Major Banks Probably Find It Unprofitable to Manage $5-a-Month Bank Accounts

It seems that keeping a bank account with a monthly charge of R5 is probably not sustainable for major full-service banks.

Nedbank plans to increase the monthly “management fee” for its entry-level MiGoals account from R5 to R7 starting in January, becoming the last bank to depart from the conventional R5 pricing for these accounts.

Read: Nedbank aims for expansion in Africa with a R12bn war chest

Even Capitec Bank, which has 23 million banking customers, cannot sustain such low fees. The monthly charge for its GlobalOne account rose from R7 to R7.50 in March 2024 and is likely to rise again next year. This additional 50c per customer monthly equates to nearly R140 million over an entire financial year.

It’s noteworthy that Nedbank has only 1.7 million clients in its entry-level segment. While many might choose alternative pricing plans, a hike of R2 per month for each customer can still considerably influence revenue. Even with just a million customers affected, that leads to an extra R25 million in fee income for the upcoming year.

Interestingly, monthly fees for these accounts have predominantly ranged from R6.50 to R7.50.

Capitec primarily sets the pricing due to its dominance in the market, while other banks are price followers, which explains why none have set prices above the R7.50 mark of the GlobalOne account.

Is this a price-sensitive demographic?

One might presume this is the most price-sensitive demographic, but the middle market may be even more sensitive. Generally, lower-income customers are not solely driven by price since the cost differences are slight.

The distinction between paying R5 and R6 monthly for an account is relatively trivial (in contrast to middle market accounts where the price difference could be approximately R70 for a Capitec account plus transaction fees compared to R100 to R110 from larger banks).

Read: Capitec faces a R56m financial penalty from Sarb

Lower-income customers tend to focus more on value and convenience when selecting banking options. This is the rationale behind Capitec developing a rewards system through its Live Better program during its growth period.

These customers are open to paying a little extra if they believe they are obtaining good value and avoiding excessive transaction costs.

* Effective from 1 October 2023 and 1 October 2024

** Effective from 1 March 2023 and 1 March 2024

Nedbank’s choice to increase the monthly fee, while simultaneously lowering the debit order fee from R3.50 to R2, is fascinating. The bank recognizes the frequency of debit orders within this customer demographic and views this as a clever strategy, especially as debit orders become increasingly prevalent, even among lower-income customers.

If a customer has only one debit order, the savings from this adjustment nearly offset the hike in the monthly account fee.

The two major digital banks that stand out when comparing monthly account fees are TymeBank and Bank Zero, both of which do not impose any monthly fee.

TymeBank reached over 10 million customers in October, achieving this remarkable milestone less than six years post-launch. Its operational costs are markedly different from those of larger banks, and its strategy of attracting deposits with the highest interest rates in South Africa has enabled it to secure capital affordably.

These resources will support the forthcoming introduction of its highly awaited credit services (though it has already released interest-free advance products that are atypical credit).

Bank Zero has smaller operational costs and customer base compared to TymeBank. It has developed a distinct niche offering that provides excellent value, although it remains relatively lesser-known.

Read/listen:
TymeBank reaches 10m customer milestone
Insights on Sarb’s digital banking push
Bank Zero is now operational [Aug 2021]

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