It is very difficult for a small business owner to try and compare banking products and understand which bank’s products best meet his needs. So we gave the banks a real example to see who could offer this entrepreneur the best banking package.

Nathan Calitz, owner of Eat Cubed, a small eatery in Hout Bay, Cape Town, has been struggling to find the right business bank account.

Calitz currently spends over R1000 per month on bank fees for his business which is a significant portion of his turnover and is affecting his bottom line.

Calitz’s biggest banking cost is his merchant card terminal, or “point of sale” device. “My current bank has a minimum charge, and because I do not have a high volume of card transactions I am paying around ten percent in merchant fees to the bank,” says Calitz who adds that this is wiping out the profits from the sale.

Although a point of sale device is a necessity for those customers wanting to pay by card, as well as providing better security for the shop, the majority of his customers choose to pay cash when buying a coffee or smoothie from his eatery. Calitz therefore needs to find a more cost-effective card terminal that allows for his relatively small number of transactions.

With the bulk of his transactions in cash, Calitz says the cost of depositing cash is also hurting his bottom line. He then is charged when drawing cash so it makes more sense to keep his cash in the shop to pay his suppliers and wages. “I would rather use those fees to give my staff a bonus than to give the bank more money,” says Calitz.

Although his current account offers some free transactions as part of his monthly service fee, once he exceeds these transactions he pays a massive R14 per transaction. Calitz would have to sell three cups of coffee to cover the costs of one bank transaction.

In order to find a better banking solution for Calitz, we provided the banks with three months’ worth of banking transactions from Eat Cubed and asked each bank what it would cost Calitz to bank with them.

(Absa did not provide information for the article)

Merchant card terminal

Calitz currently pays nearly R700 per month on merchant transaction fees.

Nedbank: Merchant terminal fees R372.45 or R415

A coffee shop predominately has a smaller product range with lower pricing and would experience a higher volume of cash transactions compared to a mainstream restaurant. Based on the transactional breakdown provided, Nedbank proposes that Calitz takes up the “Pin Only Sold” device as it has no minimum service fee charge and the commission is 3%. He would have to pay R1500 upfront for the terminal but based on his current transaction levels the monthly cost would be R372.45 – a saving of R300 per month on his current contract. “PIN only” solutions are designed for smaller merchants to accept card payments via a secure PIN-only driven transactions. This would mean that Calitz could not accept cards still using magnetic stripes.

Alternatively he could opt for the PocketPOS solution which is Nedbank’s recently launched mobile POS solution. Pocket POS works with a cellphone and will enable the business to process transactions anywhere and anytime. This presents the coffee shop with an ideal opportunity to expand their business opportunities by offering to provide deliveries in their business area and receive instant payment by card. A Nedbank business account assures them of same-day settlement. The commission on the PocketPOS is slightly higher at 3.5%, so Calitz’s fees would be R415, which is still a saving of over R250 per month.

Standard Bank: Merchant terminal fees: R570

Calitz would qualify for a merchant device for R325 a month, which includes insurance and all telecommunication fees; there are no initial costs.  The applicable commission rate is 3.25% irrespective of card type.

FNB: Merchant terminal fees R645

Normally a merchant would receive a merchant device for free and get charged a monthly fee of R215.92 (excl VAT) plus 3% or 3.25% commission for a debit or credit card respectively.

As the business is below the minimum turnover hurdle he has to pay a minimum commission of R350.00 in addition to the R215.92 service fee.

Capitec: Merchant terminal: R541

Although Capitec Bank does not offer business banking accounts, it does offer a business terminal for debit/credit card machines which is linked to a Global One account. This account is linked to the terminal only and does not grant the merchant access to credit.

Capitec charges R250 (excl VAT) for the terminal per month and, unlike the other banks, differentiates between a debit card and credit card when charging merchant fees. The commission on a debit card is 1.75% while on a credit card it is 3.25%.

NOTE: When commission is stated as a percentage it does not include VAT .

Business Current Account

Calitz currently pays around R400 per month in fees his business bank account. This includes R40 per month for a R5000 overdraft facility.

