Sunday Plus: Page 4
Liberalisation and the small man
Bank Squeeze
While the well-off welcome the advent of globalisation, the small man cannot be too happy about it
LAST Wednesday, the reality of a financial industry that is being liberalised swiftly hit me hard in the face when I turned to the back page of The Straits Times.
"Small savers pay service charge" was the headline of the story on the page.
It reported that for the first time, Singapore banks are levying service charges on savings accounts that fall below a minimum sum. Three of Singapore's five banks -- OCBC, United Overseas Bank (UOB) and Overseas Union Bank (OUB) -- have begun the practice which actually penalises small depositors.
OCBC charges its savings account customers a monthly fee of $2 while UOB charges $1.50 for average minimum balances that fall below $500.
What this means is that if you have only $499 in your account, you earn a monthly interest of 42 cents (on their prevailing interest rate of 1 per cent per annum, for savings accounts of less than $3,000), but pay a service charge of $2 or $1.50, respectively. OUB imposes a charge of $2 if your account falls below $100. If you have only $99 in your balance, your monthly interest is 10 cents. Which means you end up paying the bank $1.90 a month for the privilege of putting your money there.
The other two banks, DBS Bank and KeppelTatLee, do not charge a service fee for their savings accounts -- yet. But don't count on them holding out much longer.
Small accounts simply do not justify the cost of administering them. This wasn't a matter of concern all these years when Singapore banks were protected to a large extent from competition from foreign banks.
But when that protection is to be withdrawn almost completely with liberalisation, then it is going to matter a lot.
In banking, it is only the top 20 per cent of the business which brings in the revenue and supports the other 80 per cent.
Foreign banks are not going to be bothered with the 80 per cent. They will compete for the business of that top 20 per cent.
Already, you can see that happening with Citibank, Standard Chartered and HSBC, which are almost full-fledged players in Singapore. And more foreign banks are poised to come in.
Singapore banks will be elbowed aside if, instead of fighting for that same top end, they are bogged down by the much larger but low-yielding, if not loss-making, base.
As it is, the competition will not be level. A global bank like Citibank has economies of scale that the Singapore banks cannot match even if all five of them pool their resources together.
This is the harsh reality of a deregulated financial order that globalisation demands and whose pace is set by the accelerated growth in information technology.
While the well-off welcome the advent of the global economy, since they can avail themselves of the best services and products that the world offers, the small man may find himself being squeezed out of most of the action.
Now, for instance, he can't even put what little savings he has scraped together each month in a bank without being penalised for it.
It is well and good for an OCBC spokesman to defend its service charge by saying that its customers can enjoy the bank's value-added services such as 24-hour banking and guaranteed gifts.
But what is the use of these services to the small saver who loses money to the bank instead of earning interest for his savings? SMALL is not beautiful in the global marketplace. And information is not free as is assumed commonly.
The cost of developing new products and marketing them globally have spiralled. Advances in technology mean that these products have short life cycles at best.
A product succeeds only if it proves to be a major hit, the way a Hollywood movie becomes a hit. Economies of scale and scope become paramount and only the biggest players get to play.
This applies across most industries, but especially in the information industry. In the production of computer chips, for instance, the cost of building a factory to make these chips has skyrocketed from less than US$4 million (S$6.7 million) in the '70s to over US$1.2 billion now, even as the price of a megabyte of computer memory has plunged from US$550,000 to about US$38 today.
No wonder then that big business systems have to merge and forge alliances across industries to stay ahead.
These alliances are not often apparent though, and how can we be sure that they do not control and manage information in their best interests?
The ordinary guy who gets on the Net thinks he is set free, that he has unlimited choice and access to all kinds of information.
But really, he is assaulted by white noise or information that is largely useless. He is blocked out of the vital information loops that the big businesses have set up and built a firewall around.
An example of M & A & A, mergers and acquisitions and alliances: America Online, the premier Internet portal, for example, absorbed Prodigy and Compuserve last year, and paid US$4.2 billion for Netscape. Now, AOL is a hybrid portal/content provider with an estimated 70- to 75-per cent penetration among web surfers.
It has a joint venture in both Europe and the United States with Bertelsmann, the third-largest media corporation in the world, as well as the mega clothing chain Gap, among others.
Like its rival Microsoft, it sets parameters even as it offers the consumer choice. In Microsoft's case, each time it launches a new generation software, you can be certain that it won't be compatible with the previous generation's.
So it's either you upgrade your software, or you lose "connectivity" with others. In Bill Gates' world, there is obviously no room for continuity.
Thankfully, in the larger world, there is still plenty of room for niche players and in some instances, the nimbleness and flexibility of a small player can help make it a big winner.
Even knowing the odds, small Singapore is in the game because to opt out is certain death.
Hence, the dismantling of protective barriers in the financial and communications sectors and the opening up of society in general.
But how can the bewildered small man be assured that he is not marginalised in the brutal process? Telling him that he needs retraining and a mindset change is not enough.
He needs constant explanation of all that is going on all around him, explanation which he can understand, and he must be given hope that, like everyone else, there is a better tomorrow for him and his family.
Thrift and hard work will always be important. He should save, but where can he put his small savings now?
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