The former CEO of First National Bank (FNB), Michael Jordaan, is launching a new app-driven bank early next year. He says Bank Zero will not inflict exorbitant fees on consumers.
“It is possible to create a mobile bank at a much lower cost than the traditional banks… If we can stimulate a savings culture in South Africa, as well as help individuals and businesses to waste less money on bank fees, it will help the economy grow,” he says.
<a href="http://www.forbesafrica.com/focus/2016/11/01/banking-at-your-fingertips/" target="_blank" rel="noopener">READ MORE: Banking At Your Fingertips</a>
Jordaan has worked in the banking sector for over 20 years and will need all his experience as he becomes a competitor of his former employers.
The idea came about three years ago, over a good bottle of wine with his co-founder Yatin Narsai, who is the former head of retail at FNB. The two were inspired by the app-driven businesses such as Uber and Airbnb.
<div id="attachment_35972" style="width: 210px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-35972" class="wp-image-35972 size-medium" src="https://www.forbesafrica.com/wp-content/uploads/2018/04/image001-1-200x300.jpg" alt="" width="200" height="300" srcset="https://cms.forbesafrica.com/wp-content/uploads/2018/04/image001-1-200x300.jpg 200w, https://cms.forbesafrica.com/wp-content/uploads/2018/04/image001-1-300x450.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2018/04/image001-1-600x900.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2018/04/image001-1-768x1152.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2018/04/image001-1-683x1024.jpg 683w, https://cms.forbesafrica.com/wp-content/uploads/2018/04/image001-1.jpg 1365w" sizes="auto, (max-width: 200px) 100vw, 200px" />Micheal Jordaan. Photo Provided.</div>
“We hope to solve many of the everyday problems that individuals and businesses still have when making payments or investments,” says Jordaan.
They spent the last year applying for a banking licence with the South African Reserve Bank (SARB). This year, they are working on integrating the bank into the South African payments system.
In 2014, Jordaan launched MonteGray Capital to invest in disruptive start-ups. Now, his own business is set to shake up the banking industry.
“It has been an incredible privilege to start with a blank sheet of paper and develop a bank from first principles. We will have no legacy technology and no reliance on income streams that should not exist, like electronic banking fees. The functionality of the app will be far richer than any bank we have seen locally or abroad,” he says.
Though, like most banks, Bank Zero will have an app and a card, it will not have a branch.
“Branches are old-fashioned. If you could design a bank from scratch you would never think of doing it around paper and bricks and mortar. Just like WhatsApp and Facebook don’t have branches, the bank of the future will be mobile&#8230;” he says.
In addition to South Africa’s big four banks – FNB, Standard Bank, Absa and Nedbank – Adrian Gore’s Discovery is launching a bank later this year. Is there room in South Africa for another bank?
“South Africa has 33 banks and the sector is highly sophisticated and competitive. The fact that [South Africa’s] bank fees are high in international comparative terms means that there is still a lot of room to lift the competitive intensity,” says Jordaan.
To differentiate itself, Bank Zero will only cater to those with smartphones and tablets.
Jordaan is intent on making his bank technologically innovative. He learned this lesson the hard way when he was chairman of Mxit. The messaging app was blown out of the water by WhatsApp and Facebook Messenger.
“It is a powerful lesson why businesses must build for the future rather than hang on to the past. That is why Bank Zero will be built for smartphones and tablets, rather than for dumb phones.
<a href="http://www.forbesafrica.com/homepage/2017/06/27/cash-falling-fashion-will-disappear-forever/" target="_blank" rel="noopener">READ MORE: Cash is falling out of fashion – will it disappear forever?</a>
“In a few years the only phones that will be sold will be smartphones. Today there are entry-level smartphones available for less than $40 but this could still halve in three years,” he says.
If Jordaan had his way, in the near future, brick-and-mortar banks will be as redundant as those dumb phones.

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Banking On Technology: New Mobile Bank Set To Launch

