http://www.engineeringnews.co.za
  SEARCH
Login
R/€ = 14.22Change: -0.23
R/$ = 11.16Change: -0.09
Au 1240.10 $/ozChange: -4.17
Pt 1243.50 $/ozChange: -18.70
 
 
Note: Search is limited to the most recent 250 articles. Set date range to access earlier articles.
Where? With... When?








Start
 
End
 
 
And must exclude these words...
Close Main Search
Close Main Login
My Profile News Alerts Newsletters Logout Close Main Profile
 
Agriculture   Automotive   Chemicals   Competition Policy   Construction   Defence   Economy   Electricity   Energy   Environment   ICT   Metals   Mining   Science and Technology   Services   Trade   Transport & Logistics   Water  
What's On Press Office Tenders Suppliers Directory Research Jobs Announcements Contact Us
 
 
 
RSS Feed
Article   Comments   Other News   Research   Magazine  
 
 
Jun 25, 2008

SA’s bank charges too high, inquiry finds

Back
Africa|MasterCard|Packaging|System|Africa|South Africa|Bank|Bank Charges|Business Banking|Packaging|Product|Products|Retail Banking Sector|Retail Market|Service|Services|Solutions|Competition Commission|Power|Shan Ramburuth|Disclosure|The Costs|Transparency|ATM
Africa|Packaging|System|Africa||Packaging|Products|Service|Services|Solutions||Power|||
africa-company|mastercard|packaging-company|system|africa|south-africa|bank|bank-charges|business-banking|packaging|product|products|retail-banking-sector|retail-market|service|services|solutions|competition-commission|power|shan-ramburuth|disclosure|the-costs|transparency|atm
© Reuse this South Africa’s bank charges were higher than what they would be at competitive levels, the Competition Commission said on Wednesday, following the completion of an inquiry into the level and structure of bank charges and access to the retail banking sector.

The banking enquiry panel, which was established in August 2006, has found that the current market structure, because of current information asymmetries and product complexities, meant that South African banks had the ability to abuse their market power.

The commission said in a statement that the information gathered by the enquiry had painted a “complex and sophisticated” banking system involving the four big banks, which controlled over 90% of the retail market for personal transactions.

It stated that, in 2006, transactional fee income had represented one-third of banks’ total income, or R34,5-billion. The enquiry’s remit did not include interest charges or corporate and business banking.

The panel made 28 recommendations aimed at addressing concerns raised by consumers, small and prospective banks and nonbank stakeholders.

The first area of concern related to the high penalty fees charged for rejected debit orders. The enquiry has found that these fees – sometimes as high as R110 a transaction – were too high and that they contributed to the “vicious cycle” of consumer indebtedness.

“Penalty fees on rejected debit orders contribute significantly to the earnings of the banks and are much higher than the cost associated with processing the transaction. Additionally, customers are penalised for rejected debit orders by the service provider with whom they have a contract,” it said.

The enquiry believed that banks do not have to further penalise their customers and recommended a cap of R5,00 per rejected debit order. This should be “more than adequate” to cover processing costs.

A second recommendation was that banks adopt a system which would make it easier for customers to cancel debit order instructions directy at their bank.

Five of the 28 recommendations addressed the current ATM pricing model, which was applied to transactions where a customer of one bank used the ATM of another bank.

The enquiry found that the way in which banks set the carriage fee – payable between banks when a customer uses the ATM of another bank – was problematic under the Competition Act. The report advocated the implementation of a direct-charging model, offering full disclosure and transparency at the start of the transaction, in order to allow for more price competition in the provision of ATM services.

The report also stated that opening access for nonbanks to the national payment system and developing an appropriate regulatory scheme would increase competition in the provision of banking services.

“The current system makes it difficult for potentially innovative competitors to enter the market,” it stated, adding that it recommended amending the National Payment System Act and broadening the regulatory regime to open the market to suitably qualified participants.

The panel said it was presented with concerns around the existence and level of current interbank arrangements and the costs associated with branded payment cards (Visa or MasterCard). It has found that, while some payment streams might well require interchange, the method by which interbank fees were set – at the maximum level merchants were willing to bear – was where the potential abuse was.

