The decrypted and unredacted report into South African banking practices.

[Magda Hassan]

A copy of the decrypted and unredacted report into South African banking practices. I imagine that the dubious banking practices described within this document are not restricted to South Africa.


An overview of the contents.
1.1 Introduction
This is the report of the Panel of the Banking Enquiry which was established by the
Competition Commission on the 4th August 2006 in terms of Section 21 of the Competition
Act No.89 of 1998 to examine certain aspects of competition in retail banking in South Africa.
In the first chapter of the report, entitled The Enquiry Process, an overview of the Enquiry is
provided. The chapter deals with certain historical events leading up to the establishment of
the Enquiry, the engagements with stakeholders, the various submissions received, the
Technical Team engagements and the public hearings and exploratory meetings that were
held.
Chapter 2 deals with Market Power in the Provision of Personal Transaction Accounts.
It examines market structure, barriers to entry and expansion, regulatory requirements and
product differentiation in the South African banking sector. The chapter also highlights
information asymmetries, switching and search costs as well as the nature of strategic
interaction among participants.
In Chapter 3, on Costing and Pricing, an analysis of the charging practices of South African
banks is undertaken. The relationship between the prices for transactions and the costs of
providing them is examined.
In Chapter 4, the Panel examines the issue of Penalty Fees confining its analysis to the fees
charged by banks to their individual retail customers when a customer’s payment order is
refused, usually due to a lack of funds. These fees, commonly referred to as “dishonour
fees”, are charged for rejected cheques, debit orders, and stop orders. The analysis
concentrates on the fees charged by the major banks for rejected debit orders, an area
where there are clear indications of growing abuse. The amount of revenue of almost R1
billion (of about R11 billion non-interest revenue for personal transaction accounts) that was
generated by the big four banks in 2006 from around 24 million dishonoured or rejected
transactions is highlighted. In our view, the abuse of debit order dishonour fees needs to be
addressed without delay.
In Chapter 5, the issue of ATMs and Direct Charging is considered. Issues dealt with
include the history and evolution of ATMs; interoperability and the history of interbank
carriage fees in South Africa; arguments for the direct charging model and the implications
thereof; and revenue and pricing of the current ATM model in South Africa. International
precedents and other pricing models are also examined.
Chapter 6 on Payment Cards and Interchange, examines payment cards in the South
African market; merchant service charges and merchant acquiring; the necessity of
interchange fees and the setting thereof; and the card scheme rules governing the payment
Banking Enquiry Report to the Competition Commissioner Contains confidential information
Chapter 1 Enquiry Process 3
card systems. The chapter furthermore considers the potential abuse and the need for
regulation of interchange. The application of this is also extended to interchange fees in
other payment streams.
Chapter 7 examines Access to the Payment System. An historical overview is provided
followed by an in-depth analysis of the payment system and the regulation thereof. Certain
matters of concern in the payment system are identified. The possibilities for enhancing the
access of non-banks and non-clearing banks to the national payment system (NPS) are also
explored.
Chapter 8 contains the Conclusion and Recommendations, in which particular
recommendations identified in each chapter are set out.