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The latest Solidarity Bank Charges Report, which analyses the best-value bank account based on usage, shows that banking is becoming more competitive.
Since the arrival in 2003 of the low-cost, no-frills Global One account from Capitec, the traditional big four banks have been forced to drive down the cost of banking, and Capitec is no longer necessarily the cheapest choice.
LOWER-INCOME EARNERS
When it comes to bank accounts for lower-income earners, defined as individuals who do 12 banking transactions a month, the other four banks all have cheaper offerings than Capitec’s, that, on a fee-only basis, comes in at R33.05 a month.
Absa Transact is the most cost-effective at R24.45 and is the only bank account that does not charge penalty fees on rejected debit orders or declined transactions.
Although Paul Joubert from the Solidarity Research Institute argued that Capitec would be the least expensive option when factoring in interest earned on an average balance of R2 000 a month, realistically, this segment is unlikely to hold an average balance of R2 000 to offset their bank fees.
Based on figures from FNB EasyAccount, 85% of customers in this segment hold average balances of less than R2 000, and 65% hold balances of less than R500.
However, for higher-income earners, who would realistically have a positive average balance in their account, the interest rate paid by Capitec has a significant effect on overall fees.
MIDDLE-INCOME EARNERS WITH 25 TRANSACTIONS A MONTH
For this segment, on a pure fee-only basis, Capitec’s fees come in at substantially less than the other banks at R74.05.
If, however, you maintain an average balance of R2 000 or R10 000 a month, the interest offset reduces the banking cost to R65.34 or R30.52, respectively.
The cost of the other banks’ products for this segment are fairly close, ranging from Standard Bank’s Elite Plus at R100.25 a month to Nedbank’s Savvy Plus at R108.
UPPER-MIDDLE INCOME WITH 30 TRANSACTIONS A MONTH
In the report, researcher Joubert left Capitec out of the comparison for higher-income earners because he believed that individuals who wished to access more expensive banking products were doing so to gain reward programmes or to have access to a private banker.
However, if Capitec is included, it again comes in as the cheapest option at R90.25 before interest is taken into account.
Considering that this segment is likely to hold an average balance of R10 000 a month, the offset would reduce the effective bank fees to R46.72.
In terms of its competitors, Absa’s Platinum Value Bundle is the most cost-effective at R163.80, followed by Nedbank’s Savvy Bundle at R180, FNB’s Premier Unlimited at R182.20 and Standard’s Bank Prestige Plus at R185.30.
BUNDLING IS CHEAPER
If you are still on a pay-as-you-transact (PAYT) account, it may be time for a change.
The Solidarity report identified a trend towards offering bundled options, where customers pay a set amount each month for a bundle of transactions.
Joubert found that for middle- to higher-income earners, the PAYT accounts were now more expensive than bundled accounts.
“At these income levels, most account holders will pay a lot more on a PAYT account than on a similar bundle account,” says Joubert.
According to Jan Moganwa, chief executive of customer solutions, retail and business banking at Barclays Africa, bundled offers have become increasingly popular among individuals who do more banking transactions.
“We have definitely seen this trend reflected in our own customer base. Across our current account range of products, the majority are already on bundled offers and nearly all new sales are also being done on Absa Value Bundles,” he says.
Moganwa does warn, however, that not all customers will benefit from choosing a bundle. Customers who only do a few transactions a month will not use all the free transactions included in the bundle.
This means that they will potentially pay more than they would have had they been on a PAYT offer.
Francois Viviers, marketing and corporate affairs brand manager at Capitec, says this is why Capitec is not considering a bundled offering, despite the trend among its competitors.
“We believe that by keeping the fees visible and transparent, the client is in control and it is clear to them how they benefit. For example, they know that if they swipe their card at a merchant, it is free, compared with withdrawing cash from an ATM.
With a bundled fee option, there is always some cross-subsidisation happening – one person is paying for someone else’s banking,” he says.
