South Africa’s no-fee bank makes first profit before R1.1 billion deal

Bank Zero, founded by the former CEO of one of South Africa’s biggest financial institutions, has turned profitable ahead of expectations and is looking to expand into new business lines.

The app-only bank reached profitability last month, co-founder and chairman Michael Jordaan said, ahead of the December break-even date forecast by Lesaka Technologies, which is buying the lender for R1.1 billion.

Its better-than-expected performance is partly driven by alliance banking partnerships, which allow fintechs, retailers and digital platforms to issue cards using Bank Zero’s infrastructure.

The no-fee bank currently has 275,000 customers, including businesses and high-net-worth individuals.

The alliance partnerships, together with the tie-up with Lesaka, are expected to add about 2 million more, Jordaan said in an interview. 

The bank is also seeking regulatory approval to expand into lending and foreign-exchange transactions, Jordaan said.

Feedback from regulators is expected by year-end, around the same time that regulatory approval for Lesaka’s acquisition is due.

Bank Zero plans to fund lending with its roughly R860 million deposit book in addition to funds that Lesaka is likely to invest in the company, he added.

The bank’s profitability and expansion plans come amid intensifying competition for banking customers in South Africa.

Insurers, retailers and telecommunications firms are moving into financial services to monetise existing customer relationships and create new revenue streams in an economy that has expanded by an average of less than 1% over the past decade.

“The race is heating up,” said Jordaan, who spent a decade at the helm of FirstRand’s First National Bank.

“The one thing we can conclude for sure is that the consumer will be better off,” he said, citing an improvement in merchant acceptance rates for electronic payments and increased fee competition among lenders.

Bank Zero came to market in 2021, years after Jordaan and Yatin Narsai, who was FNB’s chief information officer and is the startup’s chief executive, talked over bottles of red wine about how they might approach banking differently if given a second chance.

They decided to build a no-fee bank and developed almost all of its software internally, allowing it to keep costs low.

Jordaan also runs venture capital firm Montegray Capital, which has backed cryptocurrency exchange VALR and Purple Group, the company behind investment platform EasyEquities.

He is also involved in Bartinney, his family’s wine estate about 60 kilometres east of Cape Town.