Jerusalem Institute for Market Studies: Bank Customers Finance High Bank Salaries NIS 27 Billion in Operating Expenses

Passed to Consumers JIMS: Internet Banking in Israel = Account Holders Save NIS 411 M/year Bank Leumi earned NIS 3.7 billion in banking fees in 2011, with approximately 1.5 million customers. At the same time, internet bank ING Direct, with ten times as many customers (16.7 million) spread over many countries, turned a good profit while demanding only one-quarter of that amount in bank fees. JIMS compared the Israeli banking system with different internet banks around the world and in a position paper issued June 4, 2012, concluded that Israeli consumers would be well served if local regulators would allow internet banking in Israel. Currently, Israeli regulators have put up obstacles to internet banking that include a requirement that all accounts be opened in person by the customer in a bank branch; a prohibition on credit scoring agencies to report on consumers credit history; a refusal to recognize the postal bank as a bank for the purposes of transferring funds from an existing bank account to some new accounts; and limiting the amounts of certain banking transfers on the internet to NIS 6,000 or NIS 50,000 per month. The five major banks of Israel had total operating expenses of NIS 27.1 billion in 2011, three times as much as ING Direct spent despite its operations in many countries. ING had expenses equaling NIS 9.6 billion, while Bank Leumi alone incurred expenses almost that high: NIS 8.3 billion. Lital Faragi, author of the JIMS paper, explained that the high expenses of Israeli banks stem mostly from salaries and building upkeep and as they eat into potential profits, they are passed onto consumers who pay higher fees. In a world in which so many operations are executed with a click via the Internet, or at the most with a call to a banks telephone center, while visiting a branch involves long lines and limited hours, we ask why Israeli consumers have been left behind those of other countries.

Ninety percent of Israeli banks income from banking fees on personal accounts is based on fees for the use of ATM machines such as cashing checks, depositing checks, depositing cash, withdrawals, transfers, payments, monthly credit card charges, and data retrieval; other charges for operations involving bank clerks; having a credit line and using it. For the sake of comparison, ING does not charge its customers holding accounts for the above operations. JIMS suggests that the regulatory authorities in Israel allow banks to confirm the identify of new customers by means of existing accounts in other institutions, instead of requiring their physical presence in a bank branch, and drop the current regulatory opposition to transfers from accounts held in the postal bank and the limits placed on amounts allowed to be transferred by internet. These changes, along with others, would speed the development of the internet banking system in Israel and do much to increase competition and reduce costs in this sector. For more information: www.jims-israel.org