Capitec’s position as SA’s most affordable bank under threat

Absa, First National Bank and Standard Bank have become far more competitive in the pricing of their accounts for the low-income market – to the benefit of you, the consumer. Lorraine Kearney reports Do rude tellers get up your nose?

Capitec still reigns supreme as the most affordable bank among middle-income earners, but three of its “big four” competitors are challenging its top spot in the lowincome sector.

This is according to the sixth Solidarity Bank Charges Report, released by the Solidarity Research Institute (SRI) this week. The report is an interim one, because the institute will, from next year, release its report in the first half of the year. Because banks revise their fees at the beginning of the year, releasing the report soon after the fees have been revised will make it useful to consumers for longer, it says.

The study covers only the 12 accounts or account options the largest five banks market to people with low incomes and the bundle accounts that are marketed to the middle-income segment of the market. It is based on four user profiles, defined by number of transactions a month rather than income level – 12, 17, 24 and 29. This is because almost no fees, except those on cash withdrawals and deposits at some banks, vary according to the amount you withdraw or deposit. In general, the number of transactions increases as income increases, the study says.

The report deals only with the bank charges of personal transactional accounts and doesn’t take into account credit facilities such as credit cards and overdrafts.

Capitec’s Global One account is no longer the clear winner on fees in accounts marketed to low-income earners, the study has found. First National Bank’s (FNB’s) EasyAccount and Absa’s Transact are competing well, and Standard Bank’s AccessAccount on the pay-as-youtransact option is not far behind.

In the middle-income market, Capitec is still much cheaper than the other banks, even for clients who do many transactions a month. When the interest Capitec pays on account balances is factored in, this gap increases.

LOW-INCOME MARKET

While none of the five banks made big changes to the structure of their accounts marketed to low-income earners, there were significant changes to the levels of fees.

Aggressive competition from FNB’s EasyAccount and Standard Bank’s AccessAccount have given Capitec’s Global One account a run for its money. Absa’s Transact is also competitive, even though its fees increased slightly, but Nedbank’s Ke Yona accounts are still far and away the most expensive, despite a drop in some fees.

Capitec slightly increased its fees for withdrawing cash, but paying interest on the balances in its clients’ accounts keeps its overall costs competitive.

For example, on the 12 transactions profile, FNB’s EasyAccount is the cheapest at R17.25 a month, followed by Absa’s Transact at R24.25 and Standard Bank’s AccessAccount on the pay-as-you-transact option at R25.20. Capitec comes in fourth most expensive at R31.90 a month, and Nedbank fifth.

But if the interest paid on the balance in the Capitec account is factored in, this changes. A Capitec client with an average balance of R5 000 throughout the month, for example, will, at a rate of 4.5 percent, receive interest of R18.37, offsetting most of the charges, making Capitec’s the cheapest account, with a net cost of R13.53.

On the next profile, 17 transactions a month, Capitec drops to second place behind FNB, even factoring in the R18.37 interest on the average balance on R5 000.

FNB made two key changes on its EasyAccount – the fee for an internal debit order decreased from R1.50 to zero and the fee for an internet payment (electronic funds transfer or EFT) decreased from R3.20 to R1.50. But FNB increased other fees, such as fees for ATM withdrawals and external debit orders.

FNB’s savings pocket earns interest at a rate of 4.75 percent on balances below R20 000 on its EasyAccount – this is not the case with the savings pockets on its other accounts – and the rate drops on balances over R20 000. But it does require you to move money out of your transactional account and into the savings pocket, which is more onerous than Capitec’s blanket interest on your balance.

In addition, FNB does not charge fixed fees for ATM withdrawals – Capitec and Transact do – and its fees escalate quickly as the amount of money withdrawn increases. This can raise the fees on the account significantly over the month.

“Some of the accounts, such as Standard Bank’s AccessAccount on the Plus option and all three options of Nedbank’s Ke Yona account, were not competitive in terms of cost at all,” the SRI report says.

However, the AccessAccount on the pay-asyou-transact option competes much better this year following the decision by Standard Bank to scrap all fees on cash withdrawals at till points and for internet payments, internal debit orders and stop orders. SRI points out that while it is not the cheapest account, the convenience of the thousands of AccessPoints across the country may “offset this slight excess cost for many clients”.

The only bank bucking the trend towards cheaper banking in this segment of the market is Nedbank. It has removed the subscription fees for SMS updates and internet banking on the pay-as-you-transact option, “but even so, there does not appear to be any reason why someone interested in saving on bank charges would choose any Ke Yona account over an account from one of the four competitors,” the report says.

