Johannesburg - Bank charges in South Africa are higher than they would be at competitive levels, a Competition Commission banking inquiry panel has found.
"The market structure, because of current information asymmetries and product complexities, means that the banks have the ability to abuse their market power," the inquiry found in a report released on Wednesday.
The country's big four banks together controlled more than 90 percent of the retail market for personal transaction accounts.
Transactional fee income represented a third of banks' total income, or R34.5bn, in 2006, the inquiry noted after its 22 month probe, which included 21 days of public hearings and 101 stakeholder meetings.
"The banking sector is ripe for innovation on the back of new business processes and technologies," Competition Commissioner Shan Ramburuth said.
"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," he said.
The panel made 28 recommendations covering the areas of penalty fees; automatic teller machine (ATM) fees; access to the national payment system; payment cards and interchange fees; and products and pricing.
It observed that penalty fees for rejected debit orders were too high, contributed to the "vicious cycle of consumer indebtedness" and were levied disproportionately onto lower-income customers.
Customers shouldn't be penalised further
"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.
"The inquiry believes it is not the remit of the banks to further penalise their customers."
It recommended a cap of R5 per rejected debit order, "which should be more than adequate to cover processing costs".
It also suggested that banks make it easier for customers to cancel debit order instructions directly at their banks.
The inquiry found that the setting of charges for bank customers' use of other banks' ATMs was "problematic" under the Competition Act.
It advocated implementation of a direct-charging model, offering full disclosure and transparency at the start of the transaction to allow for more price competition in the provision of ATM services.
With regard to the national payment system, the panel advised that opening access for non-banks and developing an appropriate regulatory scheme would increase competition in the provision of banking services.
Difficult to enter market
"This issue was the focus of nine of the panel's recommendations and will require legislative amendment," it noted.
"The existing system makes it difficult for potentially innovative competitors to enter the market," it continued, recommending that the National Payment System Act be amended and the regulatory regime broadened to open the market to suitably qualified participants.
"The panel would like to see objective criteria applied across the board to all players to gain access to clearing houses. It also proposes the establishment of a payment system ombud to ensure fairness."
On payment cards and interchange fees, the inquiry found there was potential abuse in the method by which interbank fees were set - at the maximum level merchants are willing to bear - and that this abuse contributed to rising shop prices across the board, unfairly punishing lower-income customers paying with cash.
It 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.
Regarding products and pricing, the inquiry established that bundling, packaging and pricing made choices difficult for customers and weakened price competition.
"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 - creates customer inertia which enforces the banks' market power."
To counteract this, the panel suggested amending the Banking Association's code of banking practice to develop a minimum set of standards for disclosure of product and price information.
It also advised standardising terminology and creating a switching code and other measures aimed at improving comparability such as a banking fee calculator and marketing generic customer profiles, and setting up a central Financial Intelligence Centre Act (Fica) repository.