Banks knew the writing was on the wall when the Competition Commission launched its inquiry into bank charges and access to the national payment system two years ago.

From the research reports that triggered the inquiry and the questions posed by the panel that conducted it, it was clear where the commission was headed and the likely action it would take.

The voluntary inquiry gave banks a rare opportunity to provide insight into how they operate.

An executive summary of the panel's report to Commissioner Shan Ramburuth reached his desk last week and will be released to the public mid-week. He was not prepared to discuss its content ahead of its release, and nor was panel leader Thabani Jali.

Ina Wilken, first vice-chairperson of the SA National Consumer Union, is keen to hear what the commission has to say. "This is the second inquiry into bank charges — the last one was about 10 years ago, and the banks got away with it. Consumers have been complaining about bank charges for ages and there really is no competition. Whichever bank you choose and whether you use debit or credit card, cheque or cash, it's much the same."

'Big five' issues

Wilken's luck could be in because bankers expect Wednesday's summary to identify a 'big five' of issues that will affect fees for ATM withdrawals, point-of-sale transactions (where customers swipe their card in the store) and other payments.

They also expect recommendations to improve access for non- banks — such as retailers and independent ATM operators — to the national payment system, the bank-owned network that enables bank customers to make and receive payments.

Based on discussions in the public hearings, FNB chief executive of core banking solutions Galia Durbach expects recommendations on making interchange fees more transparent; a switch to direct charging for ATM withdrawals; improved access to the national payment system; better disclosure and comparability of charges; and penalty fees.

FNB CEO Michael Jordaan said: "If those are the recommendations, we'd be very supportive of them because we ourselves suggested the charge changes in our sessions with the panel. Otherwise it's difficult to comment until the report is released."

Interchange fees are set by banks for using each other's payment infrastructure when their customers transact. The commission is likely to call for independent setting of them. Bankers would broadly welcome this.

But they point out that if interchange fees on card transactions drop , the main beneficiary will be merchants, such as shops and restaurants. It remains to be seen whether savings are passed on to consumers.

Banks with extensive "acquiring networks" point-of-sale devices at tills and ATMs benefit from higher transaction volumes than banks with smaller networks.

At present Saswitch fees are charged when a customer of one bank uses another bank's ATM.

The commission has favoured a direct charge model, whereby a customer who uses another bank's ATM to withdraw cash pays whatever that bank levies for the use of its ATM.

Absa's former head of pricing, Keith McIvor, said: "Direct charging for ATM usage is almost a dead cert, and there'll be a revised, much more transparent process for interchange fees for debit and credit cards and other inter-bank payments."

Unless carefully implemented, the direct charge model could actually increase ATM fees, particularly for small withdrawals in remote locations.

McIvor does not expect recommendations on penalty fees, but does not discount the topic being raised at a later date.

Despite persistent questioning, the panel could not establish a link between the banks' costs and the levy from customers. This is because banks do not look at cost on a per- transaction level. The most public data they release is an overall cost-to- income ratio.

Banks nevertheless gave detailed confidential information to the panel on how they arrive at fees at a product — as opposed to a transactional — level. Banks price on the return they need and the customer behaviour they want to encourage, charging less, for example, when customers use electronic channels.

"You recover your costs in different ways"

Jordaan says banks do not charge for every single thing a customer does or uses, explaining: "You recover your costs in different ways."

To an extent, banks have already incorporated some of the likely recommendations into their practices by offering fee calculators to enable customers to compare products, and advice on minimising charges.

Until they read the commission's summary, bankers were not prepared to discuss any likely loss of income.

Bankers are not steeling themselves for the sort of swingeing fines the commission imposed on the bread industry, because the panel did not find any evidence of collusion in price setting. The panel's job is solely to make recommendations.

However, some say the commission may have decided that, even if there were indications of abuse of market power, it would not attempt to prosecute banks, provided they acted on the panel's recommendations on charges and the payment system. Such a trade-off appears likely.

Having market power is not illegal; abusing it is.

Bankers are happy to open access to the national payment system to new entrants, provided that its integrity is not compromised.

McIvor expected access to be opened to non-bank providers of ATMs and, depending on what the Reserve Bank determined, to major retailers. Only the Reserve Bank can allow non-banks into the system.

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