MIDDLE-INCOME MARKET

In the middle-income market, the trend among the Big Four is still towards dropping pay-as-you-transact options, and this year FNB scrapped the pay- as- you- transact option on its Gold account entirely.

On accounts from Absa, Standard and Nedbank, it does not make financial sense to pick the payas- you- transact option over the bundle option.

Even on the 12-transaction profile, Absa’s Gold pay-as-you-transact and Nedbank’s Savvy pay-as-youtransact options are more expensive than their bundle options; Standard’s Elite pay- as- you- transact option is marginally cheaper than its bundle option. On all the other transaction profiles, the pay-as-youtransact accounts from these three banks are significantly more expensive than their bundle counterparts.

In this market segment, Capitec’s Global One is by far the cheapest account, even before taking interest into account. On 12 transactions a month, a user pays R31.90 a month. If the user has an average balance of R10 000, the account earns interest of R36.75, offsetting the fees entirely. Because it is a pay-as-you-transact account, the fees go up the more transactions you do, but even at 29 transactions a month, at a cost of R80.50 (before interest is paid on the balance) this is a cheaper account than its competitors.

The bundle-option fees of the accounts at the other four banks are only marginally different: What would frustrate you enough to switch banks? Most respondents in a global survey said it was not benefits or lower bank charges that would make them move, but rude or uninterested staff. A recent customer loyalty study commissioned by New York-based analytics company Verint Systems found that only 24 percent of the 18 000 people surveyed in nine countries indicated that their bank delivered good service. And when they were asked what would provoke them to switch banks, there were two leading reasons: “impolite, rude or uninterested staff” and “too many mistakes”, both with 22 percent.

In South Africa, customer service and price were particularly important for consumers; impolite or uninterested staff (23 percent) was seen as more important than finding a cheaper alternative (19 percent) as a reason for switching banks. Consumers in the United Kingdom were even more opposed to bad service, with 28 percent saying they would change banks because of impolite or uninterested staff and 25 percent because of too many mistakes.

Getting it right is critical, Jenni Palocsik, the director of solutions marketing for Verint Systems, says. She says that, done well, branches can be transformed to give banks a competitive advantage. – Staff Reporter ◆ Standard Bank Elite Plus: R95 ◆ Absa Gold Value Bundle: R98 ◆ Nedbank Savvy Plus: R99 ◆ FNB Gold Cheque Unlimited: R100

Here, your decision on which account to choose would be influenced more by what is included and excluded from the bundle as well as any extras, such as rewards, but SRI does not do a full analysis of the rewards programmes. Instead, it advises you to make sure you know what the rewards are.

Some transactions fall outside the bundles for these accounts, but in the transactional profiles it uses, the study finds that the only regular fees that increase the costs of these accounts above the nominal monthly fees are those for transaction notifications to third parties – specifically payment notifications via SMS to beneficiaries of an electronic funds transfer. These are: ◆ Nedbank: free ◆ Absa: 80c ◆ Standard: R1.00 ◆ FNB: R1.15 Nedbank charges R4 for a cash withdrawal at a till point, while the others charge nothing.

“Although the cost differences among the bundle accounts are minimal, there is still strong competition among the banks at this level,” Paul Joubert, the senior researcher at the SRI, says. “For example, where Standard Bank’s elite Plus account last year was generally the most expensive in this group, this year it is mostly the cheapest after Capitec. This year, FNB’s Gold Unlimited account is the most expensive of the bundle accounts.” (See table, left, for the rankings for the middle- income accounts).

The cost differences between these accounts are so small, customers will look for value elsewhere, SRI says. This could be something as simple as the location of branches or the friendliness of staff at a specific branch, but as electronic banking becomes more popular, this becomes less important.

Banks also attract clients through product synergies that result in lower fees, the report says. Examples are a discounted account for your spouse if you have Standard’s Elite Plus account, or lower fees on an Absa Value Bundle if you have an Absa credit card.

And then there are bank rewards programmes. Absa has its Cash Rewards, FNB has eBucks, Nedbank has Greenbacks, and Standard has Ucount. These appear to be more important in marketing than the marginal cost differences between the accounts.

Access to FNB’s eBucks is free on the middle-income bundle accounts; Nedbank charges R17 a month for access to Greenbacks, Standard R20 a month for Ucount, and Absa R21 a month for Cash Rewards.

But the requirements for earning rewards and the ways to redeem them differ considerably.

“Clients interested in these rewards programmes should do their homework properly before deciding which bank to support,” Joubert says. “They should also take note of the fact that the terms and conditions of these programmes can change often.”