Larkin: New bank entrants are coming into the local market. What are the biggest barriers to new entrants entering the market?
Jordaan: The biggest challenge is bringing together an A-team of individuals who understand both the big picture, but are also not afraid of the details. The best way to start a new bank is from deep insight and an understanding of first principles.
The next requirement is to obtain a banking license. This requires adequate capital, individuals that are fit-and-proper, a fully functional banking system with disaster recovery and security protections, a persuasive economic need analysis and policies/ processes to manage all the risks related to banking.
Larkin: Why are so many new entrants wanting to come into the market and is there enough market pie?
Jordaan: New entrants look at the high ROE (return on equity) of the banking sector and think they can get a slice of those profits by building banks with new business models based on new technologies such as smartphones.
Some new banks are focused on segments that they think are underserved. Some big institutions (retailers, telcos, insurers) want to make banking a part of their service offering. The jury is out whether they should partner with challenger banks rather than build an entire new bank at high cost.
Larkin: What advice would you give new entrants today entering the market?
Jordaan: Start with a great team. The South African banking sector is sophisticated and highly regarded globally. In order to compete with them effectively requires the best human capital. Secondly, be frugal. By using modern technology it is possible to offer banking services at a much lower cost. This is why Bank Zero can offer advanced transactional banking at zero fees.
Larkin: How hard is the red tape and cost of regulation to open shop?
Jordaan: The Prudential Authority has high standards, which we fully welcome. Banking is a special category. Banks serve as the main custodian of a nation’s savings and are key to having a sound payments system. This means that the cost of bank failure is higher than that of most other economic entities and a high standard of banking supervision is necessary to protect consumers and safeguard the overall financial system.
Larkin: South African asset bank wealth is concentrated/owned by the top five banks. Does this lead to an unequal treatment or playground by new entrants/small players asking financial regulators to prioritise certain issues? Or in the Banking Association of South Africa?
Jordaan: Yes, the South African banking market is dominated by the Big 5 - Standard, First National, Absa, Nedbank and Investec - who between them, they hold 90% of the total banking sector assets. However, other banks can still enter the market and grow fast if they provide solutions that are not adequately offered by the Big 5.
A good example of this is the growth in customer numbers experience by Capitec in the last decade as well as the growth currently achieved by the new challenger banks. Overall the system is deliberately designed to be competitively neutral and the Prudential Authority has in fact encouraged the formation of challenger banks.
From a Bank Zero perspective we have a great relationship with our regulators and can openly discuss our challenges with them. For example, we are very excited about the launch of on April 1 as small banks now compete for deposits up to R100K on an equal footing with the big guys.
Areas where we would like to see more improvements would be to make payments function 24/7 and to reduce interchange payable to big banks for real-time-clearing.
Larkin: What mistakes did you make with Bank Zero that you would do differently today?
Jordaan: Bank Zero is fortunate that we did not make any big mistakes. Being a small and thereby more flexible team, we could also quickly correct it if there were small mistakes. We are particularly happy with our own technology stack, which will form the basis of many innovations in future. It would have been a mistake to buy/ rent a package off the shelf.
Larkin: Bank Zero is offering SME business services? Will this be ramped up to bigger businesses?
Jordaan: Yes. Bank Zero can already bank medium and large corporates, provided that they are not listed. We are continually improving the business functionality based on their requirements. For example, we recently added PayMany as a feature, to help businesses with regular payments such as salaries. Businesses and corporates regularly save thousands of rands a month using Bank Zero and in these tough economic times this makes even more sense.
Larkin: How big a game-changer for disruptive banking is Corporation for Deposit Insurance (CODI)?
Jordaan: Many customers endure banking with one of the Big 5 mostly because they are seen as too-big-to-fail. Deposit Insurance has now changed that reality for 90% of depositors as they have protection of up to R100 000 per bank. This increases the range of competitive options significantly. Consumers and businesses can now bank where it is easy to open an account, where service is great and where fees are very competitive.
Larkin: What other innovation or twin peak mechanisms to enable customers would you like to see in South Africa similar to CODI? Anything in the works?
Jordaan: We would encourage any moves to make the payments system work 24/7 with reduced interchange for interbank payments, especially real-time clearing. We are also open to partnering with other financial services players to create a competitive ecosystem. From a Bank Zero perspective we wish to focus on transactional banking and then partner with other, best-in-class players for services such as lending, investing and insuring.
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