Bank Zero finally launches to the public, but it's not interested in lending - for now

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Bank Zero CEO Yatin Narsai.
Bank Zero CEO Yatin Narsai.
  • Bank Zero launched on Tuesday, but prospective customers have to add their names to the waiting list.
  • The bank launched with offerings for individuals and business customers and has the same fees for both segments.
  • But it isn't looking to enter the lending market, at least not right now.

Bank Zero launched to the public on Tuesday, three years after Michael Jordaan and other co-founders first announced they would be adding another digital banking newcomer.

The mutual digital bank is adding customers on a staggered basis. Anyone interested will join the waiting queue, but CEO Yatin Narsai said his team is clearing up that queue at lightning speed.

"We are doing a fast rollout. But we're not just allowing people to download the app and go crazy because what we're doing is a world first," said Narsai.

After three years of keeping South Africa waiting, Bank Zero didn't want to launch with a basic banking account. It launched an offering for both individuals and business customers. Its offering for business owners already comes with accounting software integration. For individuals, it added special features like a patent to prevent card skimming and an ability to befriend accounts, which might appeal to stokvels and societies.

Narsai said his team built all these working from home.

"The option was there to do a ... little account. But for customers to [come] on board, they need to know that they can get the full day-to-day banking needs met," said Narsai.

Business banking is the priority

Meeting business owners' day-to-day banking needs was crucial for Bank Zero, which was first conceptualised as a business bank. Narsai said it didn't make sense to launch until the bank perfected that part.

The bank is built to cater to businesses with small turnovers and to large companies generating billions of rands. It wants to serve close corporations, sole proprietary and big companies. Narsai said he and his team started the bank's blueprint by looking at what business customers would need, then added individuals afterwards.

"Business banking is our priority segment. We see business banking as a sweet spot. The fees that businesses are paying to optimise bank fees are unbelievably high," said Narsai.

The bank's fee structure is the same for individuals and business banking customers. Zero monthly account management fees, no fees for bank notifications, buying prepaid vouchers, debit orders, paying recipients in any bank or even pulling a three-month bank statement.

But the bank does pass third-party transaction costs like drawing money at ATMs and tills, sending instant cash to someone who is not a Bank Zero client and disputing debit orders or card transactions. The bank also charges R100 to open additional check account on personal or business profiles.

Cost and technological advantages

Narsai said the bank has this pricing power because its cost base is very low, "a minuscule fraction" of what other banks spend to keep their operations going, more "closer to a thousand-fold cheaper".

So, where is Bank Zero hoping to make money to sustain its operations and make a profit?

"Obviously, there's a margin we make on the deposits that you leave with us, the interest. The other big part is the non-interest revenue," said Narsai.

So, when a customer goes to an ATM, Bank Zero takes a small margin from the fees it charges. When customers buy prepaid vouchers or use QR Codes to make payments, the bank earns a commission.

In the past two-and-a-half years, the South African banking landscape is going through the stiffest competition after decades of the Big Four's domination.

With TymeBank, Discovery Bank, Sasfin's Hello Paisa and African Bank's MyWorld banking account launching around the same time in 2019, time will tell if Bank Zero came to the party too late or if it can live up to expectations of saving the best for last.

Narsai is confident that it's the latter. He said none of the incumbents matches the innovation that Bank Zero brings.

"For the other banks to now make that step change, they need to invest untold billions because they've got massive legacy systems to address. Bank Zero starts from scratch," said Narsai.

However, Bank Zero does not plan to offer credit, a factor that may impact customers' decisions on whether to switch if they want to keep all their banking affairs in one place. The bank can provide credit if it wants to, as its mutual banking license allows for that. But it says there are enough players in that space.

"We don't want to do lending. In the lending market, there's a huge oversupply. And the timing right now to go into lending is actually quite dangerous. Also, trying to make a business case based on lending is more relevant to banks that have a huge capital outlay," said Narsai.

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