How to break up with your bank

PF 19Mar bankswitch updateiol PF Illustration: Colin Daniel

All of the banks claim to make switching a hassle-free experience, but a cursory look at consumer website Hellopeter.com shows there are many unhappy customers who left one “bad” bank only to feel like they’ve joined another.

None of the banks will say how many customers they lose to competitors in any given year.

According to FinMark Trust’s FinScope Survey for 2015, only six percent of respondents said they had switched banks in the past year. Although six percent doesn’t seem a lot, it’s equivalent to about 1 808 000 customers.

Young customers have a greater propensity to switch banks, according to a 2013 study by SystemicLogic. These customers are likely to have fewer debt-based products (such as home loans) than older customers, so they don’t feel as if they are tied to their bank.

Customers switch banks for a variety of reasons: poor service, high fees or inadequate online security, to name a few.

Just because customers don’t switch doesn’t mean they are happy with their bank. Many consumers stay put because of the oligopolistic nature of the banking sector. (An oligopoly is a market domi-nated by a few players, resulting in limited competition.)

The issue of market power in the retail banking sector was addressed by the Competition Commission’s Banking Inquiry in 2008. In a bid to improve competition, the inquiry recommended, among other things, that the industry takes measures to facilitate customer switching. In 2012, the Code of Banking Practice was revised to deal with switching.

It states that the banks have committed themselves “to making it as seamless and easy as possible and reasonable for all personal transaction account customers to switch banks”. The code spells out the responsibilities of all parties: you, the bank you’re leaving and the bank you’re joining.

Unsurprisingly, most of the responsibility falls to you to provide your new bank with all the information it requires to try to make it a seamless switch.

A key aspect of switching is transferring debit orders and regular credit payments, such as salary and pension payments, from your old account to your new account.

The code states that, although the banks are committed to ensuring that the process is smooth, “the co-operation of all parties involved (especially debit-order originators) and salary, income and benefit payers) is required”. (A debit-order originator is a third party that you have authorised to deduct money from your account.)

This is what the code says:

YOUR ROLE

* You’re advised to begin the process by opening an account with your new bank.

* You need to provide your new bank with the appropriate information (such as account numbers and policy numbers) so that it can transfer your debit orders, arrange new stop orders and load your beneficiaries.

* If your new bank informs you that any party, such as a debit-order originator, would not accept instruction from your new bank, you must provide your new bank account details to that party.

* You must inform your employer (timeously) of your new bank account details.

* You must provide your old bank with a clear instruction to close your account, and when this must be done. You should keep the account open for at least six weeks after you have switched, to ensure that all your transactions have been switched to the new account.

* You must make sure there are sufficient funds in your old account to cover any payments that are not switched timeously because of the actions of third parties.

YOUR NEW BANK’S ROLE

* Your new bank may advise you on how to transfer debit orders and salary payments, arrange new stop orders and, if relevant, load your payment beneficiaries.

* Your new bank should remind you to include any annual debit orders (such as a TV licence or an insurance premium) or stop orders in the switching instructions to that entity.

* When your new bank receives a signed debit order or salary redirect form or instruc-tion it may inform all relevant existing debit order originators of your new account details for future deductions;

* Your new bank will inform you of any party that would not accept these instructions from it. In such instances, it is your responsibility to have the account details changed with that party.

YOUR OLD BANK’S ROLE

* You may be required to provide your new bank with information about the transactions you wish it to switch to the new account. Your old bank will help you, if you ask it to, by providing the following basic transaction account information [to your new bank] within 10 business days of receiving your proper instruction to close your account:

- Up to three months’ statements;

- A list of stop orders loaded;

- A list of beneficiaries loaded; and

- Any supplementary or linked cards or accounts which may be affected.

* Your old bank will ensure that all its internal divisions or subsidiaries act on your instruction to switch your debit orders to your new account, and that no artificial or unreasonable hurdles or demands are raised to prevent you from switching your account to a new bank.

CAPITEC ‘HAS BEEN A GAME CHANGER’

Retail banking has become more competitive, particularly for the low and middle market segments, says Trudi Makhaya, an economist and co-author of a case study on the experience of Capitec Bank as an entrant to the retail banking industry.

“With the entry of Capitec [in 2001], and its accessible and transparent business model, newly banked and badly banked consumers found an institution that spoke to their needs. Capitec proved the commercial case for serving the low-income, or, more broadly, mass market, and this prompted a competitive response from incumbent banks. This has made banking more transparent and competitive, as can be seen from falling bank charges for low-cost accounts. But there is still more that can be done.

“New models have to be developed to bring the 25 percent or so of adults who still don’t have access to banking into the fold. Retail banking is still dominated by the bricks-and-mortar, full-service bank with high capital requirements and onerous licensing requirements.”

