Nedbank increases entry level account fees by 40%.
It turns out one likely cannot profitably run a bank account with a monthly fee of R5. If you’re a big full-service bank, that is.
Nedbank will increase the monthly “management fee” of its entry level MiGoals account in January from R5 to R7, making it the last of the banks to shift away from the R5 price anchor which these accounts have typically been at.
Even Capitec Bank, with its 23 million banking customers, is unable to sustain pricing that low. The monthly fee for its GlobalOne account increased from R7 to R7.50 in March 2024 and will likely increase further next year. That additional 50c per customer per month equates to nearly R140 million across a full financial year.
To be fair, Nedbank only has 1.7 million customers in its entry-level segment and many of these will be on other pricing options, but R2 per month per customer is still enough to move the needle. Even a million of these customers would mean an extra R25 million in fee income for next year.
What is interesting is how the monthly fees on these accounts have coalesced around the R6.50 to R7.50 level.
To a large extent, Capitec is the price setter because of its sheer size. The rest are price takers which is why none of them are pricing above the R7.50 level of the GlobalOne account.
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Price sensitive segment?
One may assume that this is the most price sensitive segment of the market, but the middle market segment is arguably more so. Lower income customers aren’t generally shopping on price given that the rands and cents differentials are so small.
The difference between paying R5 a month for a bank account versus R6 simply isn’t that large (compare this to middle market accounts where the difference could be something a lot more like R70 (Capitec + transaction fees) versus a R100 to R110 bundle from one of the larger banks.
Lower income customers are more likely shopping on value and convenience. This is why Capitec has been working hard during this phase of its growth on rolling out a rewards proposition with its Live Better programme.
Customers in this segment don’t mind paying a bit more, as long as they perceive they’re getting value for money and aren’t paying punitive transaction fees.
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This makes the decision by Nedbank to increase the monthly fee, on one hand, but decrease the debit order fee from R3.50 to R2, interesting. It knows the usage levels of debit orders across this customer base and as these become more pervasive – even among lower income customers, it knows this is a lever it can use.
If a customer has just a single debit order, the saving from this will almost offset the increase in the monthly account fee.
The stark standouts in the comparison of monthly account fees are the two digital banks that don’t charge a monthly fee – TymeBank and Bank Zero.
TymeBank crossed the 10 million customer mark in October, less than six years after inception. Its cost base is very different to any of the larger banks and its strategy of deliberately attracting deposits with the highest interest rate in South Africa, means it has managed to attract capital at a very reasonable rate.
This is the capital it will use when it launches its long-awaited credit offering (it has launched interest free advance products, but these aren’t typical credit).
Bank Zero’s cost base, and customer base, is far smaller than TymeBank’s. It has built out a compelling niche offering that offers great value. Pity hardly anyone knows about it …
This article was republished from Moneyweb. Read the original here.
