Billions behind battle to keep bank charges


Kenya Commercial Bank Kipande branch in Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

Local banks earned a reprieve as fees on transfers between bank accounts and mobile wallets were temporarily returned.

The return on fees was however short-lived with banks and mobile money providers being forced by a court order to suspend the fees pending the hearing and determination of a suit challenging the return of the fees.

The fees on the money transfers were instituted as part of Covid-19-related emergency measures to facilitate cashless transactions in March 2020.

Banks have defied the interim order as they seek to once more tap billions flowing from the transfer fees which are usually recorded as part of other fees and commissions in the lender’s non-funded income portfolios.

Data from the Central Bank of Kenya (CBK) shows that other bank fees and commissions have grown by 47.3 percent over 10 years between 2012 and 2021 on the back of what has been the digitisation of payments and banking.

In value terms, the non-loan-related fees and commissions have grown from Sh32.8 billion in 2012 to Sh48.3 billion at the end of 2021.

The fees and commissions however cover not just transfer fees but also service charges, custodial fees and ledger fees with the components of the fees differing from one bank to another.

The Co-operative Bank of Kenya for instance lists custodial fees, fund management & brokerage fees, training and insurance agency fees as part of its other fees and commissions from contracts with customers with the lender netting Sh15.1 billion in total fees and commission income in 2021.

On its part, Equity gained Sh14.6 billion from other fees and commissions in 2021 with the bulk of the fees being service fees and commissions.

“The service fees largely relate to fees earned from transactions with customers and commissions earned on facilitation of remittances,” Equity Group said in its 2021 annual report.”

Net fees and commission income meanwhile stood at Sh10.4 billion at KCB and Sh3.7 billion from NCBA.

The fees and commissions nevertheless tanked in 2020, falling to Sh43.7 billion from a peak high of Sh52.1 billion in 2019 after the waiver on fees for transfers between bank accounts and mobile money wallets.

The nettings from the fees and commissions are yet to return to the pre-Covid-19 highs subject to the return of the mobile-bank transfer fees.

Other fees and commissions are central to the bank’s non-funded income stream with CBK data placing the contribution of the fees to non-interest income at slightly over one-third or 34.3 percent in 2021.

Banks have over the years increased their focus on non-funded income to cut their reliance on revenues based on lending activities.

“The idea for every bank is to diversify away from interest income because of concentration risks from leverage,” noted a banking sector analyst.

Bank customers have nevertheless expressed concerns over the pricing of some of the service charges to go along the challenge against the return of fees for mobile to bank transfers.

Other fees which have irked customers have included charges levied on SMS alerts which get to as high as Sh25.

In the defence of banks, however, a banker who spoke anonymously to the Business Daily says lenders do not necessarily make a killing from such charges after the netting off costs.

“Such systems have Capex and system costs must be met. Banks pay regularly for upkeep and maintenance. Different service providers will charge you differently. These systems are not free and they are not cheap either,” said the banker.

Gross payments from service charges are as a standard usually split between the bank, the payment service provider (PSP) and the payment aggregator leaving the margin earned by the lenders as a modest amount.

Banks have however been challenged to make better customer disclosures on fees and commissions even as the CBK is challenged to have a better overview of fees and commissions levied by the industry.

“The banks have done a poor job in interpreting the fees to the customer. It’s actually a costly affair for banks,” said George Bodo, an investments analyst.

“The CBK needs to do a cost study and set a price. Nobody knows how they come up with the costs right now.”

In reinstating charges on the reintroduction of charges for mobile money wallet and bank account transactions from January 1, the reserve bank instituted new charges that are significantly lower than those applied before.

The revised maximum charges for transfers from bank accounts to mobile money wallets were for instance reduced on average up to 61 percent, and mobile money wallet to bank account by on average up to 47 percent.

Tariffs for pay bills that are used to collect and disburse funds buy businesses, companies, and institutions such as schools were reduced by on average 45 percent while charges levied by banks for bank-to-mobile money transactions were reduced by 45 percent on average.

“CBK reiterates its commitment to facilitate the emergence of the payments ecosystem that works for and with Kenyans. CBK will continue to monitor developments in the payments ecosystem and take action where necessary,” CBK said in a statement on December 6.

Cheaper prices for banking services have been tipped to deepen financial inclusion and expand the country’s payments ecosystem.

For instance, under the fees waiver on mobile wallet and bank account transactions, the number of Kenyans actively using mobile money increased by over 6.2 million according to the CBK.

The monthly volume and value of transactions between PSPs and banks meanwhile increased from 18 million transactions worth Sh157 billion to over 113 million transactions worth Sh800 billion, an increase of 527 percent and 410 percent, respectively.

The case challenging the return of fees on mobile money to bank transactions comes up for further directions on Monday (today).

The suit, filed by Moses Wafula deems the charges as illegal and deems the bank’s leverage on the M-Pesa Paybill infrastructure to make money from customers as a contravention of the law.

The petitioner wants the charges to be paid by banks and not customers, describing the service as outsourced.

“Safaricom has no authority to charge members of the public for a service offered to its contracting service recipients including banks,” the petitioners stated.

The petitioner says the engagement between Safaricom and its M-Pesa Paybill clients is a bipartite business engagement between Safaricom as the M-Pesa Paybill service provider and their M-Pesa Paybill primary clients being the service recipients.

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