bank charges. Standard, Absa and Nedbank together generated more than R25bn in NIR in the first six months of 2008.
Standard grew its NIR by 28%, Absa 23,5% and Nedbank 4%. It indicates, in part, a rise in volumes as the banks have acquired new clients but it also suggests margin growth through fee increases.
Banks argue their fees are fair. South Africans enjoy unprecedented access to financial services in Africa. Securing cash is costly, with more than 300 ATM bombings, numerous bank robberies and cash heists driving up the cost of protecting money. In terms of SA’s Financial Sector Charter, they’re obliged to provide access to banking services in even remote areas. However, clients are baying for a better deal.
According to the Finweek commissioned research carried out by chartered accountants at Horwath Forensics, Absa is SA’s most expensive bank for clients who use its fixed price package options, as well as for those who pay for each individual interaction with the bank on the pay-as-you-use (PAYU) basis. That’s a big change for a bank that previously regarded itself as a lower-cost provider of financial services.
According to our methodology, which has been consistently applied since the annual investigation was inaugurated four years ago, last year Absa implemented the biggest annual price increases of any bank since 2005.
But the accolade for the biggest price increases over four years goes to Standard Bank. Since 2005 the monthly cost of Standard’s package option has risen an astronomical 60%: from being the cheapest at R198,40 in our 2005 report, it would now cost our fictional Finweek family R317,05/month to transact using the bank’s package options.
Our researchers found, in general, members of staff are trained to default to the package option rather than interrogate individual clients on their banking needs.
Because of the way our fictional family carries out its banking activities, it doesn’t fall neatly into any of the packages offered by the banks, which means they’re penalised for operating outside the parameters of the packages on offer. While package options may appear attractive as an option for feewary consumers, they should carry a warning label on the consequences of straying outside their tightly defined parameters.
We expect the banks – especially Absa, which has emerged least favourably from our research – to challenge our findings and research methodology. However, we do point out that Absa last year used the Finweek findings in its national marketing campaigns when it emerged as being the cheapest of SA’s Big Four banks on the PAYU basis. That implies the group accepts the validity of our findings.
“I’m confident that we’re spot on with the fee structures, based on our analysis of the public information we gleaned from the branches and our numerous call centre interactions that we had with each of the banks,” says Terence Hatzkilson, director at Horwath Forensics. “There was a lot of confusion when it came to whether our credit and garage cards were linked to the cheque accounts or were stand-alone. Some banks offer related discounts while others do not. It was tough to get the right answers – not only for us but also for the call centres.”
Our fictional family could bank more
diligently – if they applied their minds they could probably carry out their banking more cheaply. They draw cash over the counter, use cheques and are yet to discover the benefits of cellphone banking or use the Internet efficiently. In the interests of consistency and to enable us to compare fees over the past four years, we’ve kept our family ignorant of the possibilities open to them.
Things have also become more complicated since the introduction of the Nation- al Credit Act (NCA). Anyone with credit products prior to the NCA is regarded as a usury customer; anyone opening their first account since 1 June 2007 is called an NCA client, with different fees. That leads to some confusion.
“We received lots of conflicting information from the call centres as to what fees we were liable for as a usury client,” says Ryan Sacks, co-researcher and director at Horwath Forensics. “The confusion centred on admin fees for mortgages. We had to double and triple check with the call centres with regard to the applicable charges on mortgage admin fees, which as far as we could work out are charged by all the banks for all clients before and after the NCA.”
Horwath Forensics visited two branches of each of the Big Four banks. They chose to concentrate their activities on affluent Sandton, where branches at Benmore and Sand-
ton City were visited, as well as at Maponya Mall in Soweto. They sent our mystery shopper – “Fred” – to two branches of each of the Big Four in an effort to assess what a fixed number of transactions at each of the banks would cost.
They spent 40 hours – an average of 10 hours per bank – collecting information, interviewing client service consultants, consulting bank literature and websites to calculate the quantum of SA’s bank charges. The study was comprehensive and, we submit, more thorough than the vast majority of clients would do. There was also no interaction with bank head office pricing specialists this year, to ensure the numbers Horwath derived were as organic as possible.
The pricing of individual bank transactions remains considerably higher than the aggregate fee for package options. That encourages clients to use one-size-fits-all options – regardless of whether it’s in their best interests to do so or not. Rather than assess and advise clients on their individual needs, banks’ staff
default to offering package options to their clients. It may be a prudent use of internal resources because branch staff do need to deal with large numbers of face-to-face enquiries.
