THE Competition Commission has fired a shot across the bows of the big banks with the release of a research report it commissioned on the national payment system (NPS) and on competition in the banking sector.

Senior bankers have spoken for some time of rising consumerism and expected bank charges to come under government scrutiny, so few of them were surprised by the Competition Commission's initiative as the government tries to reduce the cost of doing business in South Africa.

Standard Bank chief executive Jacko Maree said: "It's not surprising that bank charges are in the spotlight given that banks are doing well and making good profits. It's appropriate that we should be subject to public scrutiny and we will co-operate [with the commission]."

Nedbank CEO Tom Boardman said: "The report is not about conclusions, it's about highlighting areas of investigation. It's the beginning, not the end.

"The guts of the report are about the payment industry and, ultimately, about what people get charged. Retail bank charges are very topical and inevitably part of the spin-off of the report will move into that area."

First National Bank CEO Michael Jordaan said: "Improvements to the payment system can be made. The process, if handled responsibly, could benefit all with a better system, even more competition and lower fees for customers."

But the Competition Commission's report was to a large extent stillborn because on the same day the Reserve Bank released its Vision 2010 document setting out its high-level strategic guidelines for the NPS for banks and non-banks for the next four years.

Bankers say Vision 2010, which provides guidance on access to and supervision of the payment system, and sets standards for it, addresses most of the shortcomings of the NPS identified by the Competition Commission.

Some bankers and analysts were surprised by the timing of the report's release. One analyst went as far as to say the release was "irresponsible" and was "clearly influenced by a political agenda". He warned against the government "playing with the banking system" but conceded that banks had "issues" to deal with.

National Treasury spokesman Thoraya Pandy said: "We welcome the report â-oe it's a step in the right direction to look at the payment system and at competition in banking. It's part of our responsibility as the Treasury to look at the regulatory environment when it comes to bank charges."

She said the Treasury would take into account comments and views from all stakeholders in the sector.

Given that the NPS issues identified in the report are largely dealt with by the Reserve Bank initiative, the main interest for individual and business consumers will be in the report's call for greater transparency in the calculation of bank charges.

But, as one banker pointed out: "For all the noise about bank charges people are unbelievably slow to do anything about them."

The report's main author, Penelope Hawkins, said there was "little apparent link" between the costs of a transaction and the charges levied by banks.

Bankers will have to explain this at a public inquiry that will, among other things, look into the make-up of their fees.

The report has already been slammed by banking analysts as being misleading.

The report says banks earned R29-billion in 2004 from the national payment system of which R10-billion was "profit". But R10-billion is more than Standard Bank made in total last year, and more than three times Nedbank's headline earnings.

One analyst said the total fees and commissions figure for the big four banks (Absa, FirstRand, Nedbank and Standard Bank) was closer to

R35-billion last year if Absa's and FirstRand's figures were annualised. But he cautioned that his total figure also included income from African and other international operations -- such as Absa, FNB and Standard Bank's African units, and Standard Bank's London-based emerging-market operation.

It also included fees and commissions for corporate finance advisory services and for other knowledge-based activity, foreign exchange trading, insurance, estate planning, portfolio management, administration, guarantees, cash deposits, card transactions, electronic banking and fees for transactions at other points of representation.

"Within that figure there's no way you can get to the R29-billion mentioned in the report. A more likely estimate is closer to half that."

But analysts concede that two areas highlighted in the report -- Saswitch, the system used to settle transactions between banks, and interchange, the fee structure used to settle card transactions -- would come under close scrutiny.

The interchange fee structure, which has been under attack by governments elsewhere, was recently revised downward in a pro-active move by the banks and is said to be now based on the actual cost of infrastructure usage.

Some bankers, keen to induce customers to use electronic transactions instead of cash or paper, would welcome a commission ruling on how interchange fees should be set.

The review of bank charges is only just beginning. It remains to be seen whether banks act ahead of government intervention or whether they will stand their ground and show the politicians and consumers how ferociously they compete.

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By Richard Stovin-Bradford
Johannesburg 

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