Jali commission turns its eye to banking fees

JOHANNESBURG – The Jali commission, appointed to investigate competition in banking, resumed its public hearings yesterday and was expected to focus on the most controversial and sensitive aspects of banking, namely the fees and penalties banks charge.

The four-member panel appointed by the competition commissioner last August – Thabani Jali, Oupa Bodibe, Hixonia Nyasulu and Rob Petersen – is attempting to establish whether the current range of fees and penalties levied by the banks reflects the outcome of a competitive market or one where the banks have market power. Such market power would allow the banks to levy fees and penalties that bear little relationship to their costs.This may be unpleasant for consumers but, unless it involves collusion, it is not illegal.Essentially the commission’s heroic task is to try to make sense of the monthly statements bank customers receive.The tantalising prospect out by the commission is that in the not-too-distant future, when you receive a statement from your bank, you will be able to say: “Oh my, there’s another squillion rands gone on bank charges again, but that’s all right because now I understand why I have to pay so much money to withdraw funds from my account.”It’s because our very efficient and competitive banks have high, unavoidable costs to cover.”Alternatively the outcome of the commission’s investigation might find you seething even more as you contemplate your bank charges.It might just be that the commission’s investigation will point to the possibility that there is very little relationship between what the banks charge you and the related costs that they face; that the banks are doing what you have long suspected – charging you what they can get away with because they share control of an uncompetitive market.Proving that there is little relationship between the banks’ charges and their costs will be extremely difficult for the commission.This is chiefly because the industry is a highly complex and heavily regulated one.Such complexity is compounded by obfuscation on the part of some of the banks, which are keen to ensure that the lack of transparency that is an essential part of their pricing structures is not challenged too vigorously.In the past, the banks have argued that it is nearly impossible to provide straightforward data on charges, because they each offer such a varied array of products and the charges vary according to the product package.They argue that while trying to compare the various South African banks is almost impossible because of the “incomparability” of their products, attempts to make international comparisons are entirely futile.In the banks’ defence, it needs to be pointed out that not only are they generally very efficient and able to offer a world-class service, but part of their cost structure and the opaque manner in which they tend to operate reflects a somewhat old-fashioned obsession with banking regulations on the part of the authorities.The regulations that underpin the national payment system do seem to nurture, or at least camouflage, anti-competitive tendencies among the major players.Ironically even the competition legislation appears to have militated against introducing more competition in the industry.In an industry that is replete with unintended consequences, it appears that one of the four major banks was discouraged from cutting its Saswitch fees because it was prohibited, in terms of the Competition Act, from discussing the move with its competitors.If the other banks did not also cut their Saswitch fees, then the initiating bank would lose ATM volumes and be considerably worse off commercially.On the issue of regulations, one leading banker noted: “The focus has traditionally been on risk and ensuring that banks do not fail.It is only in the last few years that there has been a shift towards ensuring that banks compete effectively.”Unfortunately, this encouraging shift has coincided with growing concerns about money laundering, which has resulted in the introduction of the Financial Intelligence Centre Act.These regulations undermine competition to the extent that they make switching from one bank to another a horribly complex exercise.Certainly banks charge what they do because they can, but market power is only one part of the highly complex explanation.The current investigation by the competition commission is the first attempt to approach the issue holistically.By unravelling much of the complexity, the commission’s investigation, although unavoidably dense at times, is well on the way to defining some sort of solution to the gripes of bank customers without threatening the integrity of the system.Business ReportSuch market power would allow the banks to levy fees and penalties that bear little relationship to their costs.This may be unpleasant for consumers but, unless it involves collusion, it is not illegal.Essentially the commission’s heroic task is to try to make sense of the monthly statements bank customers receive.The tantalising prospect out by the commission is that in the not-too-distant future, when you receive a statement from your bank, you will be able to say: “Oh my, there’s another squillion rands gone on bank charges again, but that’s all right because now I understand why I have to pay so much money to withdraw funds from my account.”It’s because our very efficient and competitive banks have high, unavoidable costs to cover.”Alternatively the outcome of the commission’s investigation might find you seething even more as you contemplate your bank charges.It might just be that the commission’s investigation will point to the possibility that there is very little relationship between what the banks charge you and the related costs that they face; that the banks are doing what you have long suspected – charging you what they can get away with because they share control of an uncompetitive market.Proving that there is little relationship between the banks’ charges and their costs will be extremely difficult for the commission.This is chiefly because the industry is a highly complex and heavily regulated one.Such complexity is compounded by obfuscation on the part of some of the banks, which are keen to ensure that the lack of transparency that is an essential part of their pricing structures is not challenged too vigorously.In the past, the banks have argued that it is nearly impossible to provide straightforward data on charges, because they each offer such a varied array of products and the charges vary according to the product package.They argue that while trying to compare the various South African banks is almost impossible because of the “incomparability” of their products, attempts to make international comparisons are entirely futile.In the banks’ defence, it needs to be pointed out that not only are they generally very efficient and able to offer a world-class service, but part of their cost structure and the opaque manner in which they tend to operate reflects a somewhat old-fashioned obsession with banking regulations on the part of the authorities.The regulations that underpin the national payment system do seem to nurture, or at least camouflage, anti-competitive tendencies among the major players.Ironically even the competition legislation appears to have militated against introducing more competition in the industry.In an industry that is replete with unintended consequences, it appears that one of the four major banks was discouraged from cutting its Saswitch fees because it was prohibited, in terms of the Competition Act, from discussing the move with its competitors.If the other banks did not also cut their Saswitch fees, then the initiating bank would lose ATM volumes and be considerably worse off commercially.On the issue of regulations, one leading banker noted: “The focus has traditionally been on risk and ensuring that banks do not fail.It is only in the last few years that there has been a shift towards ensuring that banks compete effectively.”Unfortunately, this encouraging shift has coincided with growing concerns about money laundering, which has resulted in the introduction of the Financial Intelligence Centre Act.These regulations undermine competition to the extent that they make switching from one bank to another a horribly complex exercise.Certainly banks charge what they do because they can, but market power is only one part of the highly complex explanation.The current investigation by the competition commission is the first attempt to approach the issue holistically.By unravelling much of the complexity, the commission’s investigation, although unavoidably dense at times, is well on the way to defining some sort of solution to the gripes of bank customers without threatening the integrity of the system.Business Report