Banks rip off clients on ATM fees

CONSUMERS pay a service levy of between 1,8 and 7 per cent on credit card transactions under the Visa or MasterCard brands, bringing high profits for banks, indicates the uncensored version of the South African Competition Commission’s report on bank costs, which was published online at the end of last year.

From the information provided to the commission, but which was classified as confidential, the four big banks received R3,8 billion in service-levy income in 2006 from card transactions. This includes the costs of issuing credit cards. The arguments raised by Visa and MasterCard that card transactions are cheaper than cash were not accepted by the Competition Commission.
An uncensored version of the confidential report however became available on the Wikileaks website of Wikipedia last month.
The report by the investigating panel, chaired by former judge Thabani Jali, found that the banks were colluding to stifle effective competition in the sector. Costs levied were exorbitant and not calculated on the basis of real expenses, reads the report.
Competition Commissioner Miranshan Ramburuth wrote to Wikileaks and requested that the uncensored version be removed from its website.
Of the R3,8 billion, R2,4 billion was paid out as transfer levies, reflecting Visa and MasterCard income. Service-levy income rose 30,7 per cent from 2005 to 2006 which, according to the commission, represented a hefty 60,2 per cent profit margin.
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 – Standard Bank, Absa, First National Bank (FNB), NedBank and Absa – issue cards, but these are supported by a third party, in most cases Visa or MasterCard.
Visa has about 11,5 million debit-card users in South Africa, and MasterCard and Maestro together some 12 million.
Standard Bank dominates the credit and debit card market with a 33 per cent market share. Together with Absa’s 26 per cent, the two banks control almost 60 per cent of the market. FNB has 21 per cent and NedBank has only 14 per cent.
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.
Total card transactions comprise 13 per cent of all transactions, compared to an average of 63 per cent in Britain.
– Finance24