South Africa’s big banks in trouble over fees

Finance Minister Enoch Godongwana has confirmed that the FCSA is investigating major banks’ transaction fee practices in South Africa. 

This was revealed in a recent parliamentary Q&A session, where the minister was asked if National Treasury was investigating “exorbitant” bank charges and whether there was a policy to address expensive fees.

In response, Godongwana confirmed that the Financial Sector Conduct Authority (FSCA) is conducting this investigation to determine whether further regulatory or policy interventions are required.

“The FSCA is responsible for overseeing the market conduct of banks, including the extent to which fees imposed by banks are fair and transparent,” Godongwana said. 

“Through its ongoing supervisory activity, the FSCA has observed several variations in the pricing approaches and structures between different banks.”  

Godongwana added that in some cases, there are significant disparities in fees between banks for the same or relatively similar products or services.

Additionally, the minister noted that the FCSA identified instances of some banks’ lack of adequate disclosure and customers’ poor understanding of these fees.

Godongwana further explained that the FSCA published a conduct standard for lenders in 2020, which became effective in July 2021. 

“The Conduct Standard requires banks to conduct business in a manner that prioritises the fair treatment of customers,” he said. 

“The Conduct Standard stipulates that a bank that provides financial products or financial services must ensure that the terms, conditions, and requirements in a contract between the bank and its retail financial customer, relating to a financial product or financial service, including fees and charges, are not unfair.” 

Godongwana added that the Conduct Standard does not define what constitutes an unfair or ‘exorbitant’ fee or charge. 

However, banks must demonstrate that their fees and charges are reasonable and do not lead to unfair outcomes for their financial customers. “It is on this basis that the FSCA will be conducting the assessment,” said the minister. 

The industry has changed, and costs must follow

Speaking on the issue, Bank Zero co-founder Michael Jordaan said he supports the FSCA’s concerns around legacy banking fees in South Africa, arguing that many of these charges are outdated and unjustified in the age of modern technology.

According to Jordaan, advances in technology have made it possible to eliminate many traditional banking charges.

“In today’s age, where you have a lot of new technology, one simply doesn’t have to charge for most of the bank fees.

Jordaan believes that regulatory attention should focus primarily on transparency and simplicity.

“I think the solution to this problem lies in regulating disclosure—disclosing everything you charge customers, making sure they understand it.” 

However, he stressed that meaningful changes, such as removing unnecessary legacy fees, should accompany complete transparency.

Acknowledging that banking infrastructure still incurs costs, Jordaan said it costs money to keep the IT infrastructure going. 

However, he insists there is a better way. “Customers should be free to choose what they pay and are willing to pay for.”

Jordaan suggests that banks offering traditional services, such as physical branches or cash-heavy transactions, can justify some fees. 

However, for purely digital banking, the cost of service delivery is minimal. “It is possible today to do all your banking on your smartphone… and that is very, very low cost. 

Jordaan also noted that there are already banks that offer little to no fees, and South Africans who disagree with their fees should explore what’s on the market. 

“Banking is a very interesting service where people don’t shop around for it every day, every week or every year,” he said. “People seem to take it as a very cumbersome thing to change banks, when it is not.”

He encourages customers to try new banks without fully abandoning their current accounts. “Try out a new bank first and, if you’re happy, increasingly bring more of your banking services along.”

“Do not consider your bank account and your banking relationship as a lifelong relationship. See it as another service provider where you have a choice.” 

“There’s active competition out there in the market, so shop around. You’ll find the market has provided a solution,” he added.