Bank Zero founder Michael Jordaan said while they have no fees on many transactions, they make money through interest rate margins and interchange fees.
On Tuesday, Bank Zero officially launched to the public, offering a bank account with no monthly subscription fee and lower transaction costs than transactional banking accounts.
The bank does not have branches and relies entirely on an app. To access cash, customers can use any ATM or cash out at major local retailers.
Bank Zero’s value proposition includes patented card technology with greater security, advanced payments technology, and cost-effective QR payments.
It offers greater control over debit orders and online purchases and protects clients against card skimming fraud.
With no monthly fees, free online payments, and no fees when paying by card, it raises the question of how Bank Zero makes money.
Speaking to The Nielsen Network, Jordaan said there are two core parts of the business models.
- Interest rate margins – The difference between the interest the bank makes and the interest it pays to its clients.
- Payment interchange – Transaction fees that the merchant’s bank account must pay whenever a customer uses a credit or debit card to buy something from their store.
The most important part of Bank Zero’s business model, Jordaan said, is to keep the cost base as low as possible.
“If you had a huge cost base with hundreds of employees and big offices, you have to charge much higher fees,” he said.
Compared to traditional banks, Bank Zero has only 30 employees – many of whom are senior banking executives who are not drawing any salary.
These executives are stakeholders in the bank, which means they are willing to work for free for a potential future payday.
“We can leverage that in favour of individuals or businesses who can bank for free,” Jordaan said.
Commenting on their business model, Bank Zero CEO Yatin Narsai said they need below 100,000 customers to break even.
“The most powerful feature of Bank Zero is that we have pricing power because we are very efficient,” said Narsai.
“That efficiency means we don’t need a million customers to break even. Our break-even point is below 100,000 customers.”
Narsai said they are confident that they will reach the break-even point this year.
“Our first day was incredibly busy. We exceeded all our volume expectations. We never expected a response like this,” he said.