South Africa's authorities are hesitating over proposals to cut bank charges and open up the payments system to non-bank providers, causing frustration and paralysis. Writer Michael Imeson

What is it?

A banking enquiry panel in South Africa found fault with aspects of the country's retail banking system and has made 28 recommendations for fairer bank charges and pricing structures, and to increase competition. Bankers agree with most of the suggestions but are frustrated at the drawn-out process of implementation. The panel issued its report two years ago, yet so far the authorities have not converted the recommendations into new laws. Banks are unable to plan ahead because of the uncertainty.

Who dreamed it up?

The panel was set up in 2006 by South Africa's Competition Commission and it issued its recommendations in June 2008. Since then the Competition Commission, the National Treasury and the South African Reserve Bank (SARB) have been considering how to implement them.

What are the main provisions?

The panel's recommendations fall into five categories:

1. Penalty fees for rejected debit orders - these are too high (as much as R110 [$14.60]) and should be a maximum of R5.

2. ATM fees - the pricing model should be made more transparent and competitive.

3. Payment card interchange fees - the card fees that banks charge merchants, which are passed on to consumers in the form of higher shop prices, should be regulated.

4. Access to the national payment system for non-bank payment providers - this should be made easier.

5. Product pricing - this should be made less complicated, more transparent and cheaper for consumers.

What's in the small print?

A payment system 'ombud' (the politically correct term for 'ombudsman') would be set up, primarily to address the grievances of non-bank payment providers.

What does the industry say?

Walter Volker, chief executive officer of the Payments Association of South Africa, says most of the recommendations are "acceptable" but the uncertainty caused by the delay in implementing them is making life difficult. With the laws and rules on bank charges and interchange fees in a state of flux, banks are unable to negotiate new industry-wide agreements between themselves, which is having a knock-on effect on merchant and customer pricing, even where it would lead to lower fees. Bilateral deals can, in theory, be struck, but in practice it is difficult to do so.

Cas Coovadia, managing director of the Banking Association of South Africa (BASA), agrees the lack of any official response has led to "confusion and misplaced expectations". On the other hand, Gavin Opperman, chief executive of Absa Retail Bank, says his bank has implemented the suggestions that do not require regulatory decisions, such as reducing unpaid debit order fees to R5.

How much will it cost?

Costs to banks fall into three categories: lower fee income; direct costs of change; and lost market share due to increased competition. The most competitive banks, though, could more than recoup their costs.

What do the regulators say?

A national treasury spokesman told The Banker the finance minister would meet bank CEOs shortly to ensure the response of the banking sector and the government can be finalised as soon as possible. The government had not wanted to "undermine financial stability" by imposing sudden changes on banks during the financial crisis.

Phil Alves, an analyst at the Competition Commission, says his organisation is still in discussions with the treasury and SARB about how to implement the panel's "more complex, industry-wide" recommendations. "We have all needed time to engage with the analysis and the arguments the panel put down," says Mr Alves. "However, banks can implement some of the recommendations themselves or through their associations if they want to."

The law of unintended consequences

"Evidence from Australia indicates that zero interchange [fees for payment cards] did not have the intended customer result," warns BASA's Mr Coovadia.

Could we live without it?

Yes. But the consumer forces for change are too strong to resist.

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