It is quite common for CEOs to have a second career as a nonexecutive director, swanning around boardrooms and enjoying the wining and dining that goes with it. But that wouldn’t have kept Michael Jordaan happy. When he left FNB after 10 years he was still only 46, but for six years he had been commuting to his apartment in Melrose Arch while his wife and three daughters were living in Stellenbosch.
"Some people would say I am semi-retired but we really need to find a new word for that. I had no work-life balance at FNB and that can only last so long," he tells the FM.
It was certainly wildly successful for FNB: it grew its market share rapidly in retail banking during his stint.
But Jordaan’s second incarnation as a venture capitalist may be even more successful, as he sets about disrupting two of SA’s most formidable established industries — banking and telecoms. And he is doing it with the express intention not just of turning a profit, but of improving society and creating jobs.
He is not operationally involved in "the partner companies" of his Montegray venture capital fund.
"I provide a combination of financial and strategic input. It requires immense hard work but there is little better than out-thinking and out-implementing a competitor."
Jordaan says the reality is that Rain, the digital-only data network, has become by far his most valuable single investment.
"It is one of the well-established laws of venture capital that for every 10 start-ups, five may fail, three may do OK and then all the portfolio returns are made by the remaining two," he says.
Bank Zero, one of SA’s three new digital banks which is launching in the second half of 2019, could be the second winner.
In both cases Jordaan has delegated to strong operating managers: Willem Roos, co-founder of Outsurance, at Rain; and Yatin Narsai, former head of FNB Retail, at Bank Zero.
Narsai, in fact, was a candidate for the job of FNB CEO, Jordaan’s old position, but he opted for the challenge of a start-up.
"Venture capital (VC) is a very different world from banking," says Jordaan, "where fairly thin lending margins mean that bad debts of 1% might be manageable, but failure rates of one in 10 could break the bank. Credit is about limited upside but potentially big downsides. VC is about potentially huge returns and losses."
On paper, Jordaan’s stake in Rain and Bank Zero already makes him a billionaire.
African Rainbow Capital (ARC), which also has a stake in Rain, values the network at R11.65bn — of which Montegray has 11%. Bank Zero is harder to value but using guidelines of similar fintechs in London, it could be worth at least R3.5bn, of which Montegray has nearly a quarter, 22%.
On this basis, it would seem that Montegray’s portfolio has risen by comfortably more than tenfold in just five years. And Jordaan’s fund was started without any investments from third parties.
ARC, which has offices a short walk from Jordaan’s, in the Stellenbosch town centre, is both a collaborator, through Rain, and a competitor of Jordaan’s Bank Zero, as the controlling shareholder in TymeBank.
"Michael brings a formidable knowledge of both technology and marketing to Rain," says ARC joint CEO Johan van Zyl.
He says Bank Zero will compete with Tyme for digital customers "but there will also be opportunities to co-operate. Bank Zero will not be offering lending products and we would be happy to help their clients."
Louis Chetty, head of financials at Stanlib, says Bank Zero has lost the first-mover advantage to TymeBank, which has more than 500,000 clients.
But while TymeBank is focusing on retail clients (either unbanked or dissatisfied with their banks), the Bank Zero sweet spot will be small and medium enterprises.
Jordaan says that while many of Bank Zero’s charges will be nothing, as the name suggests, it can still make money on interest margin on deposits and fees on transactions from third parties. The bank will also earn noninterest revenue from card interchanges and commission on prepaid airtime.
"Our cost efficiencies and being a mutual bank [with lower capital requirements] mean we will have a much lower break-even point than our large competitors," he says.
It’s the sort of new energy that has the established banks quaking at the prospect of losing market share to Jordaan’s bank, as well as to TymeBank and Discovery Bank.
Still, Jordaan says he wishes he were 20 years younger because the world is getting more exciting as the capacity of technology expands exponentially. There are so many disciplines with macro growth forces to get immersed in, he says: self-driving cars, 3D printing, personalised medicine, virtual reality and machine learning, for example.
"But I would not have changed the steps I made in my career. I was lucky and privileged to have been selected early on for leadership positions. ‘Learning by doing’, beats the best MBA in the world," he says.
He calls his decade at the top of FNB the culmination of applying start-up owner-managed thinking to a large corporate entity. "We tried hard to bring Silicon Valley inside — this was as much about culture as it was about technology and innovation."
Yet Jordaan is an enigma as, for all his wide set of interests, he claims to actually enjoy the nuts and bolts of retail banking, one of the world’s dullest industries.
"I love banking and have a near-obsessive interest in understanding it better than the competition. I studied banking, my PhD was in banking supervision, and I learnt practical skills as a trainee at Deutsche Bank, from counting notes to corporate credit."
