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Commission blushes as banks are stripped bare

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January 14, 2009

By Stuart Theobald (The Times[1])

The irony is that putting such information into the public domain may actually help the cause of competition.

The Competition Commission inquiry into the banking sector has ended in a farce after an uncensored version of the report ended up last month on — a whistle- blower’s online paradise — where all and sundry can download it.

The commission claims it has fallen victim to hackers, even laying charges against the (as yet unknown) alleged criminals. It is an ignoble end to a two- year process undertaken at vast expense.

In fact, the commission’s attempt to block out confidential sections of its report was the computer equivalent of using Tippex. It does not take much to scrape the surface and see what is written be neath.

The report it published on its website had confidential bits blacked out, but the underlying information was still there. All it took was a reasonably competent techie to download the document and undo the commission’s ham-fisted efforts at censorship. This is hardly the work of deviant hackers, as the commission would like you to believe. While it seems to contravene the Electronic Communications Act, that particular Act has never been tested in court. Scraping off some Tippex just does not seem that serious a crime.

The commission has good reason to paint itself as a victim of evil intent, rather than as incompetent.

The banks agreed to share confidential information with the commission for it to do its work. The condition was that the information be kept confidential. Before the report was released, each of the banks’ lawyers went through it and marked bits they felt qualified as confidential. The lawyers had to agree not to disclose information on the other banks to their clients.

But now the whole promise of confidentiality has been torpedoed.

Michael Jordaan, CEO of First National Bank, said he was “disillusioned” that the information became public after the significant effort his bank put into co-operating with the commission.

Rob Shuter, head of Nedbank’s retail business, said he was very disappointed. “We all submitted confidential information to the commission in good faith as part of the process,” said Shuter.

Sim Tshabalala, CEO of Standard Bank South Africa, echoed the sentiment: “It is disappointing that information given in a voluntary process has been made public.”

The commission must be having sleepless nights. If the banks can show that they suffered a loss from exposure of the information, and that the commission was negligent in allowing the information to come to light, a bank could sue the commission to recover their losses.

One banker said he had instructed his staff to not read the uncensored version, so if they ever end up in court they cannot be accused of having exploited the information themselves. Another banker described the exposed information as “mouthwatering”.

Will the banks suffer losses? It is quite possible, although it may be difficult to prove that they have. For example, among other tidbits in the uncensored documents, are bank fees charged to merchants for card transactions.

Nedbank charges as much as 9.99% of the transaction to process a credit card transaction for a retailer, but as little as 0.55% for debit cards. Standard Bank, Absa and FNB have narrower ranges. That is pretty handy information to have at your fingertips as a retailer when going in to fight for lower fees from your bank. For the major merchants — think Shoprite, Pick n Pay and the like — a fight over a couple of fractions of a percent in charge card fees can mean millions of rand.

There is also lots of competitively sensitive information, like the margins earned on some products (very healthy when it comes to retail bank accounts, you may be interested to know), which could allow a competitor to go into a price war knowing full well it can win it.

Other information is just embarrassing. How about the fact that FNB makes 11% of its retail account charges through penalty fees for bouncing debit orders and the like for lack of funds in the account? (Absa makes 5%, Nedbank 8% and Standard Bank 9%). Who wants a reputation for profiting from the penniless?

The irony is that putting such information into the public domain may actually help the cause of competition, as the banks can take each other on, knowing much more about their competitors. But it won’t help the commission, which will have a tough time convincing future subjects of an inquiry to co-operate and disclose confidential information.

A consequence of the debacle is that banks which co-operated the most are prejudiced the most. FNB and Nedbank, for example, disclosed some cost details, while others did not.

First appeared in The Times Thanks to Stuart Theobald and The Times for covering these documents. Copyright remains with The Times.

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