Bank Zero prepares to face ‘intense’ competition soon

● As Bank Zero has found, launching a new bank during a pandemic — even in a world that is increasingly geared for digital interactions — is no easy task.

Bank Zero is now hoping to come on stream in “a matter of weeks”, after its planned “controlled” launch last year was delayed by Covid-19.

“The pandemic has certainly slowed down Bank Zero’s launch plans. As much as working from home can work for an established business, little beats a small team in front of a flip chart sharing a pizza when it comes to agile development,” says Bank Zero chair Michael Jordaan.

But he says while the new bank has not set a fixed date for the launch it “is getting very close — a matter of weeks”.

This won’t be a “big bang launch in the style of a large corporate” but rather a “beta testing period where customers will hopefully help us iron out any bugs. This will then be followed by gradually making the Bank

Zero app and card available to the broad public.”

Jordaan adds that Bank Zero’s offering is “made for a pandemic world, as it will be fully electronic and require no visit to a branch or any form of face-to-face interaction, even for relatively complex matters such as changing business mandates”.

Jordaan says competition in SA’s banking sector is “intense” and banking fees are already starting to fall. But he believes there is still significant space to stop charging for electronic fund transfers, debit orders and card swipes, especially for business accounts, and this forms part of Bank Zero’s pricing model.

There are, however, third-party charges for drawing money from an ATM or at supermarkets, or sending money to someone who uses a different bank.

Bank Zero’s launch comes at a time when new entrants such as TymeBank, controlled by Patrice Motsepe’s African Rainbow Capital, and Discovery Bank are making inroads.

TymeBank CEO Tauriq Keraan says the bank, which was launched two years ago, is “fast approaching the 3-million customer mark and will likely reach this over the coming weeks and before the end of March”.

“We currently on-board about 120,000 new customers every month, which translates to on-boarding 4,000 new customers per day,” says Keraan.

He says the bank, which does not charge account fees or ask customers to keep a minimum amount in their accounts, has found that about “60% of customers are actively using their accounts”, which is “significantly above the norms that other digital banks in the international arena experience”.

Keraan also believes the digital nature of TymeBank means it will be able to “sustainably price better than the market” as it has no legacy systems or manual processes.

Discovery Bank, whose parent company Discovery Group is in a closed period ahead of results being released next week, was unable to comment on current figures but referred Business Times to an update released in December that said that it had attracted more than R5bn in retail deposits in just over two years since launching.

The bank said it was the country’s fastestgrowing in terms of deposits. It was also seeing a “solid trajectory in credit utilisation with over 531,000 accounts held by more than 295,000 clients”.

Patrice Rassou, chief investment officer at Ashburton Investments, says it will become increasingly difficult for new entrants to compete on low transaction costs alone as the spike in unemployment is making the bankable market smaller. “We have a situation where the bankable market per se has shrunk and there is basically now a situation where you have more competition among banks chasing a shrinking market.”

He says the battleground has become the transactional and savings arena, where TymeBank has proven there is pent-up demand from consumers willing to switch banks for a better deal.

He says this intensifying competition is a result of a low all-in fee and increasingly favourable interest rates for transactional and savings accounts.

But it’s going to become a lot more difficult with more entrants coming to the market, Rassou says.

“It’s easier for the first or second disruptor, but it is a bit more difficult for the third or fourth entrant unless you have something even more compelling than the one that came before you.”

It’s easier for the first or second disruptor, but then it gets more difficult

Patrice Rassou

Chief investment officer at Ashburton Investments