The Sunday Mail
Persistence Gwanyanya —
THE Reserve Bank of Zimbabwe recently slashed the cash withdrawal fees, much to the relief depositors. More importantly, though, is the market’s appreciation that the measure is part of the national financial inclusion drive to increase the number of the banked population in Zimbabwe.
The National Financial Inclusion Strategy (2016-2020) targets to improve the overall access to formal financial services from 69 percent in 2014 to at least 90 percent by 2020. This is an important undertaking given the constraints in the financial services sector, clearly shown by the cash crisis.
Expectedly, the bank clients would want the review of fees to be extended to more products and transaction categories such as RTGS and internal transfers.
The upsurge in electronic transactions would be exploited by the market as justification for further reviews of charges relating to such transactions.
The desirable situation is for both providers and consumers of banking services to benefit from any fees review. This makes infrastructure sharing among other measures to effectively reduce the cost of service delivery by banks more apparent.
The increased uptake of electronic money underscores the need for development of appropriate regulatory framework supporting electronic transactions for overall benefit of the market.
From December 12, 2016, the RBZ reviewed cash withdrawal fees to one percent on ATM withdrawals and 1,5 percent on cash disbursements over the counter.
This measure also meant the adoption of a proportional fee structure as opposed to fixed pricing models at some banks.
The downward review of cash withdrawal fees comes barely a few months after RBZ instituted charges of up to three percent per withdrawal, largely as a measures to discourage cash withdrawals in favour of electronic transactions.
It seems this measure could not achieve the intended results as these punitive charges discouraged depositors to keep money in the formal system.
Like in countries such as South Africa, India and Canada, reviewing of cash withdrawal fees should be seen as part of efforts to make banking more accessible to the public.
Collaborative arrangements between monetary authorities and banking institutions have allowed for the operation of low cost accounts in these jurisdictions. A notable example is the Mzanzi account in South Africa.
The reduction in cash withdrawal fees could be a precursor to more pricing reviews in the financial services sector. While the benefits of such reviews to bank clients are clear, the providers of banking services could be affected differently.It is arguable that the punitive bank charges had taken a toll on the confidence levels with banks.
In some cases, employees have tended to prefer their salaries to be paid through other electronic platforms such as EcoCash, One Wallet and TeleCash, whose charges are much lower than traditional banking channels.
It seems RBZ has always been alive to the concerns of the bank clients as testified by various measures it undertook to review the pricing structures in the banking sector.
Recently the central bank prescribed the “No frills” savings accounts, with no administration fees, as a measure promote the use of the banking system and bolster confidence. Given the high profit levels in the banking sector, it is easy to think of banks as fleecing customers.
Since dollarisation, the banking service sector has recorded a strong performance, with a profit after tax of US$128 million being recorded last year.
This was a significant increase from the prior year performance of US$79 million. The massive profit was achieved despite the economic headwinds that continue to present operational challenges.
However, despite the strong performance, the banking sector, remains vulnerable to liquidity and solvency challenges.
Thus, the reduction in fees would increase the vulnerability of the banking sector, which threatens its soundness and safety. As such, the downward review of bank charges should be supported by measures to manage the cost of provision of banking services.
There is definitely need for individual banks to invest in robust operating and information technology systems to cope with increased volumes and maximise on resultant revenue increases.
Individual banks’ efforts should be complemented by improved efficiencies from infrastructure sharing. Tight market conditions coupled with increased pressure to reduce bank charges provide a “burning platform” for infrastructure sharing.
Like the case with the telecommunications industry, certain capabilities in the banking industry are replicated with concomitant effect of making service delivery more expensive.
For example, individual ownership of the point of sale equipment by banks makes the transactions supported by this platform more expensive.
Significant cost savings could be obtained if banks pooled their resources and invest in more efficient capabilities that support plastic money.
The financial services industry stands to benefit substantially from infrastructure sharing as electronic payments become faster and cheaper.
However, given the different circumstances of various banks in Zimbabwe, the drive for infrastructure sharing would require strong sponsorship approach.
The challenges regarding infrastructure sharing in the Telecommunication industry, largely relating to the fear of being dragged down by other players, is quite telling.
The RBZ, being the regulator of banks, should drive this initiative but little precious action is happening in this area despite calls from the market analysts.
The RBZ reports that there has been a phenomenal increase in electronic money transactions. Annual electronic transactions grew 726 percent to US$56,85 billion in 2015 from US$6,88 billion in 2009.
Faced this growth, there is need to strengthen the regulatory framework for plastic money so as to allow users to fully capitalise on advantages offered by plastic money, whilst also minimising the associated risks.
As a country evolving from a cash-based economy, the regulatory framework for cashless transactions is still underdeveloped. Electronic transactions are still regulated by the National Payment Systems Act (Chapter 23:24).
Ideally, a framework to deal with cashless transactions should have been developed at or immediately after dollarisation to reflect the new economic order. This framework should spell out issues to do with infrastructure sharing, interoperability and dealing with associated risk.
Quite often we tend to lose focus of the real economic challenges and concentrate on symptoms. Zimbabwe’s economic challenges are largely a result of an underperforming real sector. Low export levels have meant constrained ability to generate liquidity, while imports continue to haemorrhage the limited liquidity.
The need to revamp the country’s productive sector cannot be overemphasised. But the recently announced 2017 National Budget Statement shows a severely constrained economy, which is an unhealthy balance for a take-off.
There is definitely need to reindustrialise the country and FDI can ably provide the required resources to kick-start the industry given the high dissaving levels -8 percent in 2015.
The need to implement policies that attract and retain capital, both domestic and foreign, cannot be overemphasised. However, all efforts to rebuild the economy will be weighed down by graft as it is going unchecked.
Persistence Gwanyanya is an economist, banker and a member of the Zimbabwe Economics Society. He writes in his personal capacity. Feedback: [email protected] <mailto:[email protected]> and WhatsApp +263773030691
