Of Bank Fees and Heart Surgeries

“Haven’t had the chance to complete reading a book you’ve been meaning to? Take it with you the next time you go to a Bank South Pacific branch.”

This was an assessment by a member of Papua New Guinea’s eminent Facebook page, Sharp Talk when relating to her fellow members the amount of time one is likely to spend standing in line at banks.

As jocular as it may seem on the surface, this shared remark is indicative of the growing frustration many bank users are experiencing with the country’s commercial banks.

Happy BSP Rural Banking customers

The amount of time spent standing in line to be served, as well as the perception that banks are charging “unnecessary” fees and charges exacerbate the frustration for an already agitated bank client population.

Public discussion on the issue of “banking experience” and of fees charged by banks is not unique to Papua New Guinea.

An American NBC News report recently cited a study in the US which found that “checking account fees have hit unprecedented highs…with free checking account, one with no strings attached,” becoming increasingly rare in the American banking sector.

The report added that the average “monthly maintenance fee” for American banks had increased by an unprecedented 25 percent from 2011. It also found that amongst other fee increases, the cost of withdrawing cash from an “out-of-network” Automated Teller Machine (ATM) increased by 4 percent to US$2.50 (K5) in the same period.

This has caused increased apprehension among bank customers in the US regarding the relevance of bank products and their related fees.

In neighboring Argentina, public opinion against bank fees have led to the country’s central bank issuing directives which “will limit the ability of banks to raise prices and fees this year…a nod to consumers struggling to keep up with rampant inflation.”

According to a report published earlier this month by media giant, Fox Business, the Argentinean central bank has directed that the country’s commercial banks can only implement marginal increases at less than 10 percent on ATM and other fees despite requests for increases of as much as 25 percent.

The decision by the country’s central bank was predicated on Argentina’s macroeconomic considerations such as inflation, and to foster government initiatives to bring people from outside its formal economy (the underground economy) into the banking sector.

This segment of Argentina’s population can be likened to a majority of Papua New Guinea’s informal sector, the so-called “unbanked” portion of our population.

Less than a week after the report on Argentina’s development in bank fees, The Copenhagen Post reported increased public criticism over news that the largest bank in Denmark, the Danske Bank had restructured its bank fees, resulting in some of its customers being required to pay as much as 480 kroner (K183) a year to “have an account with Danske Bank.”

The restructure sees the bank replacing “various banking fees with a flat quarterly fee,” primarily targeted at customers with the least amount of banking traffic.

Danske Bank sees this as a measure to increase “customer satisfaction and profitability going forward.”

Danske customers see otherwise, bombarding the bank with complaints and criticism, to threats of moving banks. The bank’s Facebook page was inundated with posts from dissatisfied customers.

The Copenhagen Courier reports one poster as saying, that the move implies that “the less money you have in the bank, the more you have to pay? So the rich don’t pay anything? Not smart.”

Papua New Guinean critics of fees and charges by commercial banks have not been sparing in their criticism either. Newspaper editorial columns and online pages have been saturated with discussions on the issue, and questions have been raised as to whether the fees being charged are justified.

A queue of customers at a BSP branch

Of the three major commercial banks in PNG, the Bank South Pacific has copped the heaviest criticism from customers. So much so that on various social media sites, a number of discussion threads were running concurrently in as late as last week, with a majority of postings critical of the bank’s imposition of transactional and maintenance fees.

In an endeavor to understand the widely held perception that BSP was “robbing” its customers through bank fees, and to gauge the bank’s views of the criticisms, a series of questions was sent to the bank’s public relations department recently.

BSP CEO Ian Clyne stepped in with a request for an exclusive interview to allow the BSP management to clarify the issue of bank fees from the bank’s perspective.

Mr Clyne’s assertion is that any discussion on bank fees will not be complete without first considering the “bigger picture.”

The bigger picture here, being the bank’s overall expansion and redevelopment program which has been ongoing since 2009. An exercise which sees the complete “re-engineering” of BSPs operational and human resource capacities.

Or as Mr Clyne puts it, of having the bank undergo a “triple bypass heart surgery.”

Mr Clyne reiterated that the re-engineering and modernization of the bank’s systems includes training and education for bank staff to improve their capacity to deliver desired outcomes and to ensure customer satisfaction and retention.

With a staffing capacity of just under four thousand, 98 percent of whom are national employees, the bank’s management insists that investments in systems and people can only strengthen its position as the leading bank in the country.

Included in the bank’s redevelopment initiatives was the segmentation of services and products to cater for its differing client base. BSP First and BSP Priority will continue to cater for the corporate, high-end banking customers who account for 78 percent of the bank’s profits.

The Mass Market segment or the branches and rural agencies will continue to provide banking services for the majority of the banks customers in both urban and rural areas.

While the bank is focused on delivering greater financial inclusion for the “unbanked” sector, Mr Clyne remarked that opening rural and provincial branches should be based on cost theory of economies of scale and internationally accepted resource allocation models.

This is due to bank analysis that 26 branches operate unsustainably and continue to be supported by head office. As a nationally owned bank, the BSP is also mindful of its corporate responsibility to society in terms of providing support to communities and organisations in areas outside of the banking sector. Importantly, in driving the financial inclusivity program through rural and online or mobile banking.

The cost of this “triple bypass heart surgery” for the bank has been in excess of K500 million and the management expects to continue its redevelopment program which will see an increase in the number of EFTPOS facilities to 15,000 and ATMs to just under 300 nationwide by the end of 2013.

An aggressive rural, mobile and internet banking expansion program, a fledgling WantokMoni concept, continued remodeling and upgrading to branches and service centers will continue to ensure the bank expands a large financial outlay.

BSPs community service program through School Kricket

But all these must continue if BSP (and indeed any commercial bank in Papua New Guinea) is to achieve its aim of providing a modern and efficient banking service to its customers.

Rural and mobile banking in particular should prove to be beneficial for the estimated 85 percent who comprise our rural population in a year declared by the national government as the year for implementation.

Mobile and Internet banking options can alleviate the long waits in line at banks as BSP estimates that as much as 40 percent of customers who present themselves at branches can easily opt to access their accounts using these two options available at any given time.

Accepted, bank charges and transactional fees can be a disincentive to banking, however, they are necessary for banks to continue rolling out products aimed at providing an efficient banking service and for unbanked customers to have access to financial inclusion programs.