<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
JEREMY MAGGS: Now, for decades we\u2019ve accepted that banking comes with fees, branches, enormous technology systems and millions of customers needed to make the numbers work.<\/p>\n
But Bank Zero has now reached its first break-even month, while charging no monthly account fee and operating with a fraction of the customer base traditionally associated with a profitable bank.<\/p>\n
Read: Bank Zero turns profitable, plans lending push<\/p>\n
But I think the more interesting question is not where Bank Zero can make money, it\u2019s whether technology is beginning to fundamentally rewrite the economics of banking itself.<\/p>\n
The chair of Bank Zero, welcome to the programme, Michael Jordaan. Does break-even prove, then, that we\u2019ve misunderstood what a bank really needs to cost and actually look like?<\/p>\n
MICHAEL JORDAAN: Yes, Jeremy. I think your introductory comments were astute. Technology changes everything. Software is eating the world, and the cost of running a modern bank is just significantly different from what we knew in the past.<\/p>\n
It\u2019s not only the branch system, it\u2019s these massive head offices and huge staff complement, because all these things can now be automated and can be made cheap, and the benefits can go to the customer, as we\u2019ve proven with Bank Zero.<\/p>\n
JEREMY MAGGS: The big banks, of course, all your competitors, but the bigger ones, as I say, are all highly digital now. So Michael, going forward, where is the real disruption, do you think?<\/p>\n
MICHAEL JORDAAN: The existing banking system in South Africa is sophisticated and it\u2019s highly competitive. It\u2019s in fact a national asset that we can be very proud of. You are right that they are highly digitised and financial, but they still have a massive rump that is cost intensive, and that is the opportunity that we see as Bank Zero.<\/p>\n
But you\u2019ll also know it\u2019s not just us, there are retailers that are venturing into banking, there are insurers and there are telcos.<\/p>\n
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The bottom line here is that it\u2019s a very exciting world for consumers. They stand to benefit from this increased level of competition.<\/p>\n
The existing big banks, the incumbents, all is not lost for them. They are very powerful, they have big customer bases, big capital bases. So the battle is on.<\/p>\n
But the evidence from other markets, developed and emerging markets, is that over time it is really beneficial to adopt the most modern technology, have the lowest cost base so that you can focus on servicing customers most efficiently.<\/p>\n
If I may just give one example, we at Bank Zero are very proud that our customers have not yet suffered any phishing or fraudulent card transaction losses. So it\u2019s an example of what new technology can bring to a very big pain point for consumers in South Africa.<\/p>\n
JEREMY MAGGS: So to that point, then I think you\u2019re saying the competitive edge is now less about the app and more about the evolving technology underneath it.<\/p>\n
MICHAEL JORDAAN: That is right. Clearly, the big buzzword now is also AI (artificial intelligence), so it\u2019s what AI can do to improve the customer experience and to bring services to the customer at a much lower cost than was possible in the past.<\/p>\n
JEREMY MAGGS: So if banking, Michael, becomes this invisible infrastructure that you\u2019re talking about, what happens to that old-fashioned notion of customer relationship and allied to that would be trust in the handshake, so to speak?<\/p>\n
MICHAEL JORDAAN: I think that depends on the customer. If that is what the customer wants, it will still be provided. Of course, there will be a price paid for that. It\u2019s going to be more expensive if you want to deal with a human.<\/p>\n
But then there are also people, primarily from the younger generation, but maybe also the tech-savvy older generation that realise that sometimes working with technology is actually more convenient and cheaper.<\/p>\n
Read:<\/p>\n
Lesaka scoops up Bank Zero for R1.09bn
\nBank Zero partners with global payments processor<\/p>\n
If you can remember in the very old days when there was somebody in the lift pressing buttons for you to decide on which floor to go to, that was then rapidly overtaken by us pressing the buttons ourselves.<\/p>\n
I think we\u2019ve seen that change everywhere and you\u2019re going to see that in banking, that there is a new generation that would rather press the button of the lift themselves.<\/p>\n
JEREMY MAGGS: It\u2019s a nice analogy, but it also means that with the change comes perhaps emotional disruption.<\/p>\n
If digital banking, Michael, needs fewer branches and fewer people, which is obviously where we\u2019re heading, what does that mean long term for jobs in financial services? The entire sector is being slimmed down as we speak.<\/p>\n
MICHAEL JORDAAN: Do you know what\u2019s happening in the world at large is that learning has to become a lifelong obsession. Gone are the days where you could, let\u2019s say, go to varsity and get a degree and rely on that for the rest of your life.<\/p>\n
