Friday, 4 June 2010

Minister takes it seriously (sort of)

Pravin had supper with some banks. He chatted to them about executive pay, new Basel requirements post-crisis, and ... the Banking Enquiry recommendations. Treasury then released a big long statement (13 pages dedicated to just the Enquiry) saying banks are expected to do x, y, and z by some unspecified date. 2 years of formal Enquiry work and report writing and 2 years of follow-up research, politicking, begging and pleading, has come to this one meeting.

I still think it's massive progress. They've promised a 'market conduct' regulator! At the very least a super-Ombudsman (though no-one is sure what sort of powers either might have, following from what laws. Detail!). Retail banking is the only consumer-oriented sub-sector in financial services that doens't have such regulation or oversight. No wonder customers never know what they're being charged for, much less penalised for. Coupled with the incoming Consumer Protection Act, this promise of more market conduct regulation might shed some light on the giant grey area that is customer 'service' in SA's retail banking industry.

We've also been promised a proper switching regime. Will it be something resembling the UK's, where the customer literally has to only issue instructions to the current and new banks, and sit back and verify information? Customers can even demand the process be completed within the 3 week preiod recommended by the Financial Services Authority. Soon, dear friends, we'll see how/if you will be able to vote with your feet slightly more easily than before.

That's assuming, of course, you can find something out there that is obviously cheaper. I have two responses to that. If the cost of switching comes down, and you no longer think it will take months to move all your debit orders, you're facing a stronger incentive to look than before. And if you do look, it doesn't take long to identify Capitec, FNB (EasyPlan and Smart), and Nedbank (Everyday, I think?) as the cheapest, and actually very cheap. Slightly more exotic are Bidvest and African - also cheap but probably less 'trusted'. After Saambou, Saffers are big on trusting their banks.

What about their actual fees, you say? They're too high, you bellow! Before responding please be reminded that the authorities are dealing ONLY with retail transaction accounts. Personal current accounts, as the British call them. They have nothing to say on interest rates, overdraft fees, mortgage fees, etc. In fact anything related to credit products fall under the regulation of the National Credit Act.

That said, they may have made some inroads into banks' penalty fee practices concerning dishonoured debit orders. Penalty fee reductions should occur on all accounts, but Treasury chose to focus on low income customers only. Who knows why. Either way though it's a big deal because this penalty is one of the few that isn't already regulated, and banks do make a great deal of non-interest income out of them. Explicit regulation of this fee would have brought some certainty; we'll have to see what Pravin's public guilt trip can generate. Will it make a difference to the banks that haven't already made changes?

What other fees could one reasonably expect to be 'force' down? Maybe ATM fees, and maybe some payment card fees. Needless to say there are no risk-free solutions. Right now if you want cheaper cash withdrawals, use a retailer, not an ATM. Not even your own bank's ATM. And to be perfectly frank on the payment card front all the clamour is for changes that help retailers save money on processing cards, which may in turn help customers with ever so slightly lower shelf prices. But those customers will probably need to pay more for their credit and debit cards. Swings and roundabouts.

On the myriad prices for all the other retail bank account services, I have the following to say. If you squeeze a water balloon (one that isn't too full) in one area, what normally happens? It pops out in another area. That's the problem with multi-product, highly differentiated oligopolies where the bigger players weild considerable market power. As long as they have market power, they can recoup profits lost as a result of direct regulation, from you. No regulator can, nor should, try to squeeze the balloon on all sides simultaneously. Not because it might burst, but because it can't be done efficiently and effectively. I mean really, how many South African regulators have got price regulation right?

No, the real solution is to reduce their market power. The only way to do that is to have more banks, switch more frequently between banks, or both. And we are getting there! Slowly. You, the customer, have the power. Go forth and switch, hopefully away from one of the big 4 baddies. Don't give me your rubbish about a 'relationship', or your home loan, or any other kak. And the trust thing! Don't get me started. Our banks are expensive partly because they come under the some of the most stringent prudential regulations found anywhere in the world. The reverance for, and fear of, RISK within the black walls of the SARB is quite something to behold. So stop your whining about size and reputation. Capitec is as solid as ABSA ever will be - it's run by like-minded ex-broederbond members.... (I think! Ha ha. But I mean how else do you get a banking license from Errol Kruger?).

More competition will (most often) get you better prices. More competition in banking has to bring some prices down, surely? I'm convinced that unless you are worth millions, more competition is the way to go. It will help you get better service for less far more effectively than any 'relationship' you might foster with a mid-level branch manager who failed accounting and became a banker instead. Think about that next time you apply for a loan, retch over your monthly bank charges, or are simply forced to endure another ridiculously expensive and mostly incomprehensible Standard Bank marketing campaign. Just don't ever apply for a loan from Capitec! Ha ha now you are confused.

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