Knee-jerk price war to win rival customers hurts banking
Companies / 14 June 2019, 12:30pm / Kabelo Khumalo
JOHANNESBURG - South African lender Nedbank said yesterday that it would not be irresponsible in how it slashed fees in response to the pricing wars, as new entrants and the country’s big banks battle to retain and prise consumers from their rival banks.
Vanesha Palani, the head of card, payments and transactional products at Nedbank, said “knee-jerk” price wars were not good for the industry.
“We can actually erode the value of an entire industry and it can collapse. So being responsible in pricing decisions is crucial.
“The reason I say this is because not everyone has the same factors in which they play with when they go into a price war,” Palani warned.
“You have to consider your segments. As Nedbank, our segment split is not the same as Tyme or African Bank for example.
"So you can’t say you have a hegemonic way in which you approach pricing as an industry, because our base is not the same and that’s why I say we have to be very responsible in how we approach pricing.”
In April Nedbank dropped the R5.50 monthly account fee on its Pay-As-You-Use account targeting South Africa’s emerging middle market.
First National Bank also said it would trim its monthly fee - by 80cents on the Easy Pay-As-You-Use account to R4.95 a month as from next month.
Standard Bank also launched its MyMo account last month to offer banking services for a fee of R4.95 per month, cheaper than its entry-level Access account, which charges R5.60 per month.
Capitec this year also cut the monthly fee on its Global One account fee when it was reduced to R5 from R5.80 monthly.
Nishlen Govender, a portfolio manager at Citadel, said the bank’s profits would take a hit from that which they had been used to.
Govender said this would create a healthy and competitive environment in the industry..
“New banks will continue to create pressure, but I struggle to see these banks taking significant market share away from the incumbents - and I include Capitec in that list,” Govender said.
“On the transactional side Capitec is a formidable competitor from a cost perspective, while banks like FirstRand and Standard Bank also have low-cost products that compete directly.”
The International Monetary Fund this month acknowledged that the entry of new players to the banking system contributed to the reduction of the pricing of financial products.
A World Bank study last year found shortcomings in the way South African banks treated their customers and said banking products were complicated, making it difficult for customers to compare products.
It said in some instances fees were charged unfairly and terms and conditions not disclosed appropriately.
The banking industry is eagerly awaiting the launch of Discovery Bank and Bank Zero to also enter the fray this year.
Asief Mohamed, a chief investment officer at Aeon Investment Management, said: “New banking entrants have already put pressure on the big five banks in the banking sector, with fee income being reduced to stay competitive.”