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You have to be obsessed with learning all the time. So I do believe that those individuals who are working and are open to upskilling their roles, will always be relevant.<\/p>\n
Now, in a branch context, what that means is maybe the basic servicing of transactions will disappear, but the higher order interactions, the advice as you pointed out earlier in our discussion, helping customers with complex issues, that will remain.<\/p>\n
So I think all that\u2019s really happening is our world is improving and that we are able to take a lot of the noise and the admin and we can automate that using technology.<\/p>\n
But I do believe there will always be place for human interaction, human relationships and the handshake, as you pointed out.<\/p>\n
JEREMY MAGGS: Michael, always a lot of questions about zero-fee banking. You\u2019ve still got to make your money somewhere. The obvious question would be are the costs simply being shifted out of sight?<\/p>\n
MICHAEL JORDAAN: The first part to the answer is just a radically lower cost base. If you have a radically lower cost base enabled by technology, you are able to charge a lot less. So that certainly is the case, our cost base would be maybe less than 1% of that of a traditional large bank.<\/p>\n
Then where do we make our money? We make it out of the interest margin. So it\u2019s the difference between retail interest rates and our ability to then place the money in wholesale markets.<\/p>\n
Just that margin is more than adequate to cut our costs.<\/p>\n
We\u2019re very proud that we are now able to break even with a very small customer base. The customer base to date is at some 275 000. That\u2019s not a lot.<\/p>\n
What it does mean is that as we gain more customers, we can either become significantly more profitable or pass on even more benefits to our customers. That\u2019s a great competitive position to be in.<\/p>\n
JEREMY MAGGS: And as far as the South African market is concerned, app-only banking, does it really widen inclusion, or is there the risk of leaving cash-dependent customers behind? We know that we are still very much a cash-driven economy.<\/p>\n
MICHAEL JORDAAN: We are indeed. The Reserve Bank has just released a paper showing that 57% of all transactions are still cash-based. There are reasons for it, of course, the one is that passing cash between individuals and merchants is also zero fees.<\/p>\n
You could argue that in certain rural areas, you don\u2019t have the digital access that we have. And to be fair, in the whole world, cash is preferred because of its anonymity and sometimes even tax evasion.<\/p>\n
But South Africa likes to move forward.<\/p>\n
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We are actually a society that likes technology and doing things more efficiently, so I think there\u2019s a massive opportunity to move from cash into the fintech world.<\/p>\n
Now, you asked about app-based banking. I do think if we didn\u2019t know banking as it existed 10 or 20 or 30 years ago, app banking would just be the way to do it, just like we use Google for searches or we listen to our music through Spotify or Apple Music.<\/p>\n
So there\u2019s an old world out there that we\u2019ve become used to, but if you really had to design the world from a blank sheet of paper, you would just do it on a smartphone.<\/p>\n
Read: FirstRand takes stake in Jordaan-backed fintech Optasia<\/p>\n
Then the interesting thing about smartphones is they\u2019re becoming more and more affordable, and in five or 10 years\u2019 time, every person in the world is likely to just have a smartphone and do everything on that phone.<\/p>\n
JEREMY MAGGS: So five or 10 years from now, do we still bank with recognisable institutions, or do you think banking just becomes an invisible utility behind other platforms?<\/p>\n
MICHAEL JORDAAN: Well, this depends on what customers do. I\u2019ve found in my career that customers don\u2019t switch banks that easily, and they say getting divorced, moving a house, and moving a bank account fall more or less in the same category of emotional trauma.<\/p>\n
It isn\u2019t actually the case with banking, these days it has become a lot, lot easier to switch banking or to just open a second bank account and test it out before you move everything there.<\/p>\n
So I don\u2019t think it\u2019s necessarily going to become as faceless as you make it sound.<\/p>\n
But certainly, we will gravitate to those apps that are the easiest to use and have the lowest cost of use, and yet we still trust, banking is a game of trust.<\/p>\n
And, Jeremy, I just want to mention the fact that South Africa now actually has a formal deposit insurance scheme so that your deposits with a small bank like Bank Zero are as safe as they are with any of the big banks, up to R100 000 is guaranteed.<\/p>\n
That\u2019s also been a significant boost for us and for competition in the banking space.<\/p>\n
JEREMY MAGGS: Michael Jordaan, chair of Bank Zero, thank you very much indeed.<\/p>\n
#Bank #Zeros #breakeven #milestone #challenges #cost #traditional #banking<\/p>\n","protected":false},"excerpt":{"rendered":"
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