LOCAL banks have announced an astronomical rise of up to 300% in automated teller machines (ATM) service charges for withdrawals under national electronic funds switch, ZimSwitch. This came after the financial institutions agreed on an upward review of the fees to maintain ATM infrastructure, in a move analysts say could boost non-interest income for the sector, while hurting bank customers.
The past two weeks have seen banks increasing service fees for withdrawals made through the ZimSwitch platform to US$4 from US$1, while Visa cardholders’ withdrawal fees on other bank’s ATMs rose to 2% from 1%.
This move could discourage depositors from using the switching system, even if it boosts banks’ non-interest income.
Non-interest income refers to bank’s income mainly from service and penalty charges and to a much lesser extent, from asset sales and property leasing. Unlike interest income which comes from loans, this income is largely unaffected by economic and financial cycles.
ZimSwitch, the country’s sole electronic funds switch, said while it had capped its fee at US$0,30 since the introduction of the multi-currency regime, other components to the charges such as the acquirer fee, a fee charged by the bank which owns the ATM and the issuer fee, charges by the bank which owns the credit card — had been reviewed over the years in line with the operating environment.
Stanbic, the local unit of South Africa’s Standard Bank Group last week announced that its services charges for withdrawals had shot up to US$4 from US$1, but was quick to say this would have no impact on non-interest income. The bank advised its customers to manage costs by using its ATMs instead of the switching platform.
“This increase applies to all ZimSwitch member banks for the maintenance of ATM infrastructure. The increase has no impact on income,” the bank said in a written response to the Zimbabwe Independent.
Other banks have been in the past week issuing notices to the same effect.
This development comes after ZimSwitch issued a circular last November the new charges would help improve banks boost their acquirers’ fees and service infrastructure.
“The ZimSwitch board, following requests from some member banks through the Electronic Payment Association of Zimbabwe (Epaz) and in consultation with the Reserve Bank of Zimbabwe has made the following fee approvals which take effect from Monday December 14 …, reads the circular dated November 21 2014 in part.
“The acquirer fee will go up from US$2 to US$3 to help compensate acquirers for the infrastructure maintenance costs.”
According to local brokerage and advisory firm MMC Capital, banks are likely going to increase service charges as interest income decreases.
“In banking, net interest income is usually the major income source for banks, ceteris paribus. In Zimbabwe, however, interest income component in total income for the majority of banks currently stands at approximately 50%,” MMC said in a banking sector report for the six months to June. “Our view is that this figure of 50% will likely be lower going forward as banks try to compensate the pressure on margins with non-funded income, hence bank charges will likely be increased going forward.”