Cashless Khayelitsha – Part 3: Who is banking on the small township business owner?

What is the cost of banking a small business? 

For businesses like Amos’s that operate largely in cash, having a safe place to store surplus funds is a key benefit of having a bank account. Deposit fees are therefore likely to be a key differentiator when choosing between different banks.

Standard Bank for instance charges R15 per R1000 (or part thereof) for branch deposits and R9 per R1000 for ATM deposits. In contrast, FNB, ABSA and Nedbank charge a flat fee plus an amount per R1000 (see deposit fee table below).

If Amos needs to deposit his profit of R1 650 at the end of each week, it will cost him R30 (or 1.8%) at a Standard Bank branch. This same transaction through the same channel would cost him R40.85 (or 2.5%) if he was with Capitec/Mercantile, R53.63 (3.3%) if he was with ABSA and R72 (or 4.4%) if he was with FNB. ATM deposits would be significantly cheaper as per the table below. However, cash accepting ATMs are rare, especially in township settings.

Apart from Standard Bank, the big banks do not disclose in their pricing guides if they allow cash deposits at retailers. Standard Bank confirmed via email that they allow clients to deposit at Shoprite stores for a flat fee of R19.95. TymeBank, one of South Africa’s first digital banks, allows business banking customers to deposit funds at Pick n Pay and Boxer stores, charging R6 per R1000, with one free deposit per month. Newly piloted offering Bank Zero does not facilitate cash deposits, at all.

Table 1: Cost of depositing R1 650 - comparison of business bank accounts

TymeBank’s retailer channel is cheapest for mid-sized deposits. However, the problem for Amos is that he does not work or live near TymeBank’s participating retailers. To deposit cash, he would incur transport costs. He would also have to spend more time away from his business. He thinks it would take around 30 minutes for him to get from his business to Pick n Pay by taxi, most of it waiting for a taxi.

Cash withdrawal fees are also critical. Most township businesses will need cash to facilitate some payments to suppliers, even where digital options exist. For instance, Amos’s supplier, a well-established farmer located in a nearby township, has a MPOS device and is happy to accept card payments. But unlike Amos’s business which is tax exempt, the farmer’s is not. The farmer prefers to receive cash payments because he does not disclose these to the tax authorities. The farmer is also happy to share some of the benefits of tax evasion with his customers, and offers cash discounts as an incentive. For Amos, these discounts exceed the cost of cash. So Amos withdraws cash from his bank account every week in order to purchase stock.

The cheapest channel for Amos to withdraw cash would be via participating retailers, which all banks enable with varying costs. But again, physical access to channels is critical. With Standard Bank, FNB, Capitec/Mercantile and Bank Zero, Amos could withdraw cash for a flat fee of no more than R2 from the local Shoprite which is a five-minute walk from his business. However, Nedbank relies on Pick n Pay or Boxer, and is significantly more expensive.

Table 2: Withdrawal fees - comparison of business bank accounts

Keep it personal

When it comes to other transactions like EFTs and debit card purchases, there are curious differences in costs for the same transaction between business and personal bank accounts. For example, Nedbank and Capitec/Mercantile do not charge personal bank account holders for debit card purchases, but Nedbank charges business bank account holders R4.30 and Capitec/Mercantile charges R5 for the same transaction. Banks would also earn fees from the merchant on the other end of the transaction.

Table 3: Business debit card transaction fees - comparison of business bank accounts

Similarly, EFTs cost more for business bank account holders compared to personal bank account holders. Capitec/Mercantile and Nedbank charge R2.20 per transaction for EFTs on personal accounts but R5 and R8.35 respectively on business bank accounts.

Table 4: EFT transaction costs - comparison of business bank accounts

But perhaps most curious are the tiered fee structures, where the same transaction costs more (or less) depending on how many transactions the business does. For instance, on the ABSA Evolve Zero business account, business owners get ten free business debit card purchases per month, with the next 20 transactions charged at R4.20 per transaction and R6 beyond this (costs increase significantly as transactions increase). Whereas, on the ABSA Evolve pay-as-you-transact account, customers are charged R4.35 for the first 20 debit card purchases, R4 for the next 20 card purchases and R3.70 per card purchase thereafter (costs decrease slightly as transactions increase).

Similarly, on the ABSA Evolve account, customers are charged R1.45 per transaction for the first five EFT transactions, R2.50 per transaction for the next five transactions and then a whopping R10 per transaction thereafter. Conversely, on ABSA’s Evolve pay-as-you-transact account, EFT fees decrease as transactions increase (R10 per transaction for the first 30 EFTs, R9.15 per transaction for the next 40 EFTs and R8.75 per transaction thereafter). If not for the entry of digital banks, this alone would justify the re-commissioning of the competition enquiry into bank fees, which highlighted this precise curiosity in its deliberations in 2007.