Fit-for-purpose digital banks are taking the fight to traditional banks in South Africa, pushing the envelope of what’s possible without branches and bringing down banking costs in the process.
Digital-first banks don’t have to maintain extensive branch footprints, allowing them to employ a smaller workforce than the big established players.
Theoretically, that means they should be able to charge lower fees while maintaining a healthy profit margin.
We decided to see if this were the case in South Africa by comparing the rates charged by digital-focused banks like Bank Zero, Discovery Bank, and TymeBank, with those of the more traditional banks.
Our primary metric for distinguishing between the two categories was whether they had walk-in branches for physical visits or not.
For our analysis, we used a basket of transactions that a typical customer might conduct during a month, consisting of the following:
- 5 payments
- 2 cash deposits of R1,000 at point-of-sale
- 3 cash withdrawals of R500 at point-of-sale
- 3 prepaid airtime purchases
- 1 instant payment of R1,000
- 3 debit orders
- 1 debit order dispute
- 1 emailed statement
- 1 international online transaction of R159 (value of Netflix subscription)
- Monthly fee
Firstly, we looked at the banking fees of digital banks.
Using our transaction basket, TymeBank was the cheapest by a significant margin — at a total cost of R36.18.
That was substantially lower than the second most affordable option — Bank Zero — with a transaction basket cost of R63.99.
Discovery Bank’s entry-level Gold pay-as-you-transact account was the most expensive, with a R99.65 basket cost.
Unlike Bank Zero and TymeBank, it charges for electronic payments and external debit orders while also levying a fixed monthly fee.
The table below compares the costs of our transaction basket on Bank Zero, Discovery Bank, and TymeBank.
|Digital banks cost comparison|
|Bank Zero Debit||Discovery Bank Gold (pay-as-you-transact)||TymeBank EveryDay Personal|
|Electronic payments (x5)||No charge||R2.50 (×5)||No charge|
|Cash deposit at till (x2)||R19.95 (×2)||R19.95 (×2)||First free (×1)
R7.00 per R1,000 (×1)
|Cash withdrawal at till (x3)||R2.00 (×3)||R2.00 (×3)||R3.00 (×3)|
|Instant payment||R8.50||R5.00 + 0.5% of transaction value if over R1,000||R7.00 per R1,000
|External debit orders (x3)||No charge||R3.75 (×3)||No charge|
|Debit order dispute||R8.00||R5.00||Before 60 days lapsed: R10.00
Older than 40 days: R60.00
|Electronic statement (last 30 days)||No charge||No charge||No charge|
|Buy prepaid airtime fee (x3)||No charge||No charge||No charge|
|Foreign currency conversion fee||R1.59 (1% of transaction value)||No charge||R3.18 (2% of transaction value)|
|Monthly fee||No charge||R20.00||No charge|
|Average basket cost||R66.61|
We then looked at the cheapest bank accounts available from the more traditional banks — Absa, Capitec, FNB, Nedbank, and Standard Bank.
While Capitec’s primary focus has been on affordability since its launch, the other banks have also launched low-cost, basic products to better compete with the aggressively-priced younglings.
All the traditional banks’ basket costs came reasonably close to the average across the digital bank accounts, with only Absa’s Transact account being notably more expensive.
Transaction costs on Capitec’s Global One account were even cheaper than Bank Zero and Discovery Bank.
The table below compares the transaction costs of the cheapest entry-level bank accounts available from Absa, Capitec, FNB, Nedbank, and Standard Bank.
Accounts that excluded certain key features — like the ability to load debit orders — were not considered.
|Traditional banks cost comparison|
|Absa Transact||Capitec Global One||FNB Easy PayU||Nedbank Pay-as-you-use||Standard Bank MyMo PAYT|
|Electronic payments (x5)||R1.00 (x5)||No charge||R1.00 (x5)||No charge||R1.20 (x5)|
|Cash deposit at till (x2)||ATM-only: R2.50 per R100 (x20)||ATM-only: R1.30 per R100 (x20)||R19.95 (x2)||R19.95 (x2)||ATM-only: R1.20 per R100 (x20)|
|Cash withdrawal at till (x3)||No charge||R1.75 (x3)||No charge||R2.00 (x3)||R1.40 (x3)|
|Instant payment||R1,000 or less: R10.00
Over R1,000: R49.00
|R7.50||R8.00||Up to R3,000: R10.00
Over R3,000: R49.00
|Below R2,000: R10
R2,000 and above: R50
|External debit orders (x3)||R1.00 (x3)||R3.50 (x3)||R3.50 (x3)||R3.50 (x3)||R3.50 (x3)|
|Debit order dispute on app||Before 40 days lapsed: R5.00||Before 40 days lapsed: R5.00||R5.00||R5.00||Before 40 days lapsed: R5.00|
|Electronic statement (last 30 days)||No charge||No charge||No charge||No charge||No charge|
|Buy prepaid airtime fee (x3)||R1.50 (x3)||R0.50 (x3)||No charge||R1.50 (x3)||R0.50 (x3)|
|Foreign currency conversion fee||R4.37 (2.75% of transaction value)||Up to R200: R1.00
Over R200: R3.00
|R3.18 (2% of transaction value)||R3.18 (2% of transaction value)||R4.37 (2.75% of transaction value)|
|Monthly fee||R4.90||R6.50||R4.95||No charge||R5.95|
|Average basket cost||R73.28|
On average, the basket costs of the traditional banks were more expensive than the digital banks, albeit not by as substantial a margin as one might have guessed.
However, TymeBank stands out as notably more affordable than its competitors.
At R36.18, TymeBank is nearly 43% cheaper than its next-nearest competitor, Capitec.
The average monthly cost of the entry-level bank accounts was R73.28, about 10% more than the digital banks’ basket cost.
Discovery Bank Gold’s pay-as-you-use account significantly pushed up the average price of the digital banks’ baskets, as it was the most expensive bank overall.
The only area where it offered some advantage over the others was in international payments, as it is the only bank that does not charge any currency conversion fee for these purchases.
The graph below compares the transaction basket costs of all the entry-level bank accounts we considered.