Pretoria - The Competition Commission's two-year enquiry into SA banking charges has found that charges are higher than what they would be at competitive levels and that banks have the ability to abuse their market power.
These findings were released by the commission on Wednesday, following a 22-month investigation into the level and structure of bank charges and access to the retail banking sector in SA by its banking enquiry panel.
"The panel concluded that transactional and interbank charges (bank charges) in South Africa are higher than what they would be at competitive levels," the commission said in a statement.
"The market structure, because of current information asymmetries and product complexities, means that the banks have the ability to abuse their market power."
The commission said that the information gathered by the enquiry paints a picture of a "complex and sophisticated banking system involving the big four banks", who together control over 90% of the retail market for personal transaction accounts.
"In 2006, transactional fee income represented one-third of the banks' total income, or R34.5bn," it said.
The enquiry's remit did not include interest charges or corporate and business banking.
The panel has made 28 recommendations "aimed at addressing concerns raised by consumers, small and prospective banks and non-bank stakeholders".
The recommendations cover five areas - penalty fees; ATM carriage fees; access to the National Payment System; payment cards and interchange fees; and products and pricing.
The commission says that once the full, 600-page report is released, it will - in consultation with the department of trade & industry (DTI) and the National Treasury - map a way forward.
Penalty fees
The enquiry found that penalty fees charged for rejected debit orders were "too high and contributed to the vicious cycle of consumer indebtedness; they are also levied disproportionately onto lower-income customers". Fees were as high as R110 per rejected transaction. It recommended a cap of R5 per rejected debit order, "which should be more than adequate to cover processing costs".
A second recommendation would require banks to adopt a system which will make it easier for customers to cancel debit order instructions directy at their bank, said the commission.
ATM carriage fees
The enquiry found that the way in which banks set the carriage fee, which is payable between banks when a customer uses the ATM of another bank, "is problematic under the Competition Act".
"The report advocates 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."
Five of the 28 recommendations deal with the current ATM pricing model which is applied to transactions where a customer of one bank uses the ATM of another bank.
The National Payment System
Opening access for non-banks to the national payment system (the clearing and settlement infrastructure) and developing an appropriate regulatory scheme will increase competition in the provision of banking services, the panel said. "The current system makes it difficult for potentially innovative competitors to enter the market."
The commission said nine of the panel's recommendations deal with the system and will require legislative changes.
"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."
Payment cards and interchange fees
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.
It found that while some payment streams may well require interchange, the method by which interbank fees are set - at the maximum level merchants are willing to bear - is where the potential abuse lies. This abuse contributes to rising shop prices across the board, unfairly punishing lower-income customers paying with cash.
Products and pricing
The panel found that the 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.
Recommendations to counteract their market power include 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 and a switching code. Other recommedations, such as a banking fee calculator and marketing generic customer profiles, are aimed at improving comparability.
The panel also recommended setting up a central FICA repository.
"This concludes the work of the enquiry panel, for which we are grateful," said Competition Commissioner Shan Ramburuth. ³The transparent, inclusive way in which the process was run sensitised all stakeholders to issues requiring attention.
"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."
- Fin24.com