Bank On This Man

The chairman of VBS Mutual is a tall, dark and imposing chartered accountant; on this late summer’s morning he is fed up. Tshifhiwa Matodzi and his shareholders suffered slings and arrows when they opted to loan President Jacob Zuma millions to refund the taxpayer for Nkandla. At the time politicians were baying for the bank&#8217;s blood and media was digging for dirt.
Soon after it was announced that the president paid the money through VBS Mutual in September, a small bank founded in Venda in 1982, in northern South Africa, the opposition Democratic Alliance (DA) issued a statement demanding disclosure.
“While both Zuma and VBS Mutual Bank claim a home loan agreement or mortgage does exist between the two parties, there’s no evidence of such a bond registered in the deeds registry, raising the question as to whether a home loan indeed does exist,” says the DA.
It was a deal that the press and opposition in Parliament thought fishy; they thought the loan was funded by the Public Investment Corporation (PIC), a retirement fund that has a 25% shareholding in VBS Mutual. Eight months later, Matodzi, suited and booted in a Melrose Arch hotel in northern Johannesburg, was indignant, but composed.
“There were no underhand dealings. They all said go find out if there’s bribery involved. If you do things right, these things fall out. People realized that we are not interested in politics, I have never met the president. They came with their corruption accusations, but they found nothing. There were racism undertones,” says Matodzi.
On December 14, the DA leader Mmusi Maimane’s spokesman, Mabine Seabe, said neither the office of the president or VBS Mutual complied with their demand to see the proof of payment.
“It is in the public interest to ascertain whether a loan exists; what the conditions of the loan are; whether Jacob Zuma has personally signed surety on the loan, and not any of his cronies; and what effect, if any, does this have on the court’s finding that the president must personally pay back the R7.8 million determined by the National Treasury,” says the DA.
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“We cannot provide the DA or anyone with a proof of payment of the President&#8217;s loan or any of our clients&#8217; because of the confidentiality rule and agreement that governs the relationship between the bank and its clients. It is important to note that the National Treasury did make it publicly known and confirmed that the President has honored the said payment through a loan from VBS Mutual Bank. This confirmation was made public to the DA and everyone that the President has paid through a loan from VBS Mutual Bank,” says a response from VBS Mutual.
Matodzi decries controversial stories around the President’s loan, questioning the bank’s funding of rural homes without title deeds. Cynicism emerged on radio stations, in particular Power FM, where the bank was discussed. One online response said: “What are the odds that within a year this little mouse of a bank will have to be bailed out by the PIC because of a cashflow problem due to a certain big lender not honoring his commitments?”
Again Matodzi was indignant.
“It was not the biggest loan, it was not even in our top 50, but it was the biggest profile simply because it’s the president. The bank has the assets of R1.2 billion ($87.5 million), so you may understand that a R7 million ($500,000) is a drop in the ocean. The original name was Venda Building Society, so our main core business was funding homes in traditional Venda where other banks didn’t want to go,” he says.
City Press’ investigative and award-winning journalist, Sipho Masondo, was one of the journalists Matodzi claimed to have written hearsay about VBS Mutual. In one of the articles entitled ‘What is VBS Mutual Bank? Everything you need to know’, the newspaper alleged Matodzi and Robert Madzonga, the Chief Operating Officer, ran the bank with impunity. Masondo said the bank’s board didn’t approve of a R136-million ($9.9-million) loan for the two to buy a 54% stake in Afric Oil but they took the loan anyway. Masondo further alleged Zuma intended to crown the Venda king, a VBS shareholder, around the same time the loan was awarded. But when FORBES AFRICA asked Masondo to reiterate his claims in December, he was uncooperative.
Matodzi denies any wrongdoing.
“Whether it was in Nkandla or Venda, to us it was not a problem. I think it was the lack of education and a political issue that created the talk about the President’s loan. Countries should be built from their rural areas, and that’s what VBS has been doing better than any other bank. As a business we are exploiting the vacuum that has been created by mainstream banks,” says Matodzi.
Matodzi was still in primary school when the bank was formed by the Venda Bantustan government and traditional leaders. He says in the 1980s it was a go-to bank for the local people. It was during those early days he had the epiphany that when he finished university he would help the bank grow.
VBS Mutual became a mutual bank in 1990. Now it is one of three in the country, along with Ithala Development Finance Corporation and Finbond Mutual Bank.
VBS Mutual, which has only four branches in South Africa, including the headquarters in Johannesburg, was in the red until 2013 when Dyambeu Investments acquired a majority stake. Dyambeu partners, including Matodzi, property magnate David Mabilu, telecoms businessman Maanda Phalanndwa, and the Venda King Toni Mphephu Ramabulana, own 26% of the shares.
Matodzi, who served as an IT auditor at various South African banks while doing articles at KPMG, says one of the pillars of their turnaround strategy was the repositioning of the bank as a small- and medium-enterprise (SME) bank. In a year, more than R450 million ($32.8 million) was advanced to SMEs. He claimed 99% repayment from rural clients.
It may be a small bank but it will be remembered for lending always to the big man.

