Standard Bank SA in the dock

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