Bank Zero will be an app-driven bank, not an Internet bank, a digital bank or a virtual bank, and will not rely on physical branch infrastructure, according to chairman Michael Jordaan. Original Link
For most, owning a wine farm on a mountainside close to the sea, surrounded by family and friends, would be all they ever needed. But for Michael Jordaan, former CEO of one of South Africa’s biggest consumer lenders, the banking bug runs too deep.
Having moved to his wine farm Bartinney full time in 2014, after 10 years at the helm of First National Bank, 49-year-old Jordaan is now readying Bank Zero, a digital bank that may offer some services for free. With its start date slated for the end of this year, Bank Zero is likely to epitomise Jordaan and his career thus far — innovative, consumer focused and kinda cool, at least to nerdy banking types.
“It’s a project that’s close to my heart,” Jordaan, who helped FNB win an award as the world’s most innovative bank during his tenure, said in a recent interview in Cape Town. “From a business perspective, wine making is nonsensical, but it has the lifestyle. It’s now five years since I left FNB and at some stage you have to follow the thing that’s your passion.”
Bank Zero, which in January said it got a provisional licence from the central bank and has 10 staff, isn’t going to lend out money. Instead it’s going to encourage South Africans to save through attractive interest rates. With a mutual bank structure, which is funded by its members, the Johannesburg-based Bank Zero is entirely backed by its founders and will offer customers with smartphones an app and a card.
It comes as South Africa’s economy shows signs of improving with the swearing in of Cyril Ramaphosa to replace Jacob Zuma as head of state last week. Ramaphosa has already moved to end an impasse in the mining industry, while pledging to fight corruption that had become a hallmark of Zuma’s administration.
Bank Zero joins several new entrants encroaching on a space dominated by South Africa’s four biggest lenders. Discovery, the nation’s largest health insurance administrator, plans to start this year, while billionaire Patrice Motsepe is backing Tyme, which will allow customers to access funds through their mobile phones. The South African Post Office also has a provisional banking licence.
“I’m the chairman, so it’s more of a nonexecutive role with some interaction with the regulators,” said Jordaan, who won’t be commuting regularly to Johannesburg. “Bank Zero is very independent, it’s not linked to FNB. It’s possible to start a new bank with very few people and great software and costs at 1% of 1% of my FNB budget.”
Yatin Narsai, who was FNB’s chief information officer, is Bank Zero’s CEO. It was over bottles of red wine that Jordaan and Narsai hammered out the the Bank Zero concept. Together they face “world-class competition” from more than 30 registered banks in South Africa, Jordaan said, but with no canteen, no art collection, no legacy technology systems to wrestle with and some staff not yet taking a salary, all resulting in a low cost base, the two plan to shake up the local industry.
“He’s the person I’ve had the most fights with in my life,” Jordaan said. “We have vociferous debates. For Bank Zero, we’ve explored everything.”
While banks traditionally make money by lending, Jordaan’s start-up will rely on other revenue streams. Without elaborating on specifics, he pointed out that some lenders profit from the different rates on wholesale versus retail funding, charging interchange fees or taking a commission on the sale of certain products, such as airtime for mobile phones. And in addition to consumer banking, Bank Zero wants to enter business banking.
“I’m involved with 21 start-ups and I’ve realised how expensive banking fees are — businesses pay too much,” Jordaan said. “There’s billions of rand in overpayment for bank fees. Imagine if we could help save those billions.”
In the vineyard-strewn valleys around Jordaan’s farm, there are a number of his former colleagues and mentors. FirstRand founders GT Ferreira and Paul Harris both own wine farms in the area. Before announcing Bank Zero, Jordaan spoke with them, worried that his latest project would be seen as a threat to their legacies. Instead, Jordaan said, they gave their blessing.
In a 2012 interview, Jordaan said the business of wine had bad cash flows and no return on equity. While his views haven’t changed, he’s still passionate about his farm. His grandfather owned it first, but it was sold after he died. Having built up his wealth as a banker, Jordaan was able to buy it back and Bartinney produced its first grape harvest in 2009. He talks about wine farming with the same enthusiasm he has for banking.
“As my wife says, vines are like men, they’re better when they suffer,” Jordaan said. Alluringly, and unlike banking, “wine is tradition, it’s not prone to innovation,” he said. — Reported by Renee Bonorchis, (c) 2018 Bloomberg LP
In this episode, your hosts Duncan McLeod and Regardt van der Berg chat about the week’s biggest technology stories, including Michael Jordaan and Yatin Narsai’s new digital bank, Bank Zero.
