The Sunday Mail
DEPOSITORS are concerned that they are being shepherded to more expensive options to access their money as banks and retailers capitalise on the paper money shortages currently affecting the local market.
By the end of last week, most banks had disconnected Automated Teller Machines (ATMs), which levy relatively lower charges, and depositors were being forced to resort to withdrawing money in banking halls where charges, at 2 percent of the amount withdrawn, are considerably higher.
Furthermore, retailers were forcing desperate depositors to spend a minimum of $30 on goods before they could allow them to access money through the cashback facility that is available through the Point of Sale (POS) platform.
Last year, all banks made a profit in an environment that is suffocating most of industries, with aggregate net profit rising to $128 million from $79 million in 2014.
Worryingly, most of the profits were made from fee income, which, essentially is money generated from bank charges.
In essence, banks are largely expected to generate the bulk of their income from interest on bank loans advanced to customers.
The market is now questioning whether banks, which are cashing-in on the current cash shortages, are actually prepared to fix a system that is seemingly feeding into their profit margins.
A survey carried out by The Sunday Mail Business last week indicated that paper money shortages were affecting banks such as CABS, ZB Bank, POSB, FBC and Barclays.
The affected banks resorted to rationing cash, with FBC Building Society giving $200 per day, ZB ($200), CABS ($300), Steward Bank ($500) and NMB Bank ($600).
On the other hand, Standard Chartered Bank, Stanbic, Metbank and CBZ were not rationing cash, with queues almost non-existent.
Absurd charges on debit card transactions
While monetary authorities have been on a drive to promote the use of debit and credit cards (plastic money), these have only been relevant to a small portion of the transacting public.
Recent statistics from FinTrust — an independent trust based in Johannesburg, South Africa that usually conducts surveys through Finscope — indicate that of the seven million adult population that is in Zimbabwe, more than five million are unbanked, or do not have bank accounts.
In fact, only 2,1 million are actually banked.
Even for those who have debit cards, the transaction costs are both punitive and prohibitive.
Paying for goods through Point of Sale (POS) machines — available in limited formal retail outlets — attracts unsustainably high charges especially if the customer is using the Zimswitch platform with charges of between $1 and $3 per transaction depending on the bank.
When the depositor is using their bank’s swipe machine, it costs 50c per transaction with a CBZ card, Barclays (80c), Standard Chartered (10c), Stanbic (free), Steward Bank (84c) and NMB (75c).Overall, depositors, most of whom do not have meaningful disposable incomes, find it unattractive to use the banking platform to pay for goods and services, as interbank transfers cost a minimum of $5 and a maximum of $10, a charge that can be avoided by using cash.
Experts believe that banks need to adopt models that derive value from the volume of transactions rather than the margins.
Economist Mr Persistence Gwanyanya said last week there is need for financial institutions to promote the idea of”free banking”.
“The cost of banking, especially maintenance fees and transaction costs, remain high and unsupportive of financial inclusion.
“The idea of free banking is not being well-marketed and a small proportion of the population is enjoying this facility.
“Reducing the cost of banking, in my view, would help in attracting more clients into the formal banking system, which will concomitantly improve the country’s liquidity situation,” said Mr Gwanyanya.
He added that Government also needs to take the lead by embracing the use of plastic money in order to promote a cashless society.
“Effective promotion of plastic money requires that Government embrace this concept at all its institutions by establishing the necessary facilities such as Point of Sale (PoS) solutions at these institutions, which make up the bulk of institutions in the country.
“These include schools, universities, hospitals, parastatals and quasi-government institutions such as GMB, NRZ and Zimra among others. Surprisingly, there is still extensive use of cash at these institutions.
“Being the biggest employer, Government should do more to promote the use of plastic money, especially in view of the fact that it pays its employees by electronic means,” he said.
International experiences in promoting plastic money
The use of plastic money is deep-seated in some developed countries such as Sweden to the extent that most bus services and churches do not handle cash.
On average, cash transactions only constitute 3 percent of the national economy in the Scandanavian country.
In South Korea there were targeted interventions such as a preferential Value Added Tax (VAT) rate for customers using plastic money.
In countries such as Somaliland, street vendors even accept payments through mobile phones.
But there now exists a trend where more customers now prefer to use mobile payments for transactions rather than banks.
Statistics from the Reserve Bank of Zimbabwe (RBZ) show that mobile payments account for the bulk of transaction volumes last year at 88, 9 percent followed by Point of Sale platforms (5,6percent), ATMs (5,2 percent), real time gross settlement system (RTGS) at 0,9 percent and internet at 0,2 percent.
This trend is further buttressed by figures from Postal Telecommunications Regulatory Authority of Zimbabwe (Potraz) which show that the total value of transactions on mobile money platforms rose 16,3 percent to $533 million in the three months to December from a quarter earlier.
Currently, mobile money transactions are pushed by the country’s mobile telecommunication companies – Econet Wireless Zimbabwe, which controls EcoCash; NetOne, which has OneWallet; and Telecel (Telecash).
Econet accounts for more than 90 percent of the market in terms of market subscriptions.
It is however believed that the inability of the formal banking systems to handshake or connect with mobile money platforms is making it inconvenient for the public to transact with ease.
So, movement of money between the formal and informal systems is limited.
Only six banks– CBZ, ZB, NMB, Banc ABC, Agribank and Stanbic – are currently linked to the EcoCash platform.
It is believed that monetary authorities need to do more to make mobile money platforms and bank accounts interoperable.
Retailers reeling
Confederation of Zimbabwe Retailers (CZR) president Mr Denford Mutashu told The Sunday Mail Business last week that paper money shortages were having a heavy toll on business.
Mr Mutashu said retailers were not making meaningful business as consumers have cut down on spending, unsure of when they will access their next cash allocation.
“It (paper money shortage) is an issue that has affected business because people do not want to spend the little money they have; they want to keep it because they are unsure if they will get money the following day.
“Certain banks are doing well but there are others that are struggling. It is our hope that the cash shortages are temporary and we hope the RBZ facility from Afrexim bank will help the situation,” said Mr Mutashu.
The RBZ is working on a nostro-stabilisation fund worth about $200 million with the Afrexim bank which is expected to ease the cash challenges.
Inflows from tobacco, which have hit just over $300 million, are also expected to bring some relief into the market.
However, Mr Mutashu proposed that the RBZ or the Ministry of Finance and Economic Development should come up with an instrument that limits the amount of cash people can hold because “without that, even if the RBZ facility was to come from the Afrexim bank”, shortages will still persist.
He also urged formal and informal retailers to “play their part” in easing the paper money shortages by ensuring they channel everything they realise into the formal banking system.
Almost $2 billion is said to be circulating in the informal industry as the sector has lost confidence in the formal banking system.
Mr Mutashu also called for the capacitation of industry to reduce imports, which he said were “mopping up the little liquidity in the economy through imports”.
“This is a serious situation which requires urgent attention and the promotion of local products as opposed to imports; this can save us money,” he said.
