How banks can cash in on hidden charges

Increased competition may be driving down overall South African banking fees – but a lack of transparency means businesses may end up paying in other ways, an analyst has warned.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, says South African businesses need to take a hard look at their banking costs.

"Increased competition is slowly driving down transactional fees, yet many businesses are losing out through a lack of awareness of how their overall fees are structured, or the wide range of banking solutions and products available that may better fit their needs," she says.

Transaction fees on business accounts are often bundled together as a single monthly expense and charged against each account, she warns.

This means banks can cross-subsidise more active banking clients with those making fewer transactions each month.

Because the fee cannot be unbundled, this can make it "extremely difficult to identify how much you are actually paying for an individual transaction".

"So, while this practice does make it simpler to reconcile your monthly fees, it leads to a lack of transparency concerning the value of your transactions versus the rates that you are paying," she says.

Money, money, money

Botes gives an example to demonstrate the difference the value of your transactions can make to the fees you may be charged, using a forex transaction.

Say you approach Bank A to pay for an import from an American supplier amounting to $100 000, she says. Bank A agrees, and charges you a R1 200 international transfer or SWIFT fee for the payment of the foreign supplier, as well as an extra R250 for the handling of your shipment documents.

Additionally, however, Bank A charges you R13.80 per dollar. But as the dollar exchange rate at that moment is trading at R13.50, this means that your bank is actually earning 30c for each dollar acquired, or a total of R3 000.

This means Bank A would be earning R31 450 on that transaction, Botes says.

"This simple example demonstrates the value of large transactions to banks, and the need for businesses to seek out competitive rates and solutions."

Know your fees

While most business owners are used to paying interest on loans, fewer are aware of facility and credit fees, she says.

Facility fees are charged annually at a rate of 0.5% and 1% of the total value of an overdraft facility. The client may then need to pay additional credit fees in the form of sight or usage fees, Botes explains.

Sight fees are used to motivate companies to utilise their credit facility, charged against the unused portion of their total overdraft facility. The alternative is usage fees, charged against the portion of the total overdraft facility used.

"Many clients may not be aware of how these different products would be more individually suited towards their needs in terms of fees. But by doing your research and shopping around, or consulting professionals for advice on available banking solutions and forex rates, you could potentially save yourself and your business thousands," Botes says.

Ignore details at your peril

Fin24 recently reported that according to Solidarity's latest Bank Charges Report, issued late in 2017, bank charges on most accounts are less in real terms than they were seven years ago.

"Overall, South Africans can now bank for less, in most cases significantly less, in real terms than they could in 2010," Solidarity said.

But banking experts warned that South Africans might end up paying more in bank charges than they needed to if they failed to pay attention to their bank charges, or communication from their banks.

Ryan Prozesky, CEO of FNB Consumer Core Banking, said whether it's for business or personal banking, it's worth taking into account your own transacting needs to find the most economical solution.

For some customers, bundled banking solutions are best, while for others, pay-as-you-use accounts work out more cheaply, depending on the type and number of transactions needed, he told Fin24. 

Prozesky and Francois Viviers, Executive of Marketing and Communications at Capitec Bank, advised carefully scrutinising all communication from your bank and paying close attention to all transactional charges. This was particularly important as banking costs might change from month to month, they said.

Knowing what you're paying for enables you to make an informed decision when choosing your bank and package, said Viviers.  

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