I cant remember when last I had a conversation with a South African small business owners when the word 'Bank' or 'Bank Charges' did not come up somewhere in the conversation. As apposed to countries like the US, UK and much of Europe where low banking costs and often free banking is the order of the day, banks on South Africa still seems to justify to themselves why they can charge small business owners astronomical bank charges whilst delivering a basic and often poor service. I would be surprised if there was anyone on this forum or elsewhere in South Africa who has a different experience and view of this - Ben:

Charlene Clayton reports

Nedbank's new pricing structure seems to signal a significant mind-shift by South Africa's banks on the importance of looking after you, the client. The reaction from the other major banks indicates that the competition may be hotting up.

In a small step for consumers, but a giant step for the country's banks, you may benefit from a slowdown in ever-spiraling bank charges.

Nedbank, in a break with the major banks' tradition of increasing their charges every year, has announced that it will not increase any of its transaction fees for its individual and small business account holders.

And, because Nedbank will actually reduce some of its transaction fees, all Nedbank's individual and small business clients will be paying lower monthly bank charges from July 1.

However, the other big banks say they have been more competitive than Nedbank for some time. They say Nedbank's new pricing structure is a necessity because its charges have been the most expensive.

Saks Ntombela, the managing director of retail transactions and investment products at Nedbank, says there are no hidden surprises in the bank's new pricing structure.

Nedbank will take a cut - speculated to be in the order of R100 million to R700 million - in its projected profits in order to contain and reduce its fees, Ntombela says. The bank derives about one-third of its revenue from transaction and service fees.

He "preferred not to say" what will be the extent of the projected drop in profits, except that it will be "significant" and that the amount will be closer to R100 million than R700 million.

While shareholders may forfeit some profits in the short term, Ntombela says the decision to contain or reduce fees is a significant step that will allow Nedbank to reposition itself in the market. He says the move could deliver increased profits in the long term if the bank gains new clients.

Ntombela denies that Nedbank's move signals the start of a price war with the other banks. "A pricing war would not benefit any business."

Nedbank's fees on some account packages for individuals have been higher than those of other banks, Ntombela says, and Nedbank is determined to change the perception that it is expensive to bank at Nedbank.

Win back clients
Nedbank has been losing clients over the past few years, and the bank's rationale for containing or reducing its transaction fees is clear: it wants to win back disgruntled consumers and attract new clients.

"Our decision to contain increases last year and to reduce fees this year is evidence of the bank's commitment to offer clients value for money," Ntombela says.

He says Nedbank's move is not a reaction to the Competition Commission's report on bank charges which was released at the end of April.

In its report, the Competition Commission expressed concern about high fees and the lack of competition among the country's four biggest lenders: Absa, First National Bank (FNB), Nedbank and Standard Bank.

Ntombela says Nedbank has been working on its pricing strategy for the past 18 months.

The other big banks reacted with some vigour to Nedbank's move as each one tried to "prove" that it is the most competitive bank.

Janet Johnston, the chief operating officer of core banking solutions at FNB, says Nedbank had to restructure its charges because it was out of step with the rest of the market.


"We [the banks] compete aggressively on price," she says.

FNB's pricing is competitive compared with the other banks, Johnston says, but if it finds that this is not the case, FNB will consider taking a cut in profits so it can reduce its charges.

She does not believe a pricing war between the banks is imminent.

There has been a lot of hype about bank charges in South Africa, Johnston says, with claims that local banks charge higher fees than those in the United Kingdom.

But, she says, the way British banks charge fees is the exception to the international norm, and so it is unfair to compare the fees charged by banks in South Africa with those in the UK.

British banks earn revenue on money that is transferred between clients, Johnston says. For example, the banks earn interest on cheques while they are being cleared. South African bank clients receive full interest on any cheques paid into their accounts, even if the cheques have not been cleared for withdrawal for five days, Johnston says.

When compared with bank charges in other developing countries, such as Chile and Brazil, South African bank charges are not out of line, she says.

Keith Fuller, the director of banking products at Standard Bank, says Nedbank's new pricing structure indicates a significant turnabout in its strategy, which appears to be to lure back the lower-income banking market, which, he says, Nedbank chose to alienate in the late 1990s.

Even after taking Nedbank's reduced charges into account, Fuller says Standard Bank's Mzansi and current account products (bundled and unbundled) are more competitive.

"Nedbank's new pricing strategy is just one of the steps they will need to take to address their revised market positioning, and we await their next steps in addressing distribution, product design and service strategy with keen interest," he says.

Fuller says Standard Bank has contained its price increases over the past few years to low levels.

"In particular, in both 2005 and 2006, fee increases on transactional accounts have been kept below inflation at 4.4 percent and 2.3 percent respectively," he says.

Value for money
Keith McIvor, the general manager of products and pricing at Absa, says Absa has always been conscious of the need to keep its fees competitive, affordable and fair, and the bank will continue to ensure that its customers get value for their money.

He says Absa's pricing structure is not only influenced by developments in the banking industry, but is also designed to support its drive to make banking more accessible and affordable for all its key markets.

McIvor says despite the widespread perception that banking is expensive, Absa clients can bank for as little as R4.68 a month by using the bank's fee rebate option which is available on its current and savings accounts.

To qualify for the rebate option, clients need to maintain a balance of R10 000 in their accounts throughout the month. For clients who cannot keep R10 000 in their accounts, he says FlexiSelect, the bank's low-cost transactional account, allows clients to do five transactions for R30 a month.
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