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Bank Zero goes live with deposit insurance scheme

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 25 Apr 2024
Banks pay an annual levy and monthly premiums for the Corporation for Deposit Insurance.
Banks pay an annual levy and monthly premiums for the Corporation for Deposit Insurance.

Bank Zero has adopted South Africa's new deposit insurance scheme, to ensure a financial safety net and protect customers’ deposits of up to R100 000.

The deposit insurance cover is offered by deposit insurance body, the Corporation for Deposit Insurance (CODI), the newest subsidiary of the South African Reserve Bank (SARB).

The deposit insurance scheme was announced early last year, following the launch of CODI.

According to SARB, CODI’s primary responsibilities are establishing, maintaining and administering a deposit insurance fund to protect the banks’ covered depositors, provide the necessary protection for depositors, and inform them of its benefits and limitations should a bank be placed into resolution and deposited funds lost as a result of this.

The establishment of the body was informed by deposit insurance provisions in the Financial Sector Laws Amendment Act 23 of 2021.

Yatin Narsai, CEO of Bank Zero, says by guaranteeing protection of cash deposits of up to R100 000 per qualifying customer in the event of a bank collapse, this new scheme has the potential to increase consumer trust in newer banks – and in turn change SA’s banking landscape, which is dominated by the big five banks.

“In the past three decades, 13 banks have failed in South Africa, with VBS Mutual Bank being the most recent. Because there was no explicit deposit insurance scheme in this country, depositors either lost their money or had to rely on the state coming to their rescue.

“We can never forget how many ordinary South Africans lost their life savings in the VBS implosion. Now that CODI is in place, and covers all banks, including mutual banks, as well as local branches of foreign banks, depositors’ money is safe.”

According to SARB, CODI's protection is automatic if the local bank offers the service. Depositors will not have to apply for this protection. CODI will protect deposits held by individuals or business accounts. CODI's protection is up to R100 000 per qualifying depositor per bank.

Banks pay an annual levy and monthly premiums to CODI.

The Reserve Bank estimates the R100 000 cap means more than 90% of depositors will be fully covered, even though the total rand value covered represents less than 23% of total deposits.

Nedbank, Discovery Bank, Investec Bank, TymeBank and First National Bank are among the banks that have signed up for the service, according to the SARB website; however, it is not clear if their service is live yet.

Yatin points out that CODI has been a long time coming, with the decision to proceed having been made in 2014 and the relevant legislation only promulgated in 2022.

In an environment with no deposit protection, the big traditional banks enjoyed a “trust advantage” among depositors, who could feel relatively confident that, in the event of a liquidity problem, the government would intervene. However, this is not the case with the smaller, new players in the market, he notes.

“Pre-CODI, many depositors decided to put up with the high bank fees and poor service of the big banks to have peace of mind. Thanks to CODI, they can now switch to the more customer-focused, innovative and cost-effective banks like Bank Zero.

“The banking oligopoly is dead; long live the new age of powerful, customised banking for everybody.”

Since the deposit insurance came into effect this month, the digital bank says the first data set of covered depositors has been submitted to the CODI regulator for approval and processing.

Yatin adds there are two Bank Zero differentiators that benefit depositors, now that CODI is live on the bank’s platform.

“Firstly, minors having their own profiles on Bank Zero can rest assured their funds are individually protected by CODI – up to R100 000 each, separate from their parents' protected amount of R100 000, since CODI covers only one account per individual.”

Secondly, the way Bank Zero treats club accounts like stokvels and any other group savings accounts creates automatic cover under CODI for those individuals in the stokvels or clubs who also bank with Bank Zero.

“Unlike other banks, a Bank Zero club account has separate profiles for each member of the club, thus providing R100 000 of total cover for each member across their club contributions and other Bank Zero accounts,” he concludes.