South Africa’s Bank Zero plans partnerships to offer loans

By David Whitehouse
Posted on Tuesday, 7 September 2021 13:04

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South Africa’s newest financial services challenger Bank Zero plans to use partnerships to add credit to its product offer, co-founder Lezanne Human tells The Africa Report.

“We will in future originate credit by partnering with other providers,” Human says in Johannesburg. The bank is “very open” to partnerships and no timetable for offering credit has yet been set.

Bank Zero finally opened for business in August after originally planning to launch in 2019. The digital-only bank joins new challengers such as TymeBank and Discovery Bank who are trying to win market share from incumbents. The bank uses its app to handle processes from onboarding to support with no branches or call centres.

South Africans have become increasingly impatient with the fees charged by incumbent banks. Customer complaints received by South Africa’s Ombudsman for Banking Services leading to formal cases increased by 19% last year. Current accounts were the product which attracted the most complaints among every age group, mainly due to fees and fraud, the ombudsman’s annual report shows.

Bank Zero was built and launched by people working from home during the pandemic. That caused delay, but meant that the bank broke from “old world ideas,” says Human,  a former CEO of FNB’s savings and investments unit.

  • The bank has fully digital back office, customer support and relationship management processes, while monitoring of banking, payment rails and infrastructure takes place remotely.
  • People wanting to open an account with the bank are currently having to join a waiting list. Batches of invitations to open an account are sent out each morning, to approximately 1,000 people at a time.
  • This enables the bank to monitor its systems and processes before fully opening to the public, Human says.
  • She adds that an individual can open an account in three to five minutes, and a business account would not usually take longer than 20 minutes.
  • The bank is expecting to open to the wider public in the next few weeks, Human says.

Low-cost model

The bank offers an account with no fees, but transactions involving third parties, such as ATMs and retailer payments, incur charges. Customers can send money to anyone else in the Bank Zero system for free by using a cell number or a QR code.

Profitability is possible from the income received from interbank fees, as well as commission earned on prepaid products, Human says. The bank also makes money on the interest margin on deposits, she adds. Human says that 100,000 active customers will be enough to make the bank profitable.

  • Costs have been kept down with the bank building its own tech stack for the core  platform, instead of buying an expensive banking package which would have required expensive customisation and rejuvenation, Human says.
  • None of the co-founders working in the bank have drawn a salary to date, she adds.

Human is optimistic that the creation of an instant payments system in South Africa in 2022 will improve prospects for the bank. “As these principles are applied more widely and between banks, the end customer will always benefit.” The bank sees “the potential of our business model working well in a range of other countries”, Human says, adding that immediate expansion is not on the cards.

Bottom line

Bank Zero is betting that it can achieve critical mass from customers fed up with high South African banking fees.

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