Standard Bank SA in the dock

By: ANN CROTTY

JOHANNESBURG - Thabani Jali, the chairman of the panel appointed by the competition commission to conduct the banking inquiry in South Africa, upbraided Standard Bank at Monday's public hearing for not providing it with useful information.

Jali said Standard Bank had failed to provide cost and revenue

information on a per-transaction basis, as requested by the panel,

unlike most of its competitors.

"You have given us very little information on issues such as

penalty fees that would enable us to determine whether this is a

problem area or not, although your competitors have provided the

necessary information."

 

Jali asked how best Standard Bank could provide information to

the panel that would enable it to make an informed finding.

 

A second panel member, Rob Petersen, added that because Standard

Bank had provided only cost and revenue data at an aggregated

level, it was "difficult to make sensible comparison between the

banks".

 

Peter Schlebush, the deputy chief executive of Standard Bank's

personal and business banking, said there had been a

misunderstanding with the panel's technical team about the

questionnaire it had sent to the bank.

 

He said the difficulty for the bank was that it did not manage

its business on a per-transaction and per-item basis, so it did not

have this information available.

 

Meanwhile, Standard Bank described as "a thoroughly bad idea" a

proposal for the creation of a simplified basic banking product

similar to Mzansi, but designed for the middle-income group.

 

The group argued that such a product would create rigidity and

undermine innovation.

 

At the public hearing of the banking inquiry, Standard Bank also

defended its policy of charging steep penalty fees, on the grounds

that these were intended to discourage "undesirable behaviour" by

customers.

 

When a debit order is rejected due to insufficient funds, South

Africa's banks charge a penalty of between N$75 and N$110 for an

ordinary current account and N$37 for a Mzansi account.

 

Keith Weeks of the commission's technical team said: "There is

no relationship between the level of the penalty fee and the cost

associated with the transaction that generated the fee."

 

Weeks said data that had been analysed by the technical team

suggested that a "substantial portion of bank fee income is derived

from penalty and penalty type fees.

 

The level and incidence of penalty fees was of particular

concern because they add to the overall costs faced by customers,

who were often not aware of the full extent of the penalty fees

that they could incur."

 

Weeks continued: "Poor customers are hit particularly hard as a

result of these fees, as they are most likely to experience

shortfalls in income and to temporarily have insufficient funds in

their account."

 

Sim Tshabalala, Standard Bank's chief executive of personal and

business banking, said that penalty fees were not a major source of

revenue for the bank.

 

He said a penalty fee was a fee for a breach of contract, and

that therefore cost and value issues did not arise.

 

Tshabalala added that the penalty had to be high enough to

discourage undesirable behaviour that could lead to increased

costs, cause legal risk, compromise the bank's brand and reputation

or attract scrutiny by the regulator.

 

On this point Hixonia Nyasulu, a member of the commission's

panel, said: "Putting aside whether it is a bank's job to teach

manners, do the penalty fees discourage undesirable behaviour?" In

reply to this question, Tshabalala said that no scientific study

had been undertaken on this particular issue.

 

Business Report

 

"You have given us very little information on issues such as

penalty fees that would enable us to determine whether this is a

problem area or not, although your competitors have provided the

necessary information."Jali asked how best Standard Bank could

provide information to the panel that would enable it to make an

informed finding.A second panel member, Rob Petersen, added that

because Standard Bank had provided only cost and revenue data at an

aggregated level, it was "difficult to make sensible comparison

between the banks".Peter Schlebush, the deputy chief executive of

Standard Bank's personal and business banking, said there had been

a misunderstanding with the panel's technical team about the

questionnaire it had sent to the bank.He said the difficulty for

the bank was that it did not manage its business on a

per-transaction and per-item basis, so it did not have this

information available.Meanwhile, Standard Bank described as "a

thoroughly bad idea" a proposal for the creation of a simplified

basic banking product similar to Mzansi, but designed for the

middle-income group.The group argued that such a product would

create rigidity and undermine innovation.At the public hearing of

the banking inquiry, Standard Bank also defended its policy of

charging steep penalty fees, on the grounds that these were

intended to discourage "undesirable behaviour" by customers.When a

debit order is rejected due to insufficient funds, South Africa's

banks charge a penalty of between N$75 and N$110 for an ordinary

current account and N$37 for a Mzansi account.Keith Weeks of the

commission's technical team said: "There is no relationship between

the level of the penalty fee and the cost associated with the

transaction that generated the fee."Weeks said data that had been

analysed by the technical team suggested that a "substantial

portion of bank fee income is derived from penalty and penalty type

fees.The level and incidence of penalty fees was of particular

concern because they add to the overall costs faced by customers,

who were often not aware of the full extent of the penalty fees

that they could incur."Weeks continued: "Poor customers are hit

particularly hard as a result of these fees, as they are most

likely to experience shortfalls in income and to temporarily have

insufficient funds in their account."Sim Tshabalala, Standard

Bank's chief executive of personal and business banking, said that

penalty fees were not a major source of revenue for the bank.He

said a penalty fee was a fee for a breach of contract, and that

therefore cost and value issues did not arise.Tshabalala added that

the penalty had to be high enough to discourage undesirable

behaviour that could lead to increased costs, cause legal risk,

compromise the bank's brand and reputation or attract scrutiny by

the regulator.On this point Hixonia Nyasulu, a member of the

commission's panel, said: "Putting aside whether it is a bank's job

to teach manners, do the penalty fees discourage undesirable

behaviour?" In reply to this question, Tshabalala said that no

scientific study had been undertaken on this particular

issue.Business Report

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