It’s Michael Jordaan’s 46th birthday today. A day he’s sure to be spending with wife Rose and their daughters at the family’s wine farm in the Western Cape. The man who was appointed CEO of FNB at 37 and drove the organisation to becoming the most innovative bank in Africa, was in Johannesburg last night to share a panel with US financial guru John Mauldin and leading columnist Justice Malala. After keeping the Glacier by Sanlam guests enthralled for an hour and a half, “MJ”, who has a cult-like image with almost 50 000 followers on Twitter, popped into the Biznews studio. As you’ll hear (or read in the transcript) we spoke about the week that changed his life, why he believes Mxit will succeed despite WhatsApp and WeChat, and offered his views about on Twitter, technology and South Africa’s future. – AHÂ
ALEC HOGG: It’s nice to see you up here in Johannesburg, and even better to see you in the Biznews studio. How long ago did you leave FNB?
MICHAEL JORDAAN:  It has been about eight months in de facto terms. Technically, I only left at the end of the year, but I had a lot of accumulated leave, which I used to walk the Camino in Spain – something I always wanted to do. I attended a course in Harvard about Global Leadership and then something that changed my life, which was a weeklong course in Silicon Valley at a university named Singularity. It complete rewired my brain about what technology is, going to the future. I’ve used the opportunity to really expand my knowledge base as well as to de-corporatize.
ALEC HOGG:Â It changed your life.
MICHAEL JORDAAN:  The way in which I’m thinking about what’s going to happen to the future and the basic premise here is that technology in its many facets, doubles in power every two years. It’s called Moore’s Law. Chips will double in their processing capacity, but it’s also the doubling of bandwidth, and the cost of storage is halving every two years. That is why something such as YouTube, which didn’t make sense a couple of years ago, now makes a lot of sense because you can store video for so much cheaper. If one takes this trend of technology that’s going to keep doubling: at the base effect it has now, it means that our future’s going to look so very different in two years’ time, four years’ time, and six years’ time than we think in our linear view. There will be major disruption, I believe, in the business world. I think small companies are going to take on the big giants we see today. In that sense, I’m really excited to be involved in small business and particularly, with venture capital right now.
ALEC HOGG: You’re playing around in a very interesting space.
MICHAEL JORDAAN:  Yes, it’s something I’m quite passionate about: dealing with young entrepreneurs, people who are inherently optimistic, and people who want to change the world. I’m using really modest amounts of money to back some of these entrepreneurs in the hope that they will use their business models to attack some of the big profit bulls that exist in the industry. Really, you want to be that little mosquito that attaches itself to quite a big vein.
ALEC HOGG: It’s all about disruption.
MICHAEL JORDAAN:  It is about disruption. I think the future’s so exciting and it’s really exciting for us as consumers. We’re going to get so many things done for us. Not only are we going to live longer, but there are going to be advances in everything from entertainment to maybe the way things are produced, and so many of the things will be free. What you see in the apps you now have on your phone – the majority of them are free. Media is free. This trend is going to extend itself to a whole lot of other industries where the costs are coming down. From a consumer perspective, the future is very exciting. As a big business, it can be exciting or terrifying, depend on the extent to which one brings technology, and particularly, disruptive practices into your businesses.
ALEC HOGG: If they took you back to FNB now – you’re not going back – but if you went back into your old position as FNB Chief Executive given what you’ve learned in the time you’ve been away, would you be terrified or would you be excited?
MICHAEL JORDAAN: One of the first things I did in coming back, actually, is I made a presentation to a First Rand Conference with a whole number of recommendations. Basically, understanding the freemium model, that some basic services need to be free and that one can then sometimes make it up to cross-subsidising other services. That’s actually the relevant model on the web. In addition, one of the big insights for me was that data science – and remember, everything in the world is about data, what your customers view, and how they behave – in a sense has become a sport that can be outsourced. What I mean by this is you can get the best data scientists of the world to actually come and solve a certain problem for you. Now, those were some of the things I think are going to be fascinating in finance. Lastly, it would be to be disruptive. I do think that something FNB always prided itself on is disrupting existing markets.
ALEC HOGG: Not always. It certainly has been under your watch.
MICHAEL JORDAAN:  We’ve tried to be tough when it comes to cannibalisation, but this is something that often happens in big companies. You say ‘we really want to do this. We want to go online, but just imagine what it’s going to do to all our offline-type profits’, and you have to be brave. You have to say ‘internet banