It seems that keeping a bank account that incurs a monthly fee of R5 is probably not sustainable for large full-service banks.

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

Read: Nedbank sets sights on expansion in Africa with a R12bn war chest

Even Capitec Bank, which has 23 million banking customers, cannot sustain such low pricing. The monthly fee for its GlobalOne account rose from R7 to R7.50 in March 2024 and is projected to increase again next year. This 50c monthly increment per customer adds up to nearly R140 million over the entire financial year.

It’s noteworthy that Nedbank has only 1.7 million customers in its entry-level segment, and many may prefer alternative pricing structures. However, even a R2 monthly increase for each customer can have a substantial effect on revenue. If just a million customers are considered, it results in an additional R25 million in fee income for the upcoming year.

Interestingly, monthly fees for these accounts have settled around the R6.50 to R7.50 range.

Capitec primarily influences these prices due to its substantial size, while other banks tend to follow suit, which is why none have priced their accounts above the R7.50 level for GlobalOne.

Is this segment price-sensitive?

One might assume this segment is highly sensitive to pricing, but the middle market might be even more affected. Typically, lower-income customers aren’t primarily driven by price, as the cost differences are minimal.

The difference between paying R5 and R6 monthly for an account is fairly negligible (in contrast to middle-market accounts where the price difference can be around R70 for a Capitec account along with transaction fees versus R100 to R110 from larger banks).

Read: Capitec faces a R56m financial penalty from Sarb

Lower-income customers tend to prioritize value and convenience in their banking choices. That’s why Capitec has been actively implementing a rewards system through its Live Better program during its expansion phase.

These customers are generally willing to pay a little extra if they believe they are receiving good value and avoiding high transaction fees.

* Effective from 1 October 2023 and 1 October 2024

** Effective from 1 March 2023 and 1 March 2024

Nedbank’s choice to raise the monthly fee while also lowering the debit order fee from R3.50 to R2 is noteworthy. The bank recognizes the frequency of debit orders in this customer segment and sees this as a strategic move, especially as debit orders grow more popular even among lower-income customers.

If a customer only has one debit order, the savings from this change nearly offset the increase in the monthly account charge.

The two main digital banks that emerge in the comparison of monthly account fees are TymeBank and Bank Zero, both of which do not impose a monthly fee.

TymeBank achieved a milestone of over 10 million customers in October, accomplishing this in less than six years since its inception. Its operational costs vary greatly 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 at advantageous rates.

This capital will be utilized for the upcoming launch of its eagerly awaited credit offering (though it has rolled out interest-free advance products that are not typical credit).

Bank Zero’s operational costs and customer base are smaller compared to TymeBank. It has developed a unique niche offering that provides significant value, but unfortunately, it remains relatively under the radar.

Read/listen:
TymeBank hits 10 million customer milestone
Reasons behind Sarb’s push for digital banking
Bank Zero opens for business [Aug 2021]

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