First National Bank’s new First Business Zero Account, with no monthly fees, has certainly made competitors sit up and take notice. This is not a segment that has seen an awful lot of innovation, and banking for business is generally quite pricey.

It is not uncommon for business accounts to have monthly fees of just under R100 for basic offerings, and banks have pushed bundled options where those fees are significantly higher. Before November, FNB’s most cost-effective option, its Gold Business Account, meant a monthly fee of R80 or one of two bundles at either R265 or R390.

As a result, many sole proprietors simply use their existing personal bank account (or a second account) to run their business. Think bakkie builders, plumbers and the like. It is precisely this segment — businesses with turnover under R5-million/year — that FNB is targeting with this new account.

First Business Zero pushes FNB’s digital-first proposition into the business space. The account has unlimited point-of-sale purchases (swipes), free payments via a QR code in the FNB app (like Zapper/Snapscan), and an FNB Connect Sim card with a modest amount of bundled data, voice minutes and SMSs. Per-transaction fees are in line with those charged on the Gold and Platinum accounts, but those accounts generally have a number of free bundled transactions.

The name of this account evokes an obvious comparison with Bank Zero — also targeting the small to medium enterprise space — and which launches commercially next year.

The move by FNB can be seen as a defensive one, with competition in the banking sector heating up. It’s not just Bank Zero. Capitec’s acquisition of Mercantile Bank will see a concerted push by the country’s largest bank by customer numbers into the business segment. But Capitec has indicated that it will immediately invest in digital and IT over the next two years to enable growth. It is likely, then, that it will take Capitec at least a year before it begins to offer disruptive products in this segment.

Better segmentation

This move by FNB is not just about new entrants, however. Existing competitors, especially Capitec, are popular choices for sole proprietors despite these accounts not explicitly being targeted to entrepreneurs (or really being suited for the purpose).

Additionally, it will allow FNB to target existing customers who are using personal bank accounts to run their businesses. Shifting these sole proprietors to business accounts will enable better segmentation of its base, and allow FNB to upsell other products, particularly credit, as well as its value-added services like payroll, invoicing and accounting all built into its online banking platform.

FNB is the clear leader in cross-selling in the personal account space and this is a continuation of that strategy. In its results for the 2019 financial year, FirstRand specifically highlighted the success it had in “targeted cross-selling in the small business segment”.

The bank says in the past financial year, “FNB Business banked SME lending reached more than R40-billion on the back of simple, scored, digital lending, with a credit approval taking less than three minutes in many instances”.

Mike Vacy-Lyle, FNB Business CEO, says: “Better use of data, understanding client context, easier credit applications through scoring and digitisation, as well as lower origination costs, have led to better, deeper credit underwriting and quicker turnaround times. This has made borrowing from FNB Business a much better experience with better pricing.”

Customer growth in its commercial segment (business banking) was 11% in the year, with this base growing 42% in the last five years. Normalised profit before tax for its commercial transactional business was up 17% (compared to 13% for its personal transactional one).

The bank says it has seen “strong adoption of digital platforms” in the commercial segment, with increases of 25% and 37% for active online and active banking app customers respectively.

Says Vacy-Lyle: “Continued digitisation of the commercial banking experience, at scale, has resulted in improved efficiencies and a lower cost of banking. This benefit of scale will be passed on to the customer through more affordable banking solutions like these.”