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Johannesburg - Consumers pay a service levy of between 1.8% and 7% on credit card transactions under the Visa or MasterCard brands, indicates the uncensored version of the Competition Commission's report on bank costs, which has been published online.
The service levy, or merchant service charge (MSC), forms part of a complicated system of reciprocal payments in which up to four parties - the bank, the consumer, the merchant and the card issuer - can be involved.
All the major retail banks - Absa, First National Bank (FNB), Nedbank and Standard Bank - issue cards, but these are supported by a third party, in most cases Visa or MasterCard.
Visa has about 11.5m debit-card users in South Africa, and MasterCard and Maestro together some 12m.
Standard Bank dominates the credit and debit card market with a 33% market share. Together with Absa's 26%, the two banks control almost 60% of the market. FNB has 21% and Nedbank has only 14%.
From the information provided to the commission, but which was classified as confidential, in 2006 the four big banks received R3.8bn in service-levy income from transactions. This includes the costs of issuing credit cards.
Of this, R2.4bn was paid out as transfer levies, reflecting Visa and MasterCard income. Service-levy income rose 30.7% from 2005 to 2006 which, according to the commission, represented a hefty 60.2% profit margin.
For card issuers it is important to achieve an adequate profit margin because South Africans, unlike those in other parts of the world, still have a high preference for cash. According to figures Absa supplied to the commission, 49% of all transactions are still cash-based. FNB says in its case the figure is 60%.
Total card transactions comprise 13% of all transactions, compared to an average of 63% in Britain.
The arguments raised by Visa and MasterCard that card transactions are cheaper than cash were not accepted by the commission.
The commission considers cards potentially to be less expensive, but this is not in fact so because most South Africans are excluded from their use.
- For more business news in Afrikaans, go to Sake24.com