Bank Zero says it’s set to launch in South Africa in middle of this year

The systems that will be used are currently being put through a battery of tests, said Human, a former CEO of FNB’s savings and investments unit.

The bank has “sufficient finance to cover operational expenses and regulatory capital requirements,” and won’t need to raise money to launch, she said.

South Africans are becoming increasingly negative in their attitudes to the established incumbents, according to the South African Banking Sentiment Index 2019 published by BrandsEye in November.

New players such as Bank Zero, Discovery Bank and Tyme Bank are hoping to take advantage.

Consumers generally are more positive towards the new players, but that goodwill may wear thin as the newcomers go through the painful process of becoming fully operational, BrandsEye says.

Bank Zero points to card security as an incumbent weak-point.

• Card holders in South Africa suffered thefts worth a total 873mn rand (US$58mn) in 2018.
• With support from Mastercard and IBM, the bank has designed a new patented card which aims at improving security.

The card is protected by three different numbers – two of which are invisible to the user. The number changed by the customer will never have to be changed, even when the card expires and is replaced, Bank Zero says.

• The remaining pre-launch steps include tests to the patented card, adding the final touches to the Android and iOS Apps for individuals and businesses, performing a disaster recovery test, ensuring that the bank’s cards can be used internationally and implementing a standby system, Human said.

Worsening backdrop

Established rivals are not standing still as Bank Zero’s tests continue.

According to research from S&P Global Ratings this month, increased digitalization and greater efficiency are set to support the performance of South African banks this year.

• Still, incumbents are unlikely to be able to increase lending as the economy weakens, while their cost base is higher than among emerging-market peers, S&P says.
• Human argues that the worsening economy can work to the advantage of new players. “Individuals and businesses become more aware of costs and look for savings – so a bank with no monthly fees, as well as no fees for basic banking activities makes a lot of sense,” she says.
• According to the World Economic Forum, South African banks have fees up to four times higher than in Germany, Australia or India, partly due to high operating costs and widespread cybercrime. The fees are unaffordable for people on lower incomes, the WEF says.

Current incumbents sit with massive cost layers and complexity which developed over the years, Human says. “The overall market might not be growing, but a bank with a substantially lower cost base needs a lot less customers to break-even or turn a profit.”

Expansion into other countries is “on the radar, but only after we have had time to bed down operations in South Africa,” she says.

Bottom Line: South Africa’s deteriorating economy may work to Bank Zero’s advantage in eroding inertia and pushing consumers to find more affordable banking options.