Finance Minister Enoch Godongwana has officially confirmed that the Financial Sector Conduct Authority (FSCA) is currently carrying out a formal investigation into how major South African banks apply transaction fees. This confirmation emerged during a recent parliamentary question-and-answer session, where the minister was specifically asked whether National Treasury had taken steps to examine what were described as “exorbitant” charges applied by banks, and whether any existing or proposed policy measures were in place to regulate these high costs.
Key Takeaways
- FSCA Investigates Bank Fees: The Financial Sector Conduct Authority (FSCA) is actively investigating how major South African banks structure and apply transaction fees, focusing on fairness, transparency, and potential overcharging.
- Wide Fee Disparities and Poor Disclosure: There are significant differences in fee structures across banks, with some institutions failing to provide clear, understandable information to customers about what they are being charged.
- Push for Reform and Consumer Choice: Industry voices, such as Bank Zero’s Michael Jordaan, support the FSCA’s actions and urge consumers to explore low-cost digital alternatives while calling on traditional banks to drop outdated, legacy charges.
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FSCA Monitoring Fairness and Transparency in Bank Charges
In his response, the Finance Minister explained that the FSCA, which serves as the regulatory body responsible for overseeing the market conduct of financial institutions in South Africa, is conducting this investigation with the aim of determining whether additional regulatory oversight or policy changes are necessary. The FSCA’s responsibilities include assessing whether banking fees are applied in a fair, reasonable, and transparent manner. The watchdog is also expected to scrutinise whether the fee-setting practices of banks are aligned with the spirit of financial inclusion and affordability promised by the financial sector.
According to Godongwana, the FSCA has observed through its ongoing supervisory activities that there are considerable differences in the way banks structure their pricing. These variations extend to both the types of fees and the amounts charged for similar products and services across different institutions. In several instances, the differences in pricing have been deemed significant, prompting further scrutiny. This has sparked concern over the potential exploitation of financially vulnerable customers, especially those relying on social grant-linked accounts and low-cost transactional services.
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Disparities in Fees and Inadequate Disclosure
The Minister went on to note that the FSCA has identified instances where some banks have failed to provide adequate disclosure regarding the fees charged to customers. In such cases, customers often lack a clear understanding of the structure and purpose of the fees applied, which raises concerns about transparency and consumer protection. These findings suggest that some banking practices may fall short of promoting informed financial decision-making among consumers.
In many cases, consumers unknowingly approve fee structures buried in dense contractual language, leaving them unaware of recurring charges that could be avoided.
Existing Regulations and the Conduct Standard
Godongwana highlighted that the FSCA introduced a specific regulatory framework, known as the Conduct Standard, in 2020. This standard officially came into effect in July 2021 and is aimed at guiding banks in their interactions with retail customers. According to the Conduct Standard, banks are required to operate in a manner that supports the fair treatment of customers.
Under this regulatory standard, banks must ensure that the contractual terms associated with financial products or services, particularly those relating to fees and charges, are not only clear and accessible but also not unfair in their application.
Although the standard does not offer a strict legal definition for what constitutes an “unfair” or “exorbitant” fee, it places the burden on banks to justify their pricing practices. They must show that their fee structures are justifiable and do not result in negative or inequitable outcomes for customers. This framework was introduced to curtail opaque fee models and excessive administrative charges, yet critics argue that enforcement has been too lenient.
It is based on these principles that the FSCA has initiated its current assessment into the fee structures of South Africa’s leading banks. If the investigation results in strong policy intervention, it could force banks to rethink the business models that currently generate billions in fee income annually.
Changing Industry Conditions Demand Modernised Fee Structures
Bank Zero co-founder Michael Jordaan has expressed his support for the FSCA’s concerns regarding outdated banking fees still applied by many traditional banks in the country. He argued that numerous legacy charges remain in place, even though technological advancements have made many of these fees redundant. The shift towards more efficient digital banking solutions should, in his view, result in lower operational costs and, by extension, reduced charges for consumers. He raised particular concern about fees levied on digital transactions that are fully automated and carry negligible marginal cost.
Jordaan stated that rapid progress in technology has made it feasible for banks to eliminate many of the conventional fees previously seen as unavoidable. With mobile applications and online services streamlining most banking activities, the necessity to charge customers for basic transactions has diminished significantly. He noted that while digital-first banks are passing these cost savings on to clients, traditional institutions have been slow to adjust, continuing to charge R10 or more for basic in-app payments.
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Regulatory Focus Must Include Simplicity and Transparency
In his remarks, Jordaan emphasised that regulatory attention should not only focus on the cost of services but also on improving the clarity and transparency of fees charged. He believes customers must be provided with complete and understandable information about all charges incurred, so they can make better financial choices. However, he also noted that transparency alone is not enough; true reform should involve removing outdated and unnecessary charges alongside better communication.
Infrastructure Costs Acknowledged—But Alternatives Exist
While acknowledging that banks still incur operating costs to maintain information technology systems and infrastructure, Jordaan argued that this alone does not justify many of the charges still in use. He maintained that there are more customer-friendly ways of recovering costs, particularly when banking services are delivered digitally with minimal overhead.
He added that traditional banks that still provide physical branches and manage large volumes of cash-related transactions may have some justification for certain fees. In contrast, purely digital banks, which rely on mobile platforms and streamlined digital interfaces, benefit from significantly reduced operating costs and therefore should be able to pass these savings on to customers in the form of lower or no fees. Jordaan criticised the practice of charging digital users to subsidise brick-and-mortar expenses, calling it outdated and unsustainable.
South Africans Encouraged to Compare and Consider Alternatives
Jordaan pointed out that several low-cost or no-cost digital banking options already exist in South Africa. Despite this, many consumers remain hesitant to switch banks, often due to the perception that changing banking providers is a time-consuming or complex process. He encouraged customers to trial alternative banking services alongside their existing accounts, suggesting that once customers are comfortable with the new offering, they can gradually migrate more of their financial activity to the new provider.
According to him, consumers should not view their banking relationship as permanent or immovable. Rather, banks should be treated like any other service provider, with consumers actively evaluating their options to ensure they receive the best value. Given the level of competition in the current banking environment, he believes customers are likely to find options that suit their preferences and budgets if they take the time to shop around.
Conclusion
The FSCA’s investigation signals a potential shift in how banks operate in South Africa, especially regarding transparency and fairness in fee structures. With growing pressure from both regulators and digital-first competitors, traditional banks may be forced to review and justify their pricing practices. As scrutiny intensifies, consumers are encouraged to reassess their banking choices, compare alternatives, and reject outdated practices that no longer align with modern technology and expectations.
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