South African consumers are fond of multi-banking: a trend where businesses and individuals prefer to bank with more than one banking partner. According to an annual business tracking survey done by TMS, 14% of small businesses do not have a “main bank”.
This is also prevalent in 26% of larger businesses.
Yudhvir Seetharam, head of Analytics at FNB Business, provides a perspective on the advantages and disadvantages of being multi-banked.
“There are a number of reasons for businesses to use different banks, including the need to receive payments instantly instead of waiting at least three days for electronic funds transfers (EFTs) to reflect when a client uses a different bank. In some cases, businesses use more than one bank in search of better deals.”
Seetharam explains key considerations for businesses which are multi-banked or currently exploring the practice of multi-banking:
* The cost factor – for a standard business whose operations are in one country, it is costly to be multi-banked. While you have diversified your banking services partner, you are effectively paying twice the fees for the basic set of products and services. Furthermore, it becomes quite difficult to manage your accounts as you do not have a single, holistic view of your statements and overall cash flow.
* Administrative burden – being multi-banked means that the business will need to do more admin than if they had one bank. However, for international businesses, the administrative burden is outweighed by the benefits of receiving funds in local currency.
* Currency exchange rate for multi-national businesses – in international companies or multi-nationals, where operations or branches are split amongst various locations, it is typical for such businesses to be multi-banked. In such cases, currency exchange rates become a factor as an outlet in a particular country might prefer to receive payments in their local currency to enable easy reconciliation of accounts.
* Losing out on benefits – currently, the local banking industry is investing a lot of resources to reward customer loyalty. Therefore, the more products you have with one bank, the better your chances are of maximising any form of rewards on offer. If multi-banked, chances are that you will only receive a fraction of what you could potentially get if you had all your accounts with one bank.
“While the biggest benefit of being multi-banked is to potentially receive payments early, good collection systems along with increased cash flow management can easily mitigate this problem in a business. Generally, the trend of being multi-banked is not advisable for small businesses because of the costs involved. However, it makes business sense for multinationals or international businesses to continue using multiple banking institutions,” concludes Seetharam.