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Bank Zero appears set to accelerate the evolution of the South African banking industry by offering a fresh take on banking and highly competitive fees.
The bank — the brainchild of tech entrepreneurs and banking innovators Michael Jordaan and Yatin Narsai — has received a provisional licence from the South African Reserve Bank. It is due to launch a smartphone app, through which transactional and savings accounts can be opened and managed, in the fourth quarter.
The digital-only play, built using free open-source technology, is expected to lower banking fees thanks — in part — due to a lack of legacy systems and absence of traditional bricks and mortar branches, which will enable it to keep costs down.
“We certainly hope to come up with a very competitive structure. We do realise that we have certain disadvantages — we won’t have branches and we won’t have lending products — so we’re going to have to make an impact in the areas where we’ll play, being deposits and fee structures.
“It’s a bit too early to disclose exactly what we’re going to do because that would give competitors an advantage but we really hope to delight you and other potential South African customers when we launch toward the end of this year,” said Jordaan, co-founder and chairman of Bank Zero, when asked whether his offering would be cheaper than that of Capitec. Of the listed banks, Capitec’s offering, which includes a base fee, pay-as-you-transact charges and interest on positive account balances, is considered the most competitive.
In an attempt to nurture a savings culture, the bank is to offer attractive interest rates on deposits and has chosen upfront not to engage in lending.
Its target market includes individuals and businesses, which it feels are under-served by the traditional banks.
In a statement, Jordaan said the bank’s offerings would be in line with modern day realities, where the likes of Facebook, WhatsApp, Twitter and Instagram represent a new normal. “Why shouldn’t banks also innovate in this era of wider connectedness whilst still ensuring a robust banking value proposition? Bank Zero is addressing these realities, while employing cutting-edge technologies, minimising typical admin-intensive processes and delivering state-of-the-art security.”
Bank Zero is to operate under a mutual licence, like that of Finbond, GBS and VBS. This will allow the bank to create financial communities and give customers the opportunity to become shareholders in the bank. Bank Zero will, after breaking even, be able to issue shares along with voting rights to deposit holders.
Jordaan would not disclose the value of the capital invested in Bank Zero nor its breakeven point, saying only that it is more than adequate in relation to the the Reserve Bank’s minimum requirements. The bank is being funded by seven individuals, all of whom are seasoned banking or IT and software development professionals, and is 45% black owned.
“We are fortunate in that we didn’t have go to any institution to raise the capital. And that does allow us to take a slightly different approach to the market. It means that we can focus on the long term so we’re not just focused on chasing short-term profitability; nor are we chasing maximum profitability in the short term. We really think that there is an opportunity here to cast many of the benefits of the business model and of the technology back into the target market in South Africa.”
Although no institutions are financial backers of the bank, it will have to select one of the big four banks as a mentor bank to help it fully integrate into the payment system. Jordaan said Bank Zero has not yet selected a mentor bank but that it will do so with guidance from the Reserve Bank.
It is likely to become the fourth new bank to enter the market in 2018 alongside Discovery’s bank, Tyme Digital by Commonwealth Bank and Post Bank.
In a post on Bank Zero’s newly launched website, the venture revealed that it has secured a mutual bank licence following a “rigorous and in-depth evaluation process” by the Reserve Bank.
“The mutual banking concept mirrors current social media trends and benefits customers by allowing for the support and creation of financial communities,” it said. “It also provides for a capital-efficient framework, and Bank Zero will be sharing the subsequent cost benefits with its customers (both businesses and individuals).”
The 45% black-owned bank is set for launch in the fourth quarter of 2018. It will be an “app-driven bank that offers added control and transparency, and a fresh take on banking”, it added.
Bank Zero was founded by Jordaan — who is a now a technology investor based in Stellenbosch — and by Yatin Narsai, who worked with Jordaan at FNB for 10 years.
They want to build a bank “without any legacy systems that can be costly to maintain”, they said in the statement.
It’s the first time that Jordaan has invested in a venture that looks set to compete directly with his former employer.
In the statement, Jordaan said: “Facebook, WhatsApp, Twitter and Instagram are the new normal for societies. Why shouldn’t banks also innovate in this era of wider connectedness whilst still ensuring a robust banking value proposition? Bank Zero is addressing these realities, while employing cutting-edge technologies and delivering state-of-the-art security.”
“Bank Zero is part of the new frontier of banking which has arrived through smartphones and associated digital technologies,” said Narsai. “Beyond the mobile technology revolution, other innovations will bring more financial transparency and control to our customers in an intuitive, secure and affordable way.” — (c) 2018 NewsCentral Media