In 2013, Jordaan resigned from FirstRand for a better quality of life in Stellenbosch. As a ubiquitous media personality, he would have been ill-suited to the hands-off role of CEO of the highly decentralised FirstRand Group.
The low-key Alan Pullinger, the current FirstRand boss, doesn’t get in the way of the heads of the operating businesses — a list that now includes Jacques Celliers at FNB and James Formby at RMB. Jordaan will now be a competitor of FirstRand, if only through the highly niched digital Bank Zero. It will attack the legacy banks primarily on the issue of fees.
"We didn’t ignore the issue in my time at FNB," says Jordaan. "For example, we abolished the monthly internet access fee, of about R45. It was absurd, given that we should have been encouraging customers to use cheaper internet-based channels."
He says that for many years FNB’s branch costs were flat and the online channels experienced super growth. "I don’t think branches will die altogether, there will just be fewer of them, they will be smaller, far more automated and the people working in branches will focus on sales, not on mundane service issues."
But he believes it is a huge benefit to launch a bank without any branches as it is an opportunity to redesign banking without being reliant on branch processes or paperwork.
At Bank Zero getting a new PIN, opening an account and updating business mandates will all take place on a smartphone.
When Jordaan joined RMB in 1993, it was a very different business from the FirstRand group he left two decades later. Back then, it was five years away from taking over FNB and Southern Life, then controlled by Anglo American. RMB consisted of just the merchant bank and the Momentum life office, then the fifth largest in SA.
But it was still a sought-after place to work, largely because of the reputation of its founders, GT Ferreira, Laurie Dippenaar and Paul Harris. Harris says that Jordaan applied for the cadetship programme at RMB known as the "Class Of".
Jordaan was unusually well qualified, having been awarded a doctorate for a thesis on bank regulation. "Surprisingly, he fitted in well with us normal okes," Harris tells the FM. "His natural charm and leadership qualities came through."
When Jordaan graduated from the "Class Of" programme, Harris chose him as his personal assistant and marked him out for some key roles at the bank. RMB then made its first attempt to get into retail banking through a cross-holding with NBS (formerly the Natal Building Society, since swallowed up by Nedbank) based in Durban. Jordaan played a big part in the merger negotiations but without success. He was then given the responsibility for setting up a new retail bank, alongside other young Turks, Rudolf Pretorius and Willie Miller.
More than 20 years ago, Harris registered the name Cyberbank — which expressed his intentions perfectly. But the business imperative had to prevail, even though with hindsight, an internet bank back in the 1990s could have been an exciting move. Cyberbank was changed to Origin, and the young Turks built a unit more in keeping with RMB culture. They billed it as a "merchant bank for individuals" and its core product was the single credit facility, not very unusual today but revolutionary then.
Harris says he was slightly irritated that the young Turks did not persevere with the digital bank, but he had given them autonomy and never planned to take it away.
Origin made Jordaan into a better banker. He had to examine in depth issues such as the dynamic pricing of loans, the variable incentivisation of sales staff and an outsourced model of property valuation. After RMB took over FNB, Jordaan ran the home loans division, where he was able to apply all these techniques.
Jordaan then headed the team that set up loyalty programme eBucks. One of his lieutenants was Celliers who, 15 years later, would succeed Jordaan as head of FNB.
"In both Origin and eBucks, we were able to launch start-ups within a supportive corporate," says Jordaan. "Being entrusted with the responsibility to be CEO was an incredible growth opportunity, as it challenged me on everything from leadership to marketing and capital raising."
EBucks was the perfect kind of large canvas for Jordaan.
"We really believed we were launching an alternative e-currency, and it was 2000. Bitcoin only launched in 2009. It was a centralised stablecoin that leveraged the existing payment rails. But under pressure from the Reserve Bank we changed eBucks to a rewards programme. It’s done a great job in that role but I wonder what would have happened if it could have developed into a global e-currency," he says.
Though many banks now have rewards programmes, eBucks was revolutionary in its day.
Harris tells the story of how Jordaan was mandated to find the bank with the best online strategy. He selected Bradesco Bank in Brazil.
"We booked a good hotel at Copacabana Beach, found the best restaurant and went over. We landed at Rio and spent most of the night at a samba club. When we gave the driver directions to the Bradesco head office in the early morning he seemed confused. It turned out we were in the wrong city. So, bleary-eyed, we somehow got onto the 6am shuttle to São Paulo."
Jordaan also had a more conventional role as head of the home loans division, but even here, his talent for lateral thinking was on display: Harris says he encouraged the staff to look at the business from different angles and question conventional wisdom.
There may have been many factors in this: Jordaan was only 36 when he was appointed FNB’s CEO; secondly, he hadn’t come to the bank through the traditional route of accounting, but had done an economics degree first.
Then he gave it all up for the world of venture capital.
