The small-business banking challenge

2013-04-14 14:00

Which bank offers this entrepreneur the best bank account package?

Nathan Calitz, owner of Eat Cubed, a small eatery in Hout Bay, Cape Town, has been struggling to find the right business bank account.

Calitz currently spends R1?000 a month on bank fees for his business, which is a significant portion of

his turnover and is affecting his bottom line.

Calitz’s biggest banking cost is his merchant card terminal, or “point of sale” device.

“My current bank has a minimum charge because I do not have a high volume of card transactions. I am paying about 10% in merchant fees to the bank,” says Calitz, who adds that this is wiping out the profit from the sale.

Although a point of sale device is a necessity for those customers wanting to pay by card and provides better security for the shop, the majority of his customers choose to pay cash when buying a coffee or smoothie from his eatery.

Calitz, therefore, needs to find a more cost-effective card terminal that allows for his relatively small number of transactions.

With the bulk of his transactions in cash, Calitz says the cost of depositing cash is hurting his bottom line. He is charged when drawing cash, so it makes more sense to keep his cash in the shop to pay his suppliers and wages.

“I would rather use those fees to give my staff a bonus than to give the bank more money,” says Calitz.

Although his current account offers some free transactions as part of his monthly service fee, once he exceeds these transactions, he pays a massive R14 per transaction.

Calitz would have to sell three cups of coffee to cover the costs of one bank transaction.

In order to find a better banking solution for Calitz, we provided the banks with three months’ worth of banking transactions from Eat Cubed and asked each bank what it would cost Calitz to bank with them.

»?Absa did not provide information for this article

Business current accounts

Banking options that can significantly reduce monthly bank charges, as well as offer some nifty value-added services.

Standard Bank BizLaunch

Eat Cubed would qualify for Standard Bank’s BizLaunch account, which would reduce Calitz’s banking fees from R400 per month to just R90.

BizLaunch is aimed at any new business, including a sole proprietor with no existing business account, or any business wanting to switch and with an account younger than 12 months, or any business currently trading from a personal account.

Based on Calitz’s past three bank statements, Standard Bank estimates his bank fees would be reduced to R90, as all his transactions are in line with the transactions covered in BizLaunch, so no other fees would apply.

Transactions and services covered by the R90:

»?Unlimited electronic transactions, inter-account transfers and debit orders;

»?Unlimited cheque card swipes;

»?Unlimited balance enquiries and provisional statements;

»?The My Updates SMS notification service;

»?An internet banking monthly subscription;

»?Unlimited ATM deposits;

»?Eight ATM cash withdrawals; and

»?An annual cheque card fee, which includes access to Visa premium benefits, such as airport lounge discounts, airport valet services and others.

The customer would also receive, free of charge, an accounting software package known as Pastel My Business Online and receive access to expert support in managing and running his business.

Customers have access to a Standard Bank business banker and a dedicated call line, BizDirect, to support transactional queries.

Standard Bank also provides expert advice through BizConnect, an online portal that provides advice to assist in running and growing a business, and it runs a series of online webcasts, where business experts tackle specific challenges in running a business.

BizLaunch customers get access to training courses at a discounted rate.

Standard Bank has partnered with online registration company SwiftReg to provide its customers with an easy-to-use system to get their businesses registered quickly.

This allows business owners to register their businesses online and submit annual Cipro returns in the comfort of their homes or offices.

Nedbank small business current account

Nedbank charges R51 per month and R50 per month for a R5?000 overdraft facility.

The R51 does not include transactions and the service fee is R4.99 per transaction. Calitz could halve the service costs by using electronic channels, such as internet and cellphone banking.

Even then, he would spend about R62 on electronic payments and a further R54 on debit orders.

He would also pay about R16 every time he deposited R1?000 at a Nedbank ATM. So Calitz would have to manage his transactions very carefully.

Nedbank’s value-added services include:

»?Access to Simplybiz.co.za, an online portal for small business, which provides advice, tools and templates, networking opportunities, and access to special offers;

»?Free business-management seminars twice a year, which provide practical insights given by experts in their fields to assist start-ups in running a successful business; and

»?The small business money manager program, which enables business owners to track their finances and manage their cash flow.

