Banks charge for most services they render to customers. They are in business and will seek to cover their costs and make a profit. If they could, they would perhaps maximise charges to boost their earnings. If you thought banks were charitable organisations, you need a rethink: they are money-making institutions and the huge profits they declare are not conjured from the moon - they come from bits and pieces, as well as chunks here and there, extracted from customers. Broadly, three things are possible: legitimate fees that are charged reasonably, legitimate fees that are charged unreasonably and illegitimate fees. We will explore how these can affect you.
Why This Is Important
The saving grace is the keen competition in the sector which does a lot to hold charges in check, thus providing a measure of protection to the bank customer. As banks content with each other to win over customers, they necessarily find that they will not benefit by pricing themselves of the ther market. But wait a minute before you jump into celebration. Does this totally eliminate concern about what you are charged? Certainly not. For one, there is some measure of price discrimination between customers of the same bank: banks do not charge uniform rates to all their customers. Rates vary, depending on each customer's volume of transactions and, yes, their level of awareness and bargaining power. A customer with a huge transaction volume who knows nothing about what to ask for or fails to bargain effectively may end up paying a higher rate of charges than a smaller, better-informed customer. In many cases, while billing may be automated, the applicable rate is manually inputted for each customer, based on negotiation. Being charged a higher rate, say of commission on turnover (COT), will, over a long stretch take a sizeable chunk of money off your account, especially if your transactions are of sizeable value. Is a bank likely to lower the rate without you asking or insisting? In most cases, they won't.
The Bankers' Tariff Is No Absolute Protection
To provide protection to customers, the Central Bank and the banks, under the auspices of the Bankers' Committee, agree to a bankers' tariff which identifies most services provided by banks and specifies upper limits for applicable charges. Banks generally obey the tariff, but instances of violations are not uncommon. The CBN has often highlighted such violations in its examination reports on individual banks, at times penalising banks and demanding restitution to the customers. The tariff is however not readily available to the banking public who ought to be guided by it. Besides, the tariff provides for upper limits of charges. Banks are not expected to charge above the stipulated rates, but can and do charge less. Where the Bankers' tariff specifies, for instance, COT rate of N5 per mille (that is, N5 per N1,000) of debit transactions in the customer's current account, banks are not prevented from charging less. However, generally, this upper limit is what your bank will llike to charge you. What you may not realise is that your COT rate may be much lower than N5/mille if you negotiate it, especially when you transaction volume provides the bargaining power. Many knowledgeable customers negotiate for lower rates, whether of COT or various other fees. In a typical bank, COT rates will range from zero to N5. Strong, hard-bargaining customers may secure a complete waiver of COT while an unknowledgeable customer is charged the full N5. Others will fall in-between those figures, depending on each customer's bargaining strength. This scenario applies also to most other rates: approval fees, management fees, LC commission, interest on facilities, etc.
What to do
A good starting point is to be familiar with what the bankers tariff permits banks to charge. That way, you are empowered to deal with illegitimate charges. Beyond that, consider if your transaction volume affords you the strength to literally call the shots. Your ability to secure a reduction and to what extent will depend on your negotiating strength. This is both a function of your level of transaction and your knowledge of what is possible. Now that you know, simply check to see that you are getting a fair rate. If you think your volume justifies further reduction of rates, don't hesitate to appraoch the bank and sit down to talk about rates charged on your account. Part of the process may include talking to different banks and looking for the best overall package. Service enhancements may also be part of the bargain. Are there beneficial ancillary services given by the bank, possibly for free? If any, quantify these benefits, to rate each bank.
While you must be sure you do business with a bank you trust - strength and quality of service are important factors- be sure too to secure the best terms for using their services. Shop around or ask questions. Where necessary, talk to a financial expert. Don't just assume that banks are saintly in charging their customers. They are not and will extract the maximum fees, if they can. If you believe you are doing enough business with a bank to justify getting better than the standard charges meant for the weakest customer, do not short-change yourself: ask the bank for reduced charges. If they believe that your business volume justifies your request and that they would rather cut the rates than lose the entire account, they will do the wise thing and accede to that request. Besides, they know that a satisfied customer can always bring more business. So, don't let money drain off your account through unjustified charges that will add up to a significant amount over time.
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