Harris says Jordaan’s successor, Celliers, is equally strong, with the right skills for the next phase of the bank’s development. Jordaan, in a somewhat backhanded compliment, says: "If my rallying call was ‘innovation’, Jacques’s is ‘sorted-outness’." (Celliers declined to contribute to this article.)
Jordaan now lives on the Bartinney winery in Stellenbosch, which the family used to own and which he bought back a decade ago. Unlike Ferreira, who owns Tokara, Jordaan is not playing at winemaker to pass the time — his wife won’t let him anywhere near the business side of that operation.
Jordaan has a toehold in wine, however, through Port2Port, an online wine merchant with 1,600 different wines on offer.
Over the past six years, Jordaan’s company Montegray has got involved in dozens of businesses.
He says there is a thread of "doing good" which runs across all the investments. "I like steak but would not want to own an abattoir, even if all the financial metrics were attractive. I am a consumer of commodities but wouldn’t want to be a shareholder in a mine," he says.
Rather, Montegray’s investments all have a social purpose, whether it is BrightBlack that promotes green energy, codeX that creates employment, Rain’s affordable data that brings internet connectivity and grows the economy, or Snapplify which brings electronic textbooks to schools that do not receive traditional books.
Equally, Bank Zero’s far cheaper banking platform is clearly a social good and NMRQL, a fund manager, aims to keep costs low through its algorithmic style.
Interestingly, Jordaan’s strategy is not to have a single BEE partner. It makes sense for each business to have different partners. So, Rain is 42% owned by six different BEE shareholders, the largest being ARC. In Bank Zero (as ARC is a shareholder in rival TymeBank) there is 45% black ownership, mainly by staff.
Jordaan has cultivated an image as a Steve Jobs wannabe, rolling out innovations to staff at regular presentations — though usually without Jobs’s characteristic black jeans and polonecks. But he says his management style is completely different from that of the Apple co-founder.
"Jobs rarely treated the staff with respect and thought he had all the answers himself," says Jordaan.
Bank Zero CEO Narsai, who worked with Jordaan as head of FNB Retail, says Jordaan is an entrepreneur at heart, rather than a corporate man. "From the word go, Michael encouraged me to challenge his thinking. That is the hallmark of a true entrepreneur who wants to absorb the energy around him. It is the corporate bureaucrats who don’t tolerate dissent," he says.
Narsai says Jordaan understands how difficult it is to build a business from scratch, given his roles in creating Origin and eBucks.
It is convenient for Jordaan to be based in Stellenbosch as there are a number of large private investors and venture capital firms in the area. He is in walking distance from the Harris family office (which is run by Paul’s son, Kevin Harris), for example, and a stone’s throw from ARC — and these are the two other key investors in Rain.
But Jordaan does not consider himself part of the "Stellenbosch mafia".
"I bump into Jannie and Piet Mouton [of PSG] sometimes and I am very happy to share a bottle of wine with key local businessmen, but I do not consider myself the clubbable type," he says.
Curiously, he describes himself as an introvert — which is somewhat hard to believe from the first senior businessman to gain a profile on Twitter, not to mention a high profile in the traditional media.
"Many people mistake a person who has social skills for an extrovert, but the actual test is from where we derive energy.
"I am ultimately a nerd who enjoys books and a long motorbike ride by myself, as well as listening to podcasts or music," he says.
Jordaan says the profile he built at FNB as Mr Twitter was a means to an end. "I was quite pleased when somebody at Woolies mistook me for an employee and I was happy to tell them where to find the men’s shirts. Once you ask ‘do you know who I am’ you have lost the plot," he says.
Some of Jordaan’s investments are clearly there for pleasure. He has a stake in Bos, the iced tea business, in which one of the early shareholders was none other than legendary Manchester United manager Alex Ferguson (though that’s not why it’s called Bos).
Bos has the right kind of ESG (environmental, social and governance) credentials for Montegray, and is seeking to cash in on two global trends, iced tea and healthy beverages. Alongside De Villiers Chocolate, it is a genuine local brand with export potential.
Jordaan is effusive about the job creation opportunities, given that he flags unemployment as SA’s single biggest challenge. "As Johnny Clegg sings, ‘you need to work to be’. Unemployment contributes to huge inequality and risks societal instability."
The long-term remedy, he says, is to fix our education system; the medium-term solution is to embrace skills programmes like codeX; and the short-term answer is huge labour-intensive public works programmes building homes, roads, dams and much-needed infrastructure.
"State spending in labour-intensive capital projects also has a multiplier effect and can kickstart our drowsy economy," he says.
And perhaps, if more wealthy people put their fortunes to work on fixing the economy, the tanker can be turned around. Jordaan is living this ethos.
‘For every 10 start-ups, five may fail, three may do OK, then all the portfolio returns are made by the remaining two’
— What it means
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