The Competition Commission Enquiry

1. The Competition Commission Enquiry PRESENTATION BY THE ABSA GROUP 11th April 2007 ATMs

2. Topics to be discussed • Terminology • Absa’s ATM strategy • Absa’s views on alternative pricing models for ATM networks – carriage fees versus direct charging • Absa’s views on direct access by regulated non-bank ATM providers to the Bankserv ATM switch

3. Terminology

4. Full value banking in response to customer demands: ATMs • The components of full value banking: • Choice • Convenience • Security • Affordability • In today’s context • Choice • Cashback at POS, Absa ATM, Absa supported ATM, Other Bank ATM, Absa Branch • Convenience Largest ATM network in the country, partly derived from aggressive partnering with non-bank ATM providers • Security Customer protection, cameras, kiosks, guards • Affordability Absa currently charges an “ad valorem” ATM withdrawal fee which benefits customers withdrawing small amounts of cash. For example, an Absa FlexiSave customer pays R3.70 for a R200 withdrawal versus R5 at FNB* * FNB Presentation 2007

5. ATM innovation and functionality add further value for consumers • Absa’s customers have additional functionality at Absa ATMs • Ongoing investment in innovation includes • Real time value on cash deposits • Cheaper machines & technology • Cash back at POS • Mini-statements • Funds transfer • Deposits • PIN changes • Account payments • Language options • Purchases of prepaid airtime / electricity ATM landscape continues to evolve due to competitive pressures

6. Absa has invested heavily in its ATM network Figures for January of each year

7. Nationwide representation of Absa ATMs

8. Absa’s arrangements with non-bank ATM providers

9. ATM withdrawal fees for off us transactions • The ability to use other banks’ ATMs is a service that Absa offers its customers • The off us withdrawal fee is the price Absa charges for this additional convenience and wider choice • To help attract customers, Absa has the largest ATM network in the country and offers lower fees on transactions involving Absa and Absa-supported ATMs • Over 85% of ATM cash withdrawals by Absa customers are on us (includes Absa supported ATMs) • Absa customers also have access to cash back at POS at 1,730 stores nationwide (16,400 terminals)

10. Carriage fees have promoted nationwide access to ATM networks • Carriage fees provide the incentive for banks with large ATM networks to let other banks’ customers use their ATMs (avoids free rider problem) • Carriage fees provide a degree of certainty to smaller banks and new market entrants to establish ATM networks of their own • Carriage fees encourage efficient use of the national ATM network • Countries such as Brazil that do not allow access to other banks’ ATMs have wasteful investment leading to inefficiently large networks

11. Nationwide representation of Absa and Competitor ATMs

12. The Technical Team acknowledges the benefits of carriage fees • “The existing pricing model together with the carriage or interchange fee has: • Allowed network effects to be achieved (obliged to enable interoperability) • Provided incentives for expansion of the network • Eliminated the free rider problem” Extract from Technical team presentation on ATMs, slide 14

13. The level of the carriage fee • Concerns have been expressed about bank involvement in determining the level of the ATM carriage fee • This concern could be addressed by having an independent third party calculate the appropriate level of the ATM carriage fee • These calculations could be reviewed periodically to adjust for changes in costs

14. Alternative model – direct charging • An alternative approach that has been suggested is for the carriage fee to be removed entirely and for the ATM owner to directly charge the customers of other banks • We are not aware of any other country in which ATMs are owned by multiple banks that uses this model and does not use carriage fees • In theory, the direct charging approach could work • It has been suggested that this model would lead to a significant reduction in total costs for consumers, however this is far from certain • A number of other factors would have to be considered in consultation with the SARB before this model could be adopted with confidence • Impact on investment in ATM network • Rural versus urban differences in pricing • Mzansi • International transactions • Competitive flexibility

15. Direct access by regulated non-bank ATM providers to the Bankserv ATM switch • Non-bank ATM providers are already active participants in the banking industry • Nearly half of the ATMs in Absa’s network are owned by third party service providers • Other banks also use ATMs owned by third party service providers • Absa has no objection in principle to allowing regulated non-bank ATM providers to have direct access to the Bankserv ATM switch

16. Summary of Absa’s views on ATM issues • The current carriage fee model has facilitated interoperability and served customers in South Africa well • Absa would support an assessment of the level of the carriage fee by an independent third party • The direct charging model is a theoretical alternative • A number of factors would have to be considered in consultation with SARB • Absa has no objection in principle to allowing regulated non-bank ATM providers to have direct access to the Bankserv ATM switch