Standard Bank BizLaunch for new businesses

Eat Cubed would qualify for Standard Bank’s BizLaunch account which would reduce his banking fees to R90. BizLaunch is aimed particularly at any new business (including sole proprietors) with no existing business account, any business wanting to switch with an account younger than 12 months, and any business currently trading from a personal account.

Based on three months’ worth of bank statements Standard Bank estimates that Calitz’s bank fees would be reduced to R90 as all his transactions are in line with the transactions covered in Bizlaunch, so no other fees would apply. Transactions included in the R90:

• Unlimited electronic transactions, inter-account transfers and debit orders
• Unlimited cheque card swipes
• Unlimited balance enquiries and provisional statements
• My Updates SMS notification service
• Internet Banking monthly subscription
• Unlimited ATM deposits
• 8 ATM cash withdrawals
• Annual cheque card fee (which includes access to the VISA premium benefits such as Airport Lounge Discounts, Airport Valet Services and others)

The customer would also receive, free of charge, an accounting software package known as Pastel My Business Online and receive access to expert support in managing and running their business. Customers have access to a Standard Bank Business Banker and a dedicated call line, BizDirect, to support transactional queries.

Standard Bank also provides expert advice through BizConnect , an online portal that provides advice to assist in running and growing a business, and runs a series of online webcasts  where business experts tackle specific challenges in running a business. Bizlaunch customers also get access to training courses at a discounted rate. Standard Bank has partnered with online registration company SwiftReg to provide its customers with an easy-to-use system to get their businesses registered quickly, allowing business owners to register their businesses online and submit annual CIPRO returns, in the comfort of their homes or offices.

Nedbank Small Business Current Account – pay as you go

Nedbank charges R51 per month, plus R50 per month for a R5000 overdraft facility. The R51 does not include transactions and the service fee is R4.99 per transaction. Calitz could halve the service costs by using electronic channels such as internet and cellphone banking. Even then he would spend around R62 on electronic payments and a further R54 on debit orders. He would also pay around R16 every time be deposited R1000 of cash at a Nedbank ATM. Calitz would have to manage his transactions very carefully.

Nedbank’s value add services include:

• Access to simplybiz.co.za, an online portal for small business which provides advice, tools and templates, networking opportunities and access to special offers.
• Free business management seminars twice a year which provide practical insights given by experts in their fields to assist start-ups in running a successful business.
• Small business money manager, which allows business owners to track their finances and manage their cash flow.

FNB single fee pricing

Based on the business and bank statements, FNB would recommend their R169 single fee pricing option which includes:

• 30 free debit transactions per month
• 10 free cash deposits to the value of R20k at an FNB ATM advanced terminal
• Unlimited point of sale purchases
• Unlimited prepaid purchases

The cost of debit transactions, once the free allocation has been exceeded, is R14 per transaction. FNB has a R269 bundle which caters for 50 transactions.

FNB says a customer on a pay-as-you-use pricing plan could pay up to 60% more in fees, although FNB does have a pay-as-you-use option at R52.50 per month for customers who do not get the benefit out of the bundled option.

FNB also offers eBucks for Business where customers can get back up to 2.5% of their spend on their cheque accounts and fuel rewards, where customers also get back up to 15% on their fuel spend. For many customers this reward is far greater than their fees.

FNB also offers Free Instant Accounting and instant payroll which are integrated into the bank accounts to make doing accounts and payroll much easier for the small business. FNB also offers BizNetwork, a quarterly networking event with topics which can help small businesses grow.

Conclusion

Nedbank offers the best costs in terms of the merchant terminal device which is a significant saving for Calitz, however, Standard Bank offers a very compelling bank account offering.

Calitz would be best off if he cherry-picked the best products from each bank, but that would mean more administration and having an additional bank account just for the funds received through card payments. If he wishes to keep his business all with one bank, Calitz needs to decide which offering provides the best overall solution.

If he manages his banking costs carefully and does not deposit cash then he could get value out of the Nedbank offering.  Many business owners however prefer to have more predictable expenses and Calitz may prefer Standard Bank, where he knows exactly how much he will be paying each month although his merchant terminal costs will still work out at around 8% per transaction. This percentage would only decrease as he increased the volumes through the terminal.