“This abuse contributes to rising shop prices across the board, unfairly punishing lower-income customers paying with cash,” it stated.

The enquiry recommended that interbank fee setting be subject to an independent, objective and transparent regulatory process and that certain rules established by MasterCard and Visa be abolished.

Nine recommendations addressed the difficulty consumers face while making product and price comparisons. Bundling, packaging and pricing make choice difficult and weaken price competition. The panel found that the complexity of products and prices, inadequate transparency and disclosure and the costs associated with switching – combined with the reluctance of banks to price compete – created customer inertia that enforced the banks’ market power.

Recommendations to counteract their market power included amending the Banking Association’s Code of Banking Practice to develop a minimum set of standards for disclosure of product and price information, standardisation of terminology as well as a Switching Code. Other recommendations, such as a banking fee calculator and marketing generic customer profiles were aimed at improving comparability. Setting up a central FICA repository was also recommended.

“This concludes the work of the enquiry panel, for which we are grateful,” said Competition Commissioner Shan Ramburuth.

“The banking sector is ripe for innovation on the back of new business processes and technologies. Already we are seeing responses consistent with the direction of this report, which can fuel this dynamism. We look forward to the continued co-operation of the banks to find solutions to these complex matters.”

Once the full, 600-page report was released, the Competition Commission in consultation with the Department of Trade and Industry and National Treasury would map a way forward.

The enquiry was held from August 2006 to June 2008. During these 22 months, the panel and the technical team held 21 days of public hearings in three cities and conducted 101 stakeholder meetings.

The views of a range of interested parties including banks, consumer groups, small and prospective banks, non-banks and regulators were canvassed during this process.
Edited by: Mariaan Webb
© Reuse this Comment Guidelines (150 word limit)
 
 
 
 
 
 
 
 
 
Latest News
Swedish Ambassador to South Africa Christian Meuwly will next week inaugurate the final roll-out of the new vertical shaft brick kiln (VSBK) at clay brick manufacturer Langkloof Bricks’ facility in Jeffrey’s Bay. The VSBK formed a part of economic, social and...
Hot on the heels of the launch of Rustenburg’s rapid transport system’s brand name and logo last week, a negotiation framework agreement (NFA) has been formally agreed to and signed by the Rustenburg Local Municipality (RLM) and taxi and bus operators affected by the...
The runway at the George Airport, in the Western Cape, has been rehabilitated to improve safety, in terms of run-off and storm water drainage, and the structural capacity of the pavement surface. The scope of work comprised the extension of Runway 11/29, the...
More
 
 
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
 
 
 
 
 
This Week's Magazine
Integrated energy and chemical company Sasol has partnered with Unisa Graduate School of Business Leadership (SBL) professor and founder and CEO of PanAvest Partnership Dr Douglas Boateng to publish a series of books on executive supply chain management aimed at...
MORNÉ DU PLESSIS Increased urgency and burgeoning awareness of the importance of these issues are beginning to change political risks and, thus, State responses to environmental concerns
The World Wide Fund for Nature’s (WWF’s) 2014 Living Planet Index (LPI) indicates that there has been a 52% decline in vertebrate species since 1970. The Index tracked the trends of 10 000 discrete populations of over 3000 vertebrate species between 1970 and 2010.
Rwanda has joined a number of East African countries seeking to import electricity from Ethiopia as its demand grows. After it became apparent several generation project it is implementing will not come on stream early enough, now plans to import 400 MW from Ethiopia...
Metrorail’s first new passenger train will arrive in November next year, says Passenger Rail Agency of South Africa (PRASA) CEO Lucky Montana. “Next year we will be able to put our hands around the infrastructure and equipment we have been talking about for so long.”
The Competition Commission has launched an investigation into what it says are “price fixing, market division and collusive tendering in the market for the manufacture and supply of automotive components to original equipment manufacturers” (OEMs, or vehicle...
 
 
 
 
 
 
 
 
 
Alert Close
Embed Code Close
content
Research Reports Close
Research Reports are a product of the
Research Channel Africa. Reports can be bought individually or you can gain full access to all reports as part of a Research Channel Africa subscription.
Find Out More Buy Report
 
 
Close
Engineering News
Completely Re-Engineered
Experience it now. Click here
*website to launch in a few weeks