FNB single-fee pricing

Based on the business and bank statements, FNB would recommend their R169 single-fee pricing option, which includes:

»?30 free debit transactions per month;

»?10 free cash deposits, to the value of R20?000 at an FNB advanced ATM;

»?Unlimited point of sale purchases; and

»?Unlimited prepaid purchases.

Once exceeded, the cost of debit transactions is R14 per transaction. FNB has a R269 bundle that caters for 50 transactions.

FNB says a customer on a pay-as-you-use pricing plan could pay up to 60% more in fees, although FNB does have a pay-as-you-use option at R52.50 per month for customers who do not benefit from the bundled option.

FNB also offers eBucks for Business, a programme in which customers can get back up to 2.5% of their spend on their cheque accounts and Fuel Rewards, a rewards programme allowing them to recoup 15% on their fuel spend.

FNB offers free Instant Accounting and Instant Payroll, integrated into its bank accounts to make these much easier for small businesses.

Also offered is BizNetwork, a quarterly networking event that can help small businesses grow.

Merchant card terminal

Slashing your merchant transaction fees by almost 30%, on average, per month.

Nedbank

Merchant terminal fees: R372.45 or R415

Acoffee shop predominantly has a smaller product range, with lower pricing, and would experience a higher volume of cash transactions compared with a mainstream restaurant.

Based on the transactional breakdown provided, Nedbank proposes that Calitz takes up the PIN Only Sold (POS) device as it has no minimum service-fee charge and the commission is 3%.

He would have to pay R1?500 upfront for the terminal, but, based on his current transaction levels, the monthly cost would be R372.45 – a saving of R300 per month on his current contract.

“PIN only” solutions are designed for smaller merchants to accept card payments via secure, PIN-only driven transactions. This would mean that Calitz could not accept cards that still use only magnetic strips.

Alternatively, he could opt for the PocketPOS solution, which is Nedbank’s recently launched mobile POS solution.

PocketPOS works by using a cellphone and will enable the business to process transactions anywhere, and at any time.

This presents the coffee shop with an ideal opportunity to expand its business opportunities by offering to provide deliveries in its business area and to receive instant payments by card.

A Nedbank business account assures a same-day settlement.

The commission on PocketPOS is slightly higher, at 3.5%, so Calitz’s fees would be R415, which is still a saving of more than R250 per month.

Standard Bank:

Merchant terminal fees: R570

Calitz would qualify for a merchant device for R325 a month, which includes insurance and all telecommunications fees.

There are no initial costs, and the applicable commission rate is 3.25%, irrespective of card type.

FNB:

Merchant terminal fees: R645

Normally, a merchant would receive a merchant device for free and get charged a monthly fee of R215.92 (excluding VAT) plus 3% or 3.25% commission for a debit or credit card, respectively.

As the business is below the minimum-turnover hurdle, he has

to pay a minimum commission of R350, in addition to the R215.92 service fee.

Capitec:

Merchant terminal fees: R541

Although Capitec Bank does not offer business-banking accounts, it does offer a business terminal for debit/credit card machines linked to a Global One account.

This account is linked to the terminal only and does not grant the merchant access to credit.

Capitec charges R250 (excluding VAT) for the terminal per month and, unlike the other banks, it differentiates between a debit and credit card when charging merchant fees.

The commission on a debit card is 1.75%, while on a credit card it is 3.25%.

»?Note: When commission is stated as a percentage, it does not include VAT

The conclusion

Nedbank offers the best costs in terms of the merchant terminal device, which is a significant saving for Calitz.

However, Standard Bank offers a very compelling bank account offering.

Calitz would be best off if he cherry-picked the best products from each bank, but that would mean more administration and having an additional bank account just for the funds received through card payments.

If he wishes to keep his business all with one bank, Calitz needs to decide which offering provides the best overall solution.

If he manages his banking costs carefully and does not deposit cash, then he could get value out of the Nedbank offering.

Many business owners, however, prefer to have more predictable expenses and Calitz may prefer Standard Bank, where he knows exactly how much he will be paying each month, although his merchant terminal costs will still work out at around 8% per transaction.

This percentage would only decrease as he increased the volumes through the terminal.

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