According to a recent paper co-authored by Makhaya, there is scope to improve the switching process.

The process could be improved if there was a regulated switching process with mandatory timelines, as suggested by the Banking Inquiry Panel, the paper says.

Walter Volker, the chief executive of the Payments Association of South Africa, says there is provision for an industry-level centralised, automated switching system that facilitates the re-routing of debit orders. In other words, the switching is not done by your new or old bank, but by a central operator such as Bankserv. But there hasn’t been enough support for such a system from the banks, because they have staff members who handle the switching of accounts.

Makhaya’s paper says the Reserve Bank should also consider a process where consumers are not liable for interest, penalty fees and other charges incurred due to delays in switching accounts. The sharing of Fica information, with clear guidelines on where liability lies in case of contraventions (the original or second bank), would also ease switching.”

TIPS FOR PAIN-FREE ACCOUNT SWITCHING

Successful switching is all about timing, Ryan Prozesky, the chief executive of value banking services at First National Bank (FNB), says. To be safe, you should bank on it taking up to 45 days.

“Employers and companies that collect via debit order may have specific cut-off dates for changing banking details in order for the next salary or payment to be processed to your new bank account. If this is not done in time, the salary or payment may be processed against your previous (old) bank account,” Prozesky says.

For a smooth switching experience, FNB suggests you:

* Keep sufficient funds in your old bank account to cover one month’s worth of debit orders, to safeguard against the beneficiary/collecting company not processing the new banking details by the time the debit order runs;

* Check with your employer what the cut-off date is for your payroll department to be notified of a change in banking details, to prevent your salary from being paid into your old bank account; and

* Make sure you supply your new bank with the correct information about policy numbers and investment account numbers.

Prozesky says FNB sends customers SMS notifications when your salary and each debit order is moved. And at the end of each day, a full summary is sent via email to the customer. This keeps you abreast of where you are in the process and whether you have funds available to honour your regular commitments.

Sibongiseni Ngundze, the head of retail banking at Standard Bank, says upsets happen when the customer’s salary goes into the new account, but the debit orders aren’t all transferred in time – in which case debits continue to go off your old account, but you don’t have the funds to cover these, and incur penalties. Or the opposite happens: all your debit orders are moved across to your new account, but your salary goes into your old account. Again, you will incur penalties.

If you can’t keep sufficient funds in both accounts, you can ask both banks to give you an overdraft facility to cover you in the event of problems in the process. If you have to use this facility, it will come at a cost to you, but, in most cases, the cost will be negligible compared with the cost of declined debit orders.

Punki Modise, the head of transactional banking at Absa retail banking, says you should close your old account only once you are sure that your salary and all debit orders have been switched to your new account.

YOU MUST TELL SARS YOUR ACCOUNT HAS CHANGED

When you switch bank accounts, don’t forget to inform the taxman. The South African Revenue Service (SARS) recently issued a new guide to updating your banking details. This is to reduce the risk of refunds being paid into the wrong account and to streamline the process, which has been onerous in the past, says Marc Sevitz, the chief financial officer of Tax Tim, a website that helps you to fill in your tax return.

A change of bank details can now be done:

* In person at a SARS branch (SARS still prefers this way);

* Via eFiling (Go to “Maintain taxpayer registered particulars” menu);

* When submitting your ITR12 (income tax return) – you can change the details on the form itself; or

* At a SARS mobile tax unit.

You can’t change your bank details at SARS via phone, fax, email, post or dropbox.

SARS will only accept a bank account that is a savings, cheque or transmission account in your own name. SARS won’t accept a credit card, bond or foreign account.

You must submit the following supporting documents:

* An original identity document, driver’s licence or passport, or a certified copy thereof, (a black and white copy is best).

* Original bank statement or ATM/internet-generated statement or Absa eStamped statement, not more than three months old, which confirms the account-holder’s legal name, bank name, account number, account type and branch code.

* Where a new bank account has been opened and a bank statement isn’t yet available, an original letter from the bank, not older than one month, on the bank’s letterhead with the original bank stamp reflecting the date on which the bank account was opened.

* A copy or an original proof of address (reflecting your name and surname), such as an account from Telkom, a municipality, an educational institution, eToll account, major retailer, a court order or a traffic fine. These documents must be less than three months old.

* SARS will also accept as proof of address a current and valid lease agreement, your SABC TV licence, motor vehicle licence or insurance and investment documents (for example, documents from your short-term insurer, life assurer, medical scheme, funeral policy, share or unit trust investment statement). These documents must be less than one year old.

If you don’t have a proof-of-address document because you are renting and the utility bills are in the landlord’s name, you need to complete a CRA01 form (you can download it from SARS’s Website), which states where you live. Your landlord would need to complete sections of it as well. (Information supplied by TaxTim)

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