Both the Benmore and Maponya consultants recommended the pricey “Platinum Package” to Fred, based on his income rather than the volume of transactions he carried out. The Platinum offering has a more expensive monthly pricing fee than the gold product. Fred found service at the Maponya Mall branch of Absa poor. Just two client consultants were available – one of whom was “on lunch”, with no visible back-up.
The gold package costs R139/month, with 35 free transactions. Every transaction after that costs R10 and the “free” bundle excludes fees on Saswitch, branch withdrawals or cheques. The platinum offering comes in at R169/month for unlimited transactions, again excluding Saswitch, branch counter transactions and cheques.
However, our researchers chose the gold package, as it worked out cheaper based on volume. That implies the consultants didn’t consider the specifics of our researchers’ requirements but rather defaulted to a more expensive, status-orientated option.
Apart from Nedbank – which was forced to cut its fees over the past four years due to the threat of a client revolt when we first exposed the 162% gap between its packaged options and Standard Bank’s in 2005 – FNB has grown its monthly charges least over four years.
FNB’s annual increase in 2008 was just 4%. Our family, had it banked with FNB, would be paying 12% more than it did in 2005 on the PAYU system and just 38c more on the package option.
FNB also finally appears to have resolved its internal communications issue regarding its debit card transactions. While branch and call centre staff had recommended to our mystery shopper in previous years that he take up a gold cheque card, pricing specialists at headquarters were pushing the cheaper Visa Electron offering. The Electron offering does have limitations compared to the traditional, more costly, products.
Fred described service levels at FNB’s Benmore branch as
“unsatisfactory”. He was left to find his own way around the branch, which delayed service. Fred had just five minutes with a consultant, whose knowledge of pricing he described as “disappointing”. The consultant asked for no personal information on either salary segment or transaction history but defaulted simply to: “Most people nowadays are choosing the electronic packaged option.”
Fred had a better experience at Maponya Mall, which gave a more detailed comparison of fees and charges.
Nedbank has moved aggressively to address pricing in its retail banking division and has cut its fees. It’s also worked hard over recent years to shake its elite image. Our family would pay around 13% less this year on the PAYU basis than it did in 2005, and around 47% less on the package options.
Nedbank didn’t have a choice. Four years ago its pricing was way out of kilter with its peer group but the bank is now second to FNB on PAYU and cheapest in terms of its new-generation package offerings. Recent SA Reserve Bank DI-900 returns show that even though cutting its fees and dramatically growing its retail banking presence, Nedbank is still struggling to take market share from its peers. Its share of the credit card market is flat below 13%, it has a smaller slice of the overdraft market than it did 12 months ago, its mortgage market share has grown by one tenth of one percent, while instalment finance – the part of the banking sector currently struggling the most – has grown from 20,9% to 21,6%.
Fred found the consultant at Nedbank’s Benmore branch surly and inattentive. He failed to interrogate Fred’s banking behaviour or enquire about the sorts of products and services he might need. Unlike consultants from the other three banks, Fred was told he’d need to facilitate the switching of debit orders from his existing bank to any new account he opened at Nedbank. But service levels at Maponya Mall were much better and assisted switching was offered.
Standard Bank, which in 2005 emerged as the cheapest by a long way on its package offerings, has by Horwath’s calculations seen the biggest increase in fees since then.
According to our researchers, Standard Bank increased its packaged option charges to our family by 22% year-on-year from 2007 to 2008.
Fred described service at Standard’s Sandton City branch as “excellent”. Questions were asked about salary brackets and the number of transactions required. The researchers found a discrepancy between different Standard Bank brochures for 2008, describing petrol card transactions at R3,05 and R2,90. Horwath used the higher charge in its calculations.
While Sandton City received the highest accolade of any branch in the study, the Maponya Mall experience was decidedly more pedestrian. The Maponya Mall consultant contradicted Sandton City’s more helpful approach on debit orders, stating that Standard Bank didn’t offer a switching service for new clients. Putting as many clients as possible into the package options serves many purposes. Banks are assured of a minimum annuity income from each client, knowing there’s upside should a client bank outside the con- straints of the product offering to which they sign up. It’s also easier for harried staff to drive customers to the default option, as it requires less explanation than breaking down the myriad of pricing options available.
Most clients wary of paying high fees and on the advice of branch staff, default to the package option. There’s little or no advice on how to reduce charges beyond the recommendation of switching to packaged options. In many cases clients are sold packages by harried and overstretched branch staff who have time constraints or insufficient skills to advise clients on the minutiae of the complex web of fees and charges levied by the banks.