A bank that charges almost nothing has to earn its money somewhere else, and Bank Zero's somewhere is the cash sitting in its customers' accounts. Deposits get placed at wholesale rates, so the bigger the book, the more the bank earns without charging anyone for anything, and that book has more than doubled in a year, to about R860 million. In August it was enough. The app-only bank reached its first monthly break-even, less than five years after opening to the public in October 2021.
The number that makes it unusual is how few customers it needed. Comparable entrants have had to reach well over two million to cover their costs; Bank Zero says it built its own core banking platform and got there at 100,000. It has about 275,000 now, and business accounts, which the original business case put at a tenth of the book, make up 18% of it. More than four in five of those business clients are registered companies, which hold more and transact more.
Letting other companies use the plumbing
The other half of the answer arrived in April. Under what Bank Zero calls alliance banking, fintechs, retailers and digital platforms issue their own card products on the bank's infrastructure, which brings in deposits and transaction income without Bank Zero having to sign up each customer itself. The partner named so far is Paymentology, the UK card issuer behind the prepaid Mastercards at Mukuru and Mama Money, and that alliance represents half a million customers and is still growing. The whole platform was built in-house for a cumulative capital investment just under R300 million, against the billions most new entrants spend.
What it still cannot do
Break-even arrived on transactional banking and deposits alone, which leaves out the most ordinary banking business there is. Bank Zero has applied to the Reserve Bank and the Prudential Authority for leave to lend, and has a foreign exchange capability waiting on approval too. The lending would be funded off the deposit book and whatever Lesaka Technologies puts in. Lesaka, listed in Johannesburg and on the Nasdaq, agreed to buy Bank Zero for R1.1 billion in cash and shares, which would leave Bank Zero's shareholders with roughly 12% of Lesaka.
Feedback from the regulators is expected by year-end, around the same time as the decision on Lesaka's purchase. The bank is not promising a straight line from here either: it expects monthly earnings to stay choppy in the immediate short term, with the robust revenue growth, the healthy profit and the surprisingly high return on equity pencilled in for 2027.
