It is wonderful to witness a special shift in our nation at this time. There is a growing interest in financial education and financial inclusion to empower the people in our nation. There is also an increasing number of both public and private institutions that are making it a mandate to financially support and assist entrepreneurship. Both of these factors, together, are a powerful mix to improve our economic standing as a country.
However, there are interesting underlying aspects to consider that may be hindering our financial progress. One of these aspects is the structure of banking fees in our country. A few years ago, your one and only: The Patriot on Sunday Newspaper reported on this concerning issue. The Bank of Botswana reported that most commercial banks were having a challenging time to submit their tariff guides (a tariff guide outlines how much banks charge us for each of their services) in a timely manner. This is a major concern because the submission of these documents is part of the banks’ mandatory compliance as well as to review the wholistic structure. The review of the wholistic bank charges structure considers the benefit balance between us and our banks. An example of this balance would be the difference between how much interest we receive in our savings accounts versus how much interest we are charged for loans. We can notice that the difference gap is large and not in our favour as clients.
On the bright but dim side, while some banks continue to hike up their charges at irregular spans, other banks still use the same tariff guides as from years ago with no price changes. Let us look more into how much our banking can affect our efforts to achieve our financial and lifestyle goals.
Our financial planning topic for this week is The Cost of Business Banking. It is a common practice for commercial banks to charge a business or a corporate entity higher rates for the same services we use at a personal capacity. In last week’s article, we explored the two charging cost regimes open to us in our personal banking (pay-as-you-use service costs and bundled service costs). However, the only charging structure banks offer a business is the pay-as-you-use service cost regime (which charges the business for each and every bank transactional service it uses).
Let us compare personal and business banking charges of different banks using the common banking transactional cost groups of current accounts similar to those in last week’s article (both under the pay-as-you-use service cost regime):
· General services
Maintenance fees
| Personal banking | Business banking | |
| Bank A | P5.49 – P30.17 | P32.91 – P300 |
| Bank B | P0.00 – P30.99 | P53.92 – 62.81 |
| Bank C | P13.20 – P188.27 | P33.00 or P100.00 |
| Bank D | P13.00 – P18.00 | P46.50 – P75.00 |
Maintenance fees are compulsory fees for owning an account. And we can see very clear differences that business banking has higher charges in our table. This assists us in understanding why banks are always so quick to increase these types of costs. This places us in a compromising position to either have our account closed or sadly watch as we get charged more for keeping open an account that has become a necessity in our lives.
Also, a common banking practice is the issuance of a free first debit card with each current account for both personal and business banking.
· Branch transactions
Bank statements less than 12 months (per page)
| Personal banking | Business banking | |
| Bank A | P34.00 | P300.00 |
| Bank B | P21.71 | Free or same |
| Bank C | Max. P34.32 | Max. 39.40 |
| Bank D | P26.34 | P26.40 |
The general trend among banks is that there are no charges for monthly bank statements. And there is generally not much cost differences in branch services. This could be because the possibility of higher volumes of business transactions which have forced us to adapt more to the digital revolution for increased efficiency. Or so we think.
· Internet banking
Domestic funds transfer
| Personal banking | Business banking | |
| Bank A | P1.04 – P3.32 | P0.00 – P5.00 |
| Bank B | P2.20 – P2.63 | P0.00 – P5.00 |
| Bank C | P0.00 – P3.03 | P3.15 – P4.10 |
| Bank D | P3.51 – P3.60 | P0.00 – P3.60 |
Internet banking set up fees
| Personal banking | Business banking | |
| Bank A | Free | P200.00 |
| Bank B | Free | P115.40 |
| Bank C | Free | P94.00 |
| Bank D | Free | None mentioned |
Internet banking monthly fees
| Personal banking | Business banking | |
| Bank A | Free | P200.00 |
| Bank B | Free | P125.00 |
| Bank C | Free | P94.00 |
| Bank D | Free | P94.00 |
The general trend among banks, once explored further, is that there are more charges in using internet banking for business transactions compared to personal transactions.
· Cheques
Owning the first cheque book
| Personal banking | Business banking | |
| Bank A | P33.58 | P29.20 |
| Bank B | P29.31 or P72.83 | P25.75 – P72.83 |
| Bank C | P53.00 or P109.19 | Same |
| Bank D | P13.00 – P50.00 | P50.00 or P100.00 |
The common trend among banks is that it costs less to own a cheque book as a business compared to owning one as an individual. This could be a calculated move by banks to discourage individuals to use cheques and push them towards services they want them to use, such as ATM card transactions.
· Using a point of sale swiping machine (EFTPOS) for business operations
| Installation | Monthly rental | |
| Bank A | None mentioned | P130.00 |
| Bank B | P438.25 | P91.29 – 136.99 |
| Bank C | P582.75 | P10.5.00 – P383.25 |
| Bank D | P320.00 | P129.00 or P1,170.00 |
| Commission rate | GPRS fee | |
| Bank A | 3% – 5% | None mentioned |
| Bank B | 2.04% – 5.10% | P287.38 |
| Bank C | Max. 5% | P262.50 |
| Bank D | 3.70% – 5.20% | None mentioned |
The common trend among banks is that personal banking encourages the use of ATM cards by offering free transactions or charging very low fees whilst charging businesses very high fees to be able to transact on the same aspect. And this has been a challenge for many local small medium enterprise entrepreneurs.
On another note, there is a good trend of banks charging no fees or very little for maintenance fees for savings accounts. An interesting observation has discovered that some banks haven’t started charging or charge just as little for other transactions we usually do when using these savings accounts. This includes ATM cash withdrawals, card swiping and account transfers (be mindful that this too might change depending on popularity of usage). Also, depending on our bank, a business savings account may offer higher interest rates compared to a personal savings account.
The more we study our latest tariff guides in effect, we can also see that some accounts we have with our different banks include other incentives such as funeral covers. This is the same aspect we have considered in our financial planning. However, when it come to our banks, it is not exactly clear as to how we can claim for this funeral cover should we need it or how much it affects our banking fees should we decide to exclude it if we have already made these provisions .
Professionals in the financial industry are aware that us knowing more about our finances and understanding them equips us with the power to negotiate our interactions with our banks and other financial institutions. Confusion can create blind and questionable compliance.
Once again, let us exercise the habit to always seek out more information relating to our finances and not blindly trust financial providers to always have our best interests at heart. Let us also explore more of these business banking charges which are available from physical bank premises and online platforms (either presented together with the personal banking tariff guide or separately labelled as a business pricing guide). Be prepared to discover that some banks have placed their tariff guides in tricky places on their websites as well as provide not very clearly laid out explanation of costs. Therefore, these examples could be easily misinterpreted.
It can be a reasonable assumption for commercial banks to charge higher fees for business banking compared to personal banking based on the client’s (individual versus business entity) potential to make significantly more earnings. However, our economy does not necessarily support this assumption. Considering the costs to register, start-up and operate a business, the entrepreneur seems to be incurring more and more costs from every direction. The questions then become: is the current increase in financial support and assistance directed towards entrepreneurship enough to overcome all these other costs incurred to practically sustain and grow our local businesses? And is it effective to charge this much for financial inclusion when we are trying to improve our national inclusion rate?
Hopefully, through our analysis of the differences in the charging structure for personal and business banking, commercial banks can start to consider the rates they charge us and structure a reasonable bundled service charge regime for local business entities.