A WORSENING foreign currency crisis has forced financial institutions to tighten transaction limits on international cards, which most banks now require depositors to fund with hard currency before travel.
In recent weeks, seven out of the 12 local banks that offer international debit cards — Visa and MasterCard — have asked depositors to fund the cards in hard cash while capping spending limits.
The development reflects the worsening foreign currency situation in the country, which has also seen about 50 international correspondent banks turning their backs on the country.
A correspondent bank provides international banking services on behalf of another financial institution, including wire transfers.
The move has affected payments to foreign suppliers and made it even more difficult for Zimbabweans to transact outside the country’s borders.
Just last week, Econet Wireless Zimbabwe subsidiary, Ecocash, announced the suspension of its MasterCard online payment service.
The mobile money platform also announced new MasterCard limits for international transactions restricting international spend per card to $100 per month.
Another Econet unit, Steward Bank, now requires cardholders to prefund their MasterCards on the back of foreign currency challenges.
“Consequently, with effect from the 16th of August 2017, customers will only be able to access value on the debit card against pre-funding in foreign currency and cash in bond notes, up to the monthly limit of $10 000,” the bank said.
These two joined an on-going wave that has seen other banks asking depositors to fund their cards with US dollar cash, forcing desperate cardholders to buy greenbacks on the black market at a premium of as high as 20 percent.
Zimbabwe’s largest financial services group by assets, CBZ Bank, asked all its Visa cardholders to fund their debit cards in cash over a week ago.
Another bank, FBC Bank, has been doing the same but offers slightly higher limits after making provision for a $1 000 swipe limit and $200 ATM limit for cardholders transacting outside the country.
FBC which has a $10 000 weekly limit has also been operating on the same basis as Ecobank Zimbabwe, MBCA Bank Limited and NMB Bank Limited, all of whom ask for cardholders to prefund before travel.
International banks such as Standard Chartered Zimbabwe and Stanbic Bank Zimbabwe Limited have not yet started asking cardholders to prefund, but require prior notification before travel, to facilitate foreign exchange allocations.
Barclays Bank of Zimbabwe also announced a reduction in transaction limits for Visa cards last week.
While ZB Bank is set to introduce its Visa card sometime during the third quarter, chief executive officer, Ron Mutandagayi, last week said the card would be pre-funded.
“It is something that we cannot run away from. The market has been doing the same and it only makes sense for us to also do the same for the convenience of our customers,” he said.
Economist John Robertson said the development was a sign of hard times ahead.
“Naturally, one would assume that controls would not be as stiff if cardholders are being asked to fund the cards themselves. However, banks need to still put in controls to ensure responsible spending from cardholders.
“What is of note though, is that this trend will soon become the order of the day because of the country’s limited foreign exchange reserves. In fact, I can almost guarantee that in the coming months, some banks will cancel these cards as it becomes increasingly difficult to monitor and allocate foreign exchange,” he said.
Another economist, Witness Chinyama, said the prefunding arrangements and spending caps were going to erode depositor confidence.
“This will obviously reduce confidence in the sector and increase financial disintermediation because with or without the controls, people will still find a way to transact outside the formal banking channels for their foreign payments.
“Not only will this fuel the black market but you will start seeing people amassing cards to transact outside the country and at the end of the day there will be no discipline. Instead, I think the banks need to engage the central bank for higher limits given cardholders are funding their own cards,” Chinyama said.
Reserve Bank of Zimbabwe governor, John Mangudya, recently indicated his support for bank initiatives around prefunding of international cards, saying this will help bring hoarded funds into the formal banking system.
Earlier this year, banks halted Visa/MasterCard local transactions arguing such transactions were draining nostro accounts – bank accounts held in a foreign country by domestic banks mainly to facilitate settlement of exchange and trade transactions.
In his monetary policy statement, Mangudya said between March and June, debit card users splurged $13,7 million on transactions while credit card users spent about $68 855, with pre-paid card transactions worth $195 799 being recorded over the period.
Notably, pre-paid card transactions increased 8,4 percent between May and June.-Fingaz