Ideate

Follow-up on “collusion and price-fixing at the banks”

by Andrew on 21/02/08 at 2:59 pm
3 comments

In January I had a bit of a run-in with Nedbank about merchant facilities (read about it here). I pointed Nedbank to the article, and here is what their PR department spent a month producing (I received the reply yesterday):

Andrew,
 
I read with great concern the article written by yourself and at first glance was rather disappointed at the alleged ‘lack of customer service skills displayed by one of my staff.’ Wanda Schaeffer is a member of one of my sales team, and is particularly good at following due process, hence my disappointment.
 
Nedbank strives to consistently deliver a professional service to its clients, and on this occasion the level of service you received was unacceptable.
 
As part of its ongoing quest to enhance client experiences, Nedbank last year launched the ‘ASK ONCE’ campaign, which is a major initiative that promises to raise the bar on the quality and standard of service delivery by optimising the client and stakeholder interface process.
 
Regarding the allegation re banks and collusion;
 
- There is no gentleman’s agreement on rate. Rather there is keen competition on rates in certain circumstances.
- Nedbank in principle does not undercut a given merchant’s existing rate unless particular circumstances exist. For example, where all a business’s banking facilities change to Nedbank, then a banking view might be taken on that particular client in respect of fees.
 
Regarding the banks and commission pricing;
 
We operate with a pricing model and new business is usually run through that model. This model takes into account the card turnover, average ticket value as well as the merchant category & risk profile.  The bank incurs the costs of acquiring and processing the transactions and these elements are included in the model.
 
Merchants that sell merchandise via the internet usually attract a higher merchant fee as the risk is greater.
 
We would welcome an opportunity to explain the fee structure to you in greater detail.  
 
Regards

I have since had various chats with banking officials, and got a better understanding of what happened. There is apparently no agreement between the banks on rates, and competition does exist. I got the feeling that the competition applies mostly for companies that have a track-record and proven turnover. It also helps if you’re willing to move all your banking services to a new bank in order to get a package deal that includes better rates.

The little-guys who are starting online stores and looking for merchant facilities have an uphill battle to get a decent rate, which contributes to the 50% of online stores that go under every year. I think this causes all online stores to be painted with the same brush, so when I made the initial call to Nedbank there could have been some bias against me, compounded by Wanda being in a rush, and so the conversation didn’t work out too well.

We are going to be meeting with more representatives from Nedbank to get a proper proposal from them on our business. I am no longer convinced that the banks are colluding to keep merchant rates high; very little in life is as black-and-white as that. Online retail is an industry in it’s infancy in South Africa, and that usually means that the established companies do everything they can to mitigate risk, including keeping prices on the high side until the work out how to handle the new industry. It’s the same reason you’ll pay R2,000 for a gig of GPRS bandwidth with the cellphone companies.

It would be wonderful if we had access to the same services as international companies, such as PayPal and Google Checkout at around 2.5%. But I guess this is what makes South African entrepreneurs tough. Just like playing rugby bare-foot in the frost when we were 10.

Andrew Smith is the pedantic systems guy behind Live Alchemy, a SA e-commerce company. Andrew writes for Ideate in an attempt to make the world a more efficient place. View more articles by Andrew.

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