Bank On Us  Mr President

Its 6AM and Clive Makumbe just arrived in Zimbabwe’s capital, Harare. He has traveled 300 kilometers, from his small farm in Masvingo, just to withdraw money. Banks in his town are dry as Zimbabwe suffers cash shortages. When we bump into each other, this is the sixth bank he has tried to get money from.
“I am preparing for the planting season because that’s how we survive. I ordered farming supplies but I haven’t been able to make payment for over a week because there is no money, that’s why I decided to take a bus and come here,” says Makumbe.
Once again, he is out of luck. This bank has money, but he can only withdraw $100 per day. He needs $2,200 to pay a supplier.
His only hope is mobile money.
“I am going to ask friends to lend me whatever they have, so that I can give my supplier at least half of the money I owe, so I can begin working. I know if they send it via EcoCash, I will be able to get it because EcoCash always has cash, unlike the banks.”
Like most mobile money services in Africa, EcoCash helps the unbanked save and move money through their phones.  According to Makumbe, in Zimbabwe, it’s better than a bank.
“Banks are unreliable. It’s so bad that we can’t send money out of the country even via internet banking. You have to do long applications to even be able to do that. Most of our suppliers are out of the country and paying them is a nightmare and some of them don’t want to do business with us anymore.”
With EcoCash, Zimbabweans can withdraw money from any MasterCard ATM in the world, they can make payments to one another through the mobile service and they often have cash available for withdrawal. Now they can also save some money on their phones.
“Zimbabwe has a poor savings culture. People don’t trust banks. A decade of hyperinflation left people’s savings in bank accounts wiped off to almost zero and now with bond notes coming, the same will happen.”
With EcoCash’s mobile wallet, which already has more than 1.5 million customers earning interest on all amounts starting from as small as $1, Makumbe says he and his friends always know they have money that they have access to when needed.
“We have a club of six where we each contribute $50 a month. We can track all transactions through our phones and when we need the money, at least there is a guarantee that you can get all of it without limits. We plan to buy groceries and share them at the end of the year,” says Makumbe.
“Group savings culture for specific purposes or asset investment is a common phenomenon in Zimbabwe, but the target segment is largely unrecognized and underappreciated. EcoCash Savings Club is intended to reward this diligent savings behavior, as well as become an enabler for access to other services, such as mobile credit. It also offers an opportunity to extend EcoCash mobile money agency businesses to groups of people that are creditworthy, but have been long marginalized,” says Natalie Jabangwe-Morris, Chief Executive of EcoCash.
Mobile money services thrive in most parts of the continent.
According to Sebastian Wolf, a Uganda-based economist for the International Growth Centre, the increase in mobile money transactions has increased the rate at which money is used as well as the money multiplier.
“This has made inflation in East Africa more difficult to predict and would argue for choosing inflation targeting over reserve-money targeting in East Africa. In terms of inflation, mobile money seems to bring gain without pain,” he says.
By making small commissions on millions and millions of transactions, mobile money is big business in Africa. Data also shows big opportunities for boosting financial inclusion among women and poor people, according to the Global Findex.
For MTN, a South African mobile service provider, the product’s revenue increased by 40.8% and performed well in Uganda, Ghana, Rwanda and Benin. Although successful in most parts of the continent, mobile money has failed in South Africa. MTN has pulled the plug on its local mobile money business. The problem is three quarters of South Africans have bank accounts. Vodacom also scrapped its M-Pesa service in South Africa after a disappointing take-up among users.
“Vodacom’s decision is based on the fact that the business sustainability of M-Pesa is predicated on achieving a critical mass of users. Based on our revised projections and high levels of financial inclusion in South Africa, there is little prospect of the M-Pesa product achieving this in its current format in the mid-term,” says Shameel Joosub, Vodacom CEO in a statement.
It was a smart decision.
Earlier this year, Vodacom only had 76,000 active users in South Africa compared to 9.7 million mobile money users across Tanzania, the Democratic Republic of Congo, Mozambique and Lesotho at the end of 2015. Revenue from M-Pesa in the financial year 2015/16 grew by 19% to R1.63 billion ($114 million), while Vodacom’s group revenue climbed 7.5%.
“We remain of the opinion that opportunities exist in the financial services environment and we will continue to explore these,” says Joosub.
And they are.
In other parts of the continent, Vodacom is trying to squeeze more revenue out of the financial service sector by encouraging users to sign up for M-Pawa, a mobile banking service. Already, it says, 15% of its money base is signed for M-Pawa. In Bangladesh, the fastest-growing financial services company is a mobile money provider called bKash. Less than four years after launching, it processes about two million transactions per day, with a total value of nearly $1 billion each month.
“By 2030, two billion people who don’t have a bank account today will be storing money and making payment with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance,” says Bill and Melinda Gates in their annual letter.
With mobile money, people like Makumbe may not need to go back into town ever again.

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Banking On Technology: New Mobile Bank Set To Launch

Bank On This Man

Bank On Us Mr President

Banking At Your Fingertips