New entrants banking on an upset
When Capitec launched, many believed it didn’t stand a chance of breaking the stranglehold of the ‘big four’ banks. What are the odds that new banks set to be launched in 2019 can also succeed?
The economy might be in flux, but that’s not stopping two of the country’s most creative business minds — former FNB CEO Michael Jordaan and Discovery Health founder and CEO Adrian Gore — from launching their own banks in 2019.
It will not be plain sailing; they are going up against an established banking sector that is well-resourced in capital and skills and has a record of trumping banking upstarts.
Gore has no banking experience, but he has reshaped the medical aid market with Discovery Health and is keen to have a similar impact on the banking sector.
In Jordaan, the "big four" incumbents have a different opponent. As an insider, he knows the ins and outs of the sector, as well as its strengths and weaknesses.
Jordaan tells us how his Bank Zero plans to find its space in what’s becoming a crowded sector.
FM: What has changed in SA to make it easier for you to launch a new bank?
Launching a bank has been anything but easy. The first challenge has been assembling a small team of highly competent people. The regulatory application process was based on a rigorous application of global standards. Technological challenges ranged from having adequate disaster recovery to installing the latest encryption.
The Prudential Authority, housed in the SA Reserve Bank, has adopted a pro-competitive and pro-consumer stance by allowing challenger banks to take on the incumbents.
FM: What advantage will you have over more established banks?
The major advantage that Bank Zero will have is that it was designed from first principles for the smartphone generation. Banking should be as easy as sending a WhatsApp or posting on Instagram. Being mobile-first, the team has been able to develop a range of new mobile banking services that will be revealed at our launch in mid-2019.
Bank Zero also benefits from leveraging the latest technology which is available at a significantly lower cost than the legacy systems of the main banks. Bank Zero will pass on these cost benefits to customers, in the form of lower or no fees.
FM: So what essential problem will Bank Zero solve?
South Africans save far too little. Bank Zero will enable consumers and businesses to save on bank fees while earning fair rates on interest on their deposits. The Bank Zero mobile banking functionality will also save time and paperwork, making banking intuitive for a smartphone user.
FM: Will you ever open physical branches?
The Bank Zero app has been designed to eliminate all paperwork or face-to-face interaction. We do not anticipate opening any branches as we would like to keep the cost structure very low. Customers do not need Facebook or Google branches, nor should they need banking branches.
FM: The established banks have deep pockets. Do you have enough resources to take them on?
We could never outspend any of the big banks, so we have to out-think and out-execute them.
We have huge respect for the big players and the SA banking system in general, so we realise it will not be an easy task to take them on. But it helps that we have a very low cost structure and no reliance on legacy income streams, so we will be able to provide more value to our customers.
FM: Is there enough business for you, the other new entrants and the established banks?
The fee income of the SA banking system is tens of billions of rands. Citi Research estimates that fees for retail payments are five times higher than for global banks. There is lots of opportunity for challenger banks to compete when fees are this high.