Two clear winners in low-cost banking battleground

Two banks are clear winners between the seven that offer entry-level/vanilla bank accounts. A Moneyweb analysis of fees on these accounts, based on certain transactional behaviour, reveals a very competitive market. Aside from the ‘big five’, Old Mutual entered the space in 2015 with its Money Account (operated using Bidvest’s banking licence), while TymeBank (owned by African Rainbow Capital Investments) soft-launched in November.

The analysis was based on similar transaction profiles used by trade union Solidarity in its annual Bank Charges Report. There are two transaction profiles used, typical of those low-income customers who have fairly basic banking needs. These profiles are not entirely simplistic, nor for ultra-low income earners, as these needs are better met by other products.

The transaction profiles include card swipes at point of sale (POS), withdrawals at POS, a withdrawal at the bank’s own ATM, a balance check, electronic payments using app/internet banking, debit orders as well as SMS notifications for transactions (as well as for beneficiary payments). The monthly account fee is also included. This makes the comparison more meaningful than one just based on a list of fees

Read: The cheapest bank account is… Old Mutual!

The first of the transaction profiles is based on 12 of the above per month, while the second is based on 17 (both including SMS notifications for each transaction).

While TymeBank seems to be the cheapest, by far, it must be noted that the bank doesn’t (yet?) offer certain services, such as SMS notifications for payments (at least not according to its published account info and pricing structure). One may argue that SMS notifications are archaic, but this segment of the market relies on them. TymeBank does not distinguish between electronic payments and debit orders; these are all priced at R2 each.

For a low number of transactions, the three bundled accounts (Absa Flexi Value Bundle, FNB Easy Smart Option, and Nedbank Ke Yona Bundle) are clear outliers at over R60 a month. These are better suited to a higher volume of transactions.

Of the six accounts (excluding TymeBank), three hover around the R26-a-month level, while the other three are at the R30 mark.

Of the seven accounts, only Capitec Bank pays ‘proper’ interest on balances. Currently, this is 5.1% a month. Assuming an average balance of R2 000 a month, this makes a meaningful difference to the effective bank fees charged. Taking this into account – which Solidarity does – means Capitec compares very favourably with TymeBank.

Removing the SMS transaction notifications from the equation (which cost around R5 on Capitec, Nedbank and Old Mutual accounts, and R7 on Absa’s), presents a ‘truer’ comparison with TymeBank. Here, after taking into account interest paid, these 12 transactions effectively cost the same per month at Capitec Bank and TymeBank (±R14).

Using a transaction profile of 17 transactions – more payments, more debit orders and a cash withdrawal at the bank’s own ATM – yields a similar result, and the fees compare better with the bundle accounts offered by some of the banks.

Again factoring in Capitec’s interest payment, the bank’s effective fees are around the R30-a-month mark, very close to TymeBank. One may argue, again, that removing the SMS notification charges presents a more accurate picture when compared to TymeBank.

It must be noted that any comparison, by definition, cannot be perfect as usage patterns and transaction habits vary from customer to customer.

This comparison, however, shows how relatively expensive entry-level bundle accounts are. It illustrates how difficult some of the banks find it to offer true low-cost banking. And it shows that it isn’t as simple as looking at monthly fees and one or two transaction charges to get an understanding of which ‘vanilla’ bank account is the best option. To figure this out, one needs to sketch what a typical month’s worth of transactions looks like and then do a costing comparison.

Finally, aside from low-income earners (the primary market for these accounts), it is surprising how well-suited these accounts are for people who simply do not need complicated banking (such as pensioners). For many, there’s probably no need to be spending R100 – or even R200 – a month on a bank account; R30 a month may do just fine. Then again, Capitec figured this out a long time ago. TymeBank seems to have as well.

* Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

Brought to you by Moneyweb