David Shapshak
Ultimately, 20twenty’s most famous billboard pay-off line, a quote from Microsoft chief Bill Gates “Banking is necessary, banks are not” has come back to haunt it and most certainly its parent, Saambou.
Despite being a rising local Internet star, the virtual bank is now part of the Saambou meltdown. Like Absa last month, Saambou’s warning last week that it might incur losses because of its micro-lending operations scared depositors who withdrew their combined R1-billion, in a few days, and ran.
But the self-fulfilling prophecy that crashed an otherwise stable bank investors, fearing a liquidity crisis, withdrew their deposits causing such a crisis should not reflect badly on what was a promising entrepreneurial venture.
“Unfortunately they are the victims of this whole thing,” says Bradley Meyer, a banking analyst at Vantage Investment Solution, of 20twenty. “It’s nothing to do with their business model. It’s purely the sentiment towards the micro-lending business.”
The Internet has not been the most fertile of grounds for new business ventures. However, 20twenty’s CEO Christo Davel was a passionate man who saw great worth in customer-friendly online banking. Like many Internet ventures driven by strong personalities, such as Amazon.com’s Jeff Bezos who recently celebrated the online bookseller’s first ever profit, 20twenty was carried by Davel’s enthusiasm. But it needed a bank’s backing.
At the end of last July 20twenty launched itself with a blitz of high-profile billboard advertising. On a bright orange background, controversial lines like Gates’ were flashed at motorists, including other ones proclaiming, equally ironically, “banking is dead, long live banking”.
In an interview in October Johan Myburgh, the group CEO of Saambou, which owns 65% of the online bank, said the aggressive outdoor advertising campaign gave the branchless 20twenty an “alternative to the branch. You drive past it every day and see it.” How often, he added, do you drive past your bank’s branch and see its branding?
This vibrant branding lured many Net-savvy clients to 20twenty’s online offering. Technology was as much a key to the venture as the ability to convert other banks’ clients, who were happy to move into an online banking that eschewed cheque books. There were 40 000 users when the bad news struck last Saturday and the site was effectively closed down.
The site itself was well-designed, worked very well and had an easy-to-use interface. Its basic monthly rate of R50, no service charges and four free ATM withdrawals were clearly very attractive. So too were its favourable interest rates, which were much lower than other banks for lending but higher for positive balances.
This was in part possible because it is infinitely cheaper to service clients on the Internet than it is to build a branch, hire staff, security guards and transfer cash especially when such a large proportion of clients are all too happy to use the self-service medium of the Internet.
Davel was right in saying customers “are definitely ready for consumer-orientated banking service. It was critical to break out of that mould and think differently so we can give the customer a different feel.”
Myburgh said: “One of the challenges we have is to make banking more convenient for customers. We’re looking at cheaper and better ways to achieve that and it is one of the areas where technology is assisting us.”
Davel, a former Old Mutual banker, passionately believed in this kind of customer service. He worked for 18 months on the 20twenty concept before looking for a banking partner to avoid the painstaking process of applying for a banking licence. He only emphasised being a branch of Saambou in the month before launching 20twenty to assuage potential fears that the virtual bank had no real-world substance.
But with 20twenty’s fate in limbo while a solution is being found for Saambou, it really is a case of sins of the father.
It never did appear that 20twenty fitted the image nor market segment of Saambou, but the former building society was willing to take the risk on what was an attractive model. Despite chewing up a reported R7-million a month, it was apparently on its way to reaching the 100 000 users it needed.
“20twenty was quite a unique thing in South Africa, it would have taken time to see what they can do. They have been cut short before they can show what they can really do,” says Meyer.
Davel was especially proud, at launch, that 20twenty used a more current means of processing transactions not the batch file method that still dominates big banks. Its transaction engine was remarkably easy to use and a credit check was done, based on a user’s ID number, while he or she filled in subsequent screens. Thus, by the time you had finished filling out your application, a decision was made on your credit-worthiness.
Part of 20twenty’s innovation was a one-account-fits-all approach, which is a banking trend usually seen at the top end of the market.
“It is more convenient to have in one account a savings account, credit card account and transaction account. If you are in credit then you get interest. It is very convenient and they offer competitive rates,” said Leon van Heerden, an investment banker with BOE Merchant Bank, last year. Indeed, the rates were better than most other banks customers earned 4,5% on positive balances between R1 and R9 999 and 8,5% from R10 000 up.
Another enhancement was to abandon that staid icon of banking, the chequebook. Being able to add a new beneficiary to your online account probably takes as long as making out a check, while if you really needed one, it could be couriered to the payee for a fee of R20.
Online banking is clearly a much quicker and more convenient means of performing everyday financial transactions. Electronic transmissions are cheaper than debit orders and cheques and reach the beneficiary account quicker.
So, apart from initial hiccups when more subscribers rushed to the service than had been estimated, it was progressing well.
In the first week 5 000 people signed up, more than doubling to 11 500 in the first month.
“Prior to launch on July 21, the target was to reach 10 000 customers by the end of the second month,” a spokes- person said, clearly pleased that sign-ups had exceeded expectations.
By September, after three months, it had around 17 800 users; while a month later in October, due in no small part to its admirable branding exercise, it had more than 24 000 users.
This grew to 31 000 in November, when Absa which also suffered from a lack of confidence this year when it announced unexpected micro-lending exposure announced that its much-criticised free Internet service was to be phased out.
The R67-million Absa spent in giving 56 000 new users first time access to the Internet paid off with a massive 67% leap in its online banking client base, it said. These users grew from 150 000 to 250 000, giving Absa 36% of that market.
Although online banks have had a mixed reception worldwide, it has been difficult to gauge the extent that the dot bomb implosion of confidence had, in general, on its specifics.
“All the European virtual banks have been struggling, Egg for example,” Meyer says of the poster child of online banking. “Saambou’s big thing was to use 20twenty’s systems for other banking. So there were synergistic benefits.”
Egg, however, like Amazon saw its first profits last year. Announcing this, without giving any figures but saying they would be out this month, CEO Paul Gratton used an all-too-familiar phrase to Saambou clients and shareholders. Egg’s share price should improve as “people’s perception of risk changed”.
Egg has 1,8-million customers, although only 600 000 hold savings accounts. December’s profitability announcement appeared to be a result of its credit card business.
United Kingdom website monitor Siteconfidence gave Egg the nod as the most reliable site in December.
Ironically in October my final question to Myburgh was: is 20twenty giving other banks a run for their money? “I’m not so sure. After a year we can look back and answer the question.”
Customers from both 20twenty and Saambou are anxiously waiting for the answer.