WARREN THOMPSON: Tuesday, January 16, heralded the birth of a new bank, Bank Zero, to proud parents Michael Jordaan and Yatin Narsai. Bank Zero will be a 45% black-owned mutual bank which will go live in the fourth quarter of 2018.
Here to tell us about it is Michael Jordaan, co-founder of Bank zero. Good to have you with us, Michael.
MICHAEL JORDAAN: Yes, good evening.
WARREN THOMPSON: Let’s first start off with the basics – the name. I’m interested to understand why you came up with the name Bank Zero.
MICHAEL JORDAAN: Well, there’s a bit of mathematical story here. You know that in the development of numbers, numbers like 1, 2, 3 and 4 were obviously invented many, many decades before the number zero was invented. However, the mathematics field was changed completely with the invention of something like zero. We would in a sense say there are parallels in banking. We certainly aren’t the first bank in South Africa. There are least three other very competitive banks in South Africa. But you have to do something completely different, and that is to have the best mobile banking experience that you can have.
WARREN THOMPSON: Okay, so tell us about that because just before we got going here I alluded to bricks and mortar. Bank Zero – what will it look like and what, if any, physical infrastructure will there be?
MICHAEL JORDAAN: When we launch – and hopefully that will be by the end of 2018 – it’ll basically have a smartphone banking app, the Bank Zero banking app, and a card, because people do want access to cash or a way to deposit cash. That’s it.
We don’t think that banking in the future will be done via bricks and mortar, and particularly we don’t think that customers want to be burdened by the cost structures that come with having branches and also large head offices all over the country. The major benefit that we have is that we were able to design a new bank, starting with first principles, and using the latest technology that is available. And then many times it is Open Source, and therefore is free. Therefore we are able to pass on the benefits of a low cost structure and of modern technology and offer a great user experience on a phone to a customer segment which we think is ready for something like this.
WARREN THOMPSON: That last part was very important , Michael. I think many of us with memories will remember or recall a business – I think it was called 2020…
MICHAEL JORDAAN: I remember them well.
WARREN THOMPSON: Yes, many moons ago. I think the world has changed, though. Just tell us first what type of product and service the fundamental offering will comprise and why you think the market is ready for it now.
MICHAEL JORDAAN: I must say it was competitive. I think back with some nostalgia to 2020. Maybe it was ahead of its time. It certainly had a high cost structure.
Where we have the advantage is we are a very small team with highly competent people. That does mean that the small team plus the new technology make it much more efficient to launch something that has some similarities with some of the banks that others have tried to launch in the past.
What we won’t be doing is focusing on the lending segment. We think there are many competitors in South Africa that focus on everything from mortgages to car loans, to microloans, etc. And, on top of that, if you look at the real need in South Africa, it’s not for more lending. We should all be saving more. So we want to get people the ease of transactability on a smartphone, but with competitive deposit rates.
It’s not for individuals. We think there is a neglected segment in South Africa, which is probably the business segment, who are probably paying far more in banking fees than what it is for individuals.
So we certainly see some market opportunities where a leading player can make a difference, even though we will be competing against some very sophisticated competitors.
WARREN THOMPSON: Just on that note, the bank has been born through something called a mutual bank. Just tell us how a mutual bank licence works, and if it differs from a more convectional banking licence by, I presume, one of your competitors.
MICHAEL JORDAAN: Yes, we found the mutual banking framework very, very useful for a number of reasons. First of all, we are a very focused bank. We don’t want to become a full commercial bank. For example, we don’t want to do investment banking or corporate finance or service large corporates. We want to focus on the business market, individuals, families and communities. We don’t want to do lending. All those things speak to the more conservative nature of being a mutual bank. So that’s one aspect.
The second one is that we do want to pass on the benefits of, let’s say, having a lower cost structure for our customers. One way we’ll be doing that is with rates and fees. But another way is that over time we’d like our depositors to also become shareholders in the bank. And the mutual banking structure lends itself very much to that.
This type of thinking around a community is after all what has built up large companies like Facebook, for example, or Instagram. So we think it’s in line with the modern trends – not only the big revolution that mobile has brought about, but also this move towards communities and communities having a stake in the bank of which they are customers.
WARREN THOMPSON: That sounds very interesting and I think that ties in with the line that I wanted a little bit more clarity on from your press release here, which said that the bank will make use of a mutual bank licence, a concept which mirrors current social media trends and benefits customers by allowing for support and the creation of financial communities. I think you were touching on that in your pervious answer. Can you expand on that for us a little?
MICHAEL JORDAAN: Two angles here. The one is that customers end up also becoming shareholders in your bank. That in one sense creates a community.
The other one is that there are specific organisations – in South Africa you can think of stokvels, for example – that are also not properly banking. Many of them just use cash. Clearly these are functions that can be served very well, first of all by a smartphone and secondly by this concept of a mutual bank. So there’s a whole other segment which is a community that can be serviced. We see that as a great opportunity to once again bring benefits to customers which are underbanked.
WARREN THOMPSON: Okay, great. It sounds very intriguing. Many, many people in banking know your name from your days at FNB, but I also know that you are very busy with a number of businesses. What is the plan for your role within this specific bank, Michael?
MICHAEL JORDAAN: I will be non-executive chairman of the bank. That’s a role I greatly enjoy because it allows me to make strategic suggestions which are sometimes taken up by a very, very competent team. But I would be operationally involved. And that does allow me to not only focus on banking but on other reaches, all of which are focused, incidentally, on solving problems. Businesses really have a right to existence and a right to make profits only if they solve problems in society. The interesting one we think we’ll be solving here is that we’ll make banking more in control. Customers will have more control of their finances. There will be more transparency and it will be more competitive. Those are nice goals to be after. Even though we have a very sophisticated banking sector we think we can improve it even more.
WARREN THOMPSON: It sounds very interesting, Michael, and I’m sure there are going to be a lot of interested followers on our platform that will be keen to see how that pans out, and what the offering looks like, given that test run.
So we wish you all the best in this endeavour and I’m sure it will be a screaming success.
MICHAEL JORDAAN: Thank you so much. We really have been blown away with all the comments in the market, but it’s now up to us. There is a lot of hard work that lies ahead before the end of this year, but we hope to bring something exciting to market.
WARREN THOMPSON: Fantastic. That’s was Michael Jordaan joining us on the telephone to discuss his co-new creation, Bank Zero.