Bottom Line / Next: Remove credit card companies from the banks
1. At the end of last week, Bank Discount announced it would again charge its customers management fees for using credit cards. It also imposed a new 0.1 percent fee on buying or selling units in a mutual fund.
The two moves don't seem connected, but actually what the bank is doing is increasing the costs of its weakest customers, over which it doesn't even bother to compete - households.
The bank managers don't even bother denying that both fees are negotiable. A big, angry client can huff and puff at the local branch and get the fees back. A small, weak customer will have to lump it. One has to suspect that only a company in a sector with little competition can afford to abuse its clients like that.
2. The abuse goes beyond charging more money. Collecting commissions on handling the purchase and sale of mutual fund units means that the more often customers buy and sell, the more money the bank makes. One might suspect that this aspect would lead Bank Discount's advisers to tilt their advice, which would badly hurt the customers' profits.
3. If Bank Discount had been just another company, nobody would question its right to raise a tariff. But it isn't; it's a big bank in a sector controlled by a small number of big banks, in which competition over the lone customer is small. Its step was interpreted as not just another price hike by a single bank, but the precursor to price hikes at other banks.
The suspicion is that the banks, in this case Bank Discount management, are doing something improper: they are colluding on prices by a wink-wink system. They don't need to meet for dinner at restaurants to coordinate positions, only to find themselves in court over anti-competition charges. One can coordinate without talking, just by signaling the desired trend.
This is harder for the Antitrust Authority to crack down on, but it isn't unbreakable. For exactly that kind of purpose, the authority has a weapon in the form of declaring them a "concentration group," a situation in which a handful of competitors barely compete. If Bank Discount proves to be just the first, and the others hasten to raise fees in its path, the Antitrust Authority will have to state whether it feels the banks deserve that classification.
4. Naturally, it wouldn't be appropriate to investigate whether the banks are acting as a concentration group if they don't move in tandem, and don't follow Discount's example and raise credit card prices. Actually, Bank Discount's move is a golden opportunity for the banks to prove that banking really is a competitive, fair sector that doesn't treat its customers like captives, and is not constantly scheming to roll its business costs onto them. Will the banks meet the challenge?
5. This is also an opportunity for the bank customers to punish banks that err in their ways and take their business to another bank.
There are excellent reasons to take advantage of that newly-convenient right in the case of Discount. It is hard to forget that just two years ago, Discount ran a campaign to attract clients from its rivals, tempting them with lower interest rates and fee discounts. And just two years later, its clients find themselves paying fees that have at least doubled. If that is how a bank that had trouble keeping clients just two years ago acts, maybe it's best not to be its client.
6. If the Bachar reform of the capital market had finished its job and severed the credit card companies from the banks, Discount couldn't have done what it did. Its move is living proof that the banks have to be divested of more powers, first and foremost by splitting off their credit card companies.
7. And another lesson from the Bachar reform: During its discussions, it capitulated to the pressure of the banks, which claimed there was fierce competition over fees, and that they couldn't collect more from the public. So the reform committee allowed the banks to charge mutual funds fees on buying and selling units in mutual funds, the so-called distribution fees. Yet here is Bank Discount, easily adding an 0.1 percent fee charged to clients who want to invest in a mutual fund or sell holdings.
There was no reason to let the banks' threats move us. Just like there's no reason to be moved by the threats of another monopolistic group, the insurance companies, against allowing customers to move savings from life insurance plans to pension funds. When a step is a wise and justified victory for consumers, it must be taken, despite all the threats.