Stephen Cranston Associate editor
Michael Jordaan
Michael Jordaan

Bank Zero might sound like a soft drink especially designed to avoid the new sugar tax. But it is SA’s new electronic branch-free bank, following the Commonwealth Bank of Australia’s TymeDigital and ahead of Discovery Bank. It is the latest fintech initiative from former FNB CEO Michael Jordaan (who will be chairman) and Yatin Narsai, the former head of FNB Retail (who will be CEO).

Jordaan left FNB in 2013 and Narsai in 2014, and they remained close.

"We debated what Banking 2.0 would look like," says Jordaan, "meaning a bank enabled by new technology and unencumbered by historic costs and legacy revenue streams."

Jordaan and Narsai often sound like philosophers of banking. Narsai says he has been fascinated by the number zero since he read The Man Who Knew Infinity — later a successful film — about brilliant Indian mathematician Srinivasa Ramanujan. Jordaan has always had a whiff of the late Steve Jobs about him, looking into the future through a crystal ball.

Bank Zero has a provisional licence from the SA Reserve Bank, which took a year to come through. Narsai says licensing was a drawn-out process, but it would have been even longer if the bank had needed to deal with the National Credit Regulator.

Picture: 123RF/ADEL AMER
Picture: 123RF/ADEL AMER

The bank will not offer loans. It has a mutual bank structure, with the main capital provided by the founders, and it is a capital-efficient structure, allowing for a lean capital base. It has no plans to list under any circumstances.

Narsai wants Bank Zero to be seen as a Google of banking: easy to use, yet creating great value.

Jordaan says the bank wants its customers to become shareholders over time and the mutual bank construct enables that. "And it supports the creation of a savings culture, which we want to stimulate."

He says it has a focused product range and does not intend offering the range of services, such as investment banking, for which a commercial banking licence is necessary.

Narsai promises that clients who spill into debt won’t have the traditional, highly expensive overdraft to meet their needs but a "surprise" new product.

Bank Zero won’t necessarily always be the cheapest option, but he promises it will be the most convenient and flexible.

It is not clear if Bank Zero should be described as a bank or a technology business that happens to be in banking. Jordaan says all banks have very large IT budgets and projects, but Bank Zero’s technology spend is low, as it can rely a great deal on open-source software and cloud computing.

The business model might not have been affordable without this.

And it will be able to incorporate features such as Financial Intelligence Centre Act regulation packages and defences against cybercrime right from the start. It is much more expensive for these to be introduced to legacy systems, long after inception.

Banking looks overcrowded and Jordaan admits that Bank Zero will be entering a sophisticated, competitive sector. It’s the reason it is keeping operating costs very low.

By any measure there is a great deal of knowledge of banking IT at Bank Zero, which will not have to cope with legacy systems. The business also has no intention of hiring an army of consultants to tell it how to run its business.

Narsai likes to see Bank Zero in the same bracket as Uber and Airbnb. "Just as Uber doesn’t own any taxis or Airbnb any accommodation, we can offer banking without owning any banks."

Narsai says these businesses were largely built by word of mouth, rather than through conventional advertising. He says Bank Zero will have failed if it has to resort to large TV and print advertising campaigns: it would mean word of mouth has not worked.

The role models for Bank Zero include UK challenger banks Atom, Monzo, Starling and Tandem. But Jordaan says the banking system and app — down to every screen and application — have been designed from scratch.

For now, Bank Zero will not work with any of Jordaan’s other 20 start-ups, such as the Rain mobile telecoms business, because focus is considered vital.

Jordaan is often called a disrupter, but he doesn’t seize on the term eagerly and has been known to criticise disruptive models such as Discovery’s. He says his intention is not to disrupt, but to solve real problems for consumers.

"In the case of the SA banking industry we feel that customers need more transparency and control over their financial affairs, especially in the business segment," he says.

A lot of good work has gone into building Bank Zero, but can it afford to be so low-key on the marketing? Because it won’t offer loans, it is likely to avoid financial disaster. And if its app takes off, perhaps it can become a word-of-mouth success.