COMMISSION’S BANKING RESEARCH
20 APRIL 2006
The Competition Commission will hold a public enquiry into bank charges and access to
the payment system. This is a consequence of the findings of a research report to the
Commission on The National Payment System and Competition in the Banking Sector
and continued public concern on the matter. The research report sets out the complex
workings of the payment system and shows that competition in the banking industry
remains inextricably linked to fairness in the National Payment System.
The enquiry will occur in terms of Section 21 of the Competition Act which gives the
Competition Commission the responsibility to implement measures to increase market
transparency and empowers the Commission to enquire into, and report to the Minister of
Trade and Industry, on competition matters.
Acting Commissioner, Mr. Shan Ramburuth, said “The main competition concerns
arising from the report are related to bank charges and access to the national payment
system. The effect of both of these on the provision of competitive banking services for
all South African consumers (be they businesses or individuals) underpin the enquiry.”
The Commission invites all interested persons and stakeholders, including the banks, to
provide responses to the research report. The Commission will also seek the views of
regulators in the banking sector.
In due course, the Commission will publish a formal Statement of Issues, which the
enquiry will probe, and all interested persons and stakeholders will be encouraged to
voluntarily provide information on these issues.
The enquiry will enable the Commission to decide an appropriate course of action, which
may include a formal investigation and/or recommendations for legislation and policy.
The report referred to above is available for downloading on www.compcom.co.za
Comments on the research report may be submitted to Keith Weeks on the email address:
email@example.com or the fax number (012) 394 4258.
Notes to the Press Release
Today, the Competition Commission is releasing a research report entitled The National
Payment System and Competition in the Banking Sector.
The principal author of the present report, Dr Penelope Hawkins, was a member of the
task group which, in 2004, prepared a report for the National Treasury and the South
African Reserve Bank on Competition in South African Banking. That earlier report,
under the chairmanship of Dr Hans Falkena, was partly funded by the Competition
Commission. Among its recommendations were that:
? Access by second-tier banks to the payment system on competitive terms should be
? Interoperability in the payment system and transparency of access requirements
should be extended.
? Penalty fees, charges for essential services or charges for services not open to
competition should be on a cost-plus basis and open to regulatory oversight. ? Government should prohibit any preferential processing mechanism for payments. ? The Competition Commission should investigate the existence of a complex
monopoly in the governance and operation of the payment system.
Since 2004 the payment system legislation has been amended. Several complaints
directly or indirectly concerned with the payment system have been submitted to the
The Competition Commission concluded that a comprehensive and comparative study
into issues around the payment system was necessary. Following a process of open tender, FEASibilitY (Pty) Ltd, an economic research company headed by Dr Hawkins, and Prof
Olu Akinboade of UNISA were appointed to provide such a study, with distinct areas of
work being specified. The main body of the report presents the research efforts of
FEASibilitY. The research annex dealing with international comparisons is the work of
Findings of the research report
The report presents a comprehensive analysis of the national payment system (NPS). It
reveals that the South African NPS is a highly efficient and sound system and perhaps
more advanced than similar networks in more economically developed countries. But an
efficient and sound system may nevertheless lack features which would make it also fair
to consumers. The report raises a number of concerns in this regard, and provides some
? At present the banking industry earns roughly R29 billion a year — 38% of its
revenue — from fees related to the payment system. Any link that there may be
between the operating costs associated with a payment transaction and the charges
made by banks in that regard is not transparent. It thus may be the case that bank fees
have less to do with the cost of the payment system and more to do with the market
power of the big banks in setting fees.
? Not only the banks but all the present participants in the NPS appear to find their
activities in that regard very profitable — indeed this might explain the clamour of
others to gain access. Only the SAMOS system within the NPS, operated by the
Reserve Bank and limited to participation by registered banks, appears to work on a
cost recovery basis.
? Apart from SAMOS, the pricing arrangements for each payment stream within the
NPS fall outside the remit of regulation and in the past have been negotiated between
participants on a multilateral basis. While some smaller players are concerned that
bilateral negotiations may place them at a disadvantage as they wield so little market
power, bilateral negotiations might benefit the consumer. Further enquiry regarding
the pricing arrangements in each payment stream seems warranted. There may well
be aspects of the NPS where uniform pricing could give way to competitive pricing
without compromising the soundness or efficiency of the system.
? The banks operate a switching arrangement between themselves called Bankserv.
Although Bankserv costs make up only a fraction of the price of a payment
transaction, the current profitability of Bankserv and the control and ownership of this
essential infrastructure by the banks raises the question of broader representation on
the board of Bankserv. There is international precedent for this. ? There is an absence of market conduct regulation throughout the banking industry and
the NPS in particular. There is also an absence of transparency. Disclosed pricing is
often difficult to evaluate because of bundled offerings. In a country where there is an
obvious need to improve the access of under-served consumers to financial services,
the absence of a market conduct regulator is likely to be particularly keenly felt. ? Legislation and regulation have focused on banks. This has left a regulatory gap in
terms of the rules of participation for non-banks and highlights the need for an overall
strategy. To the extent that collaborative infrastructure and uniform pricing is
necessary for sustaining a sound and efficient NPS for the benefit of consumers, there
may also be a need for regulatory oversight.
Response of the Commission to the research report
From the perspective of the Commission, the main concerns the report identifies are
around access to the payment system by would-be service providers (banks and non-
banks) and charges levied by banks for payment transactions. Both of these impact on
access to competitive banking services for South African consumers (be they businesses
While this study gives us a detailed understanding of how the system works in general, it
does not in and of itself indicate whether or not actual contraventions of the Competition
Act are entailed in the current structure and operation of the NPS. Nevertheless, it raises a
number of concerns that clearly require further examination.
Section 21(1)(a) of the Competition Act gives the Competition Commission the
responsibility to implement measures to increase market transparency. Section 21(2)(b)
empowers the Commission to enquire into and report to the Minister of Trade and
Industry on any matter concerning the promotion and maintenance of competition in the
Having regard to these responsibilities and powers, the Commission has decided to
conduct a public enquiry in order to obtain further information and input about the
competition concerns highlighted in the FEASibilitY report. At this stage, the
Commission has not initiated any specific complaint and will accordingly not invoke in
connection with the enquiry its formal powers to compel the production of information
and answers to questions. It is hoped that that will not be necessary. At the same time,
current investigations into existing complaints will of course continue.
All interested persons and stakeholders, including the banks, will be invited to respond to
the FEASibilitY report and voluntarily to provide detailed information and answers on
relevant questions to the enquiry. The views of the regulators will clearly be sought and taken carefully into account.
The enquiry will be on the record, which will be made public subject only to the protection of genuinely confidential information as provided for in the Competition Act. It is envisaged that public hearings will also be held.
In due course, the Commission will announce the names of those who will conduct the enquiry, and will publish a Statement of Issues for it.
In the interim, any comments or submissions regarding the FEASibilitY report may be submitted to the secretariat, which has been established by the Commission for purposes of the enquiry.
The outcome of the process will be a report, with recommendations that will be submitted to the Commissioner for evaluation, and for any consequent decision-making by the Commission.
The Commission has established a secretariat to receive all submissions which may be submitted by email to Keith Weeks: firstname.lastname@example.org or by fax (012)
ISSUED BY COMPETITION COMMISSION OF SA
Information may be obtained from:
Ms. Liziwe Konyana
Tel: (012) 394 3183
Cell: 082 377 1470
Fax: (012) 394 4183