Jordaan and co’s Day Zero for low-cost banking

Former FNB CEO Michael Jordaan and a band of his former colleagues announced their new “app-only” bank this week: Bank Zero.

It will have no branches or branded ATMs and will not offer internet banking either. There won’t even be a call centre.

Even more curious, it will extend no “direct credit”, Jordaan said in emailed responses to questions.

It will build its whole business around transactional and savings accounts. That means no income from the interest on loans, no credit risk and, above all else, almost zero fixed costs.

Clients will get debit cards they can use in the existing payment system and ATM network. Bank Zero will have “cash-out facilities” at big retail chains.

In the process, Jordaan and company have found a new use for the much-neglected mutual bank system, which allows for deposit-taking institutions to be set up at low cost and without the onerous capital requirements of proper commercial banking licences.

Mutual banks

Since the Mutual Banks Act was passed in 1993, there have been only three mutual banks. Two of those – VBS and GBS – were pre-existing building societies that had to convert to the new legal form.

Because it will not extend credit, Jordaan said Bank Zero would not have an asset base comparable to the three existing mutual banks, which have a combined balance sheet of R4.4 billion.

Bank Zero will, however, possibly get closer to the spirit of mutual banks by giving depositors shareholding somewhere along the line. As things stand, the seven co-founders, including Jordaan and fellow FNB veteran Yatin Narsai, are the anchor depositors and shareholders. A mutual bank only needs R10 million as a minimum, so their investments are not necessarily huge.

“There are further interested parties that want to invest,” Jordaan claimed.

Rewarding normal depositors with shares will start once Bank Zero has reached a breakeven point, he said.

“This should further encourage savings – which is one of our objectives.

“A limitation on a mutual bank is that it needs to be much more conservative than a commercial bank in its investments (of depositors’ money as well as own capital),” Jordaan said.

“However, that does make it a safe place for depositors to place their money.”

He said the mutual banking sector in the US largely escaped the ravages of the financial crisis almost a decade ago.

Bank Zero will be one of several new banks in South Africa with different aspirations.

In the public sector, the Post Office is seeking a full banking licence for the Postbank and Ithala SOC in KwaZulu-Natal is seeking to balloon its balance sheet with state deposits.

The Commonwealth Bank of Australia has launched a digital bank called Tyme, in which Patrice Motsepe’s African Rainbow Capital is an anchor investor. Insurer Discovery has received a commercial banking licence.

Bank Zero is the only new entrant using the Mutual Banks Act, although pre-existing mutual bank VBS has been growing hand over fist by attracting municipal deposits.

Bank Zero will be 45% black owned due to the shareholdings of its seven founders, but its express mission not to extend credit makes it a poor answer to calls for a black bank, which is usually linked to calls for access to credit.

Jordaan and Narsai have not disclosed who the other shareholders are and there is not as yet any company registered as Bank Zero.

Jordaan, Narsai and another FNB veteran, Lezanne Human, are, however, all directors of a new company called Neo Labs. Human is a mathematician who helped build FNB’s eBucks system. Another director of this company is David Longe, CEO of Absolute Systems and a veteran in the transaction technology industry.

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