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Business customers and individuals with access to a smartphone will be equally important to the app-driven Bank Zero Mutual Bank, which is set to launch next year.
Being app-driven, explains co-founder and executive director Lezanne Human, involves offering all services through an app as opposed to offering an app as an additional channel while forcing customers to go into branches (which Bank Zero won’t have) and to use the internet to complete activities such as replacing cards and closing accounts.
"… [Other banks’] existing channels demand manual interventions, complex user interfaces and systems. Trying to retrofit this to their app is difficult and in many cases impossible. This explains why banks are spending billions replacing their legacy systems.
"In an app-driven bank like Bank Zero, all functionality is designed with the app in mind," says Human.
Business and individual customers will use the same app.
Simple, elegant solution
However, Bank Zero excludes listed companies from its target market. Human explains: "If we also had to address the complex and very diverse needs of listed companies within this app, it would lead to too much complexity – and we want to offer a simple, elegant solution."
Bank Zero recently announced that it would start beta testing during the first quarter of 2019. Public operations were expected to follow "around mid-2019".
It will target people with smartphone access regardless of their Living Standards Measure (an indication of standard of living based on household contents).
The bank believes its offering will be attractive to the banked, the underbanked and the unbanked.
For the unbanked, with access to a smartphone, it hopes to remove barriers such as unreasonably high fees and "being forced into branches".
In the case of the underbanked, "the focus is not on getting them to take up additional products, but rather to allow them to bank easily, stop paying exorbitant fees (especially penalties) and become financially educated through transparency and a focus on savings".
Human says Bank Zero will not market to specific banks’ customers. "We foresee customers joining us because of our value proposition. We also don’t mind our customers being multi-banked."
Greater transparency
Bank Zero has promised its future customers greater transparency. Examples include that they would "at all times be aware of progress within a process" and that they would "know what’s happening in their accounts at all times", says Human.
In terms of products, the bank will provide transactional accounts, savings accounts and cash investment accounts. “Customers will not be offered any credit products as there is an over-supply of this in the market.”
It will also not cater for off-balance sheet investments.
Mutual bank
Bank Zero is a mutual bank, which means that its customers can become shareholders. "In future, Bank Zero plans to issue shares to interested deposit holders," says Human.
The mutual banks model is geared towards the creation of financial communities such as clubs, families and businesses.
In addition, says Human, it allows for the efficient use of capital. "Regulators determine the minimum amount of capital a bank is required to hold. For traditional banks that offer a very broad spectrum of services, including loans, the minimum prescribed capital to hold is R250m (as determined by the Banks Act).
"For mutual banks, this prescribed minimum is R10m (as determined by the Mutual Banks Act). As long as risk is well mitigated, holding excess capital is counter-productive and inefficient. High capital requirements means banks have to generate greater returns in order to deliver target return on equity (ROE). In order to do so, they then have to charge higher fees."
Human says Bank Zero will pass these cost benefits on to its customers.
Because it is a mutual bank, Bank Zero will exclude government entities from its customer base as they are, by law, prohibited from doing business with this type of bank.
Asked whether Bank Zero is concerned that South Africans would distrust mutual banks because of the VBS Mutual Bank scandal – which involved the capture and looting of the bank at the expense of its depositors – Human says they don’t believe it would make people hesitant about this type of bank "as there are also examples of good mutual banks [such as Finbond]".
She says VBS did not collapse because it was a mutual bank. "Instead, it was rogue management and directors. This, combined with a gross failure of corporate governance, is a recipe for disaster, and can happen within any type of bank or corporate."
According to Human, Bank Zero’s capital adequacy, which acts as a buffer against negative events, will far exceed the prescribed minimum. This should give customers "significant comfort and trust in Bank Zero, and hopefully trust in mutual banks in general".
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