Difference in bank charges smaller, loyalty bonuses now decisive

11 February 2021

Solidarity announced today with the release of its latest Bank Charges Report that banks in 2020 moved closer to one another with regard to their cost structures. Solidarity also found that there are now only very small differences between banks’ charges, with competition shifting to their rewards programmes.

“Banks have started to focus on their rewards programmes because it has become all but impossible to compete on costs. For this reason, we are focusing much more on rewards programmes this year, comparing them for the first time according to a fixed list of transactions,” explains Theuns du Buisson, economic researcher at the Solidarity Research Institute (SRI).

Solidarity explains that as soon as transactions increase, Capitec still is the cheapest by far if interest is not taken into account. For these consumers, however, costs are not the only consideration, according to Solidarity. For instance, Capitec does not offer any extra value such as an extensive rewards programme.

“What is clear in the new cost structures, in particular that of FNB, is that banks are trying to empower consumers as far as possible to do transactions by electronic means rather than visiting branches or ATMs. At present it is cheaper with all banks to withdraw cash at a store counter than even drawing it at your own bank’s ATM,” Du Buisson says.

“In the entry level category, Absa Transact currently is the cheapest account, by a few cents. However, once you maintain a positive balance of more than a thousand rands, Absa is surpassed by Capitec, being the only bank in this category that pays interest. Consumers with self-discipline will therefore get away cheapest with Capitec. Leaving interest aside, we note that the difference between cheapest and most costly, for an account with 17 transactions, is not even R3,” Du Buisson explains.

Solidarity contends that consumers with more transactions, and also a higher income, usually prefer banks’ flagship accounts, where many everyday transactions are included in the package.

“Looking at costs only, Absa’s Gold Value Bundle is the cheapest account in this category. We must note, however, that the prices of the ATM transactions included in our list of accounts differ widely from one bank to another. If these costs are replaced with costs for transactions over a store counter, FNB will be the winner. Consumers therefore should look carefully at what is included in their packages and what methods are preferred by their banks, for example to withdraw money,” Du Buisson says.

One exciting inclusion in this year’s bank charges report is an analysis of the banks’ loyalty programmes. According to Solidarity, one cannot any longer judge banks’ flagship accounts simply on what consumers are paying. We also should look at what consumers are getting back. For this purpose we used the available information on the banks’ websites. Absa, Standard Bank and FNB have functions on their websites where one first can determine in what “level” a consumer would be and then determine how much the consumer will get back based on those transactions.

Du Buisson explains: “We compiled a list of transactions to see how many rewards points a consumer would earn on those transactions. Here, FNB is far ahead. According to our list of transactions, a consumer doing everyday shopping at the prescribed stores would get back no less than R463,20. With the same list of transactions, the consumer would get back R174,30 at Standard Bank, which is in the second place.”

As far as accounts in the higher middle class are concerned, it is virtually impossible to look only at costs when doing this comparison, says Solidarity.

“In their more costly bundle accounts, all banks have expanded their lists of free transactions that are included, with the exception of ATM withdrawals, which have become more costly especially at FNB. In this category, consumers should ensure they get most from their packages. The extras include cover for many things, from life insurance to access to airport lounges. Based on costs alone, FNB’s Premier Cheque Bundle would be the costliest according to our analysis, and Absa’s Premium Banking the cheapest.”

“The highlight of this year’s report probably is the analysis of loyalty programmes. It is encouraging to note that all the banks, excluding Nedbank, are now completely transparent in the way points are earned and allocated. I hope consumers can look forward to much more competition among banks, especially in added value such as rewards programmes,” Du Buisson concludes.

To view the complete report, click here.

Issued byTheuns du Buisson, Solidarity Research Institute Economic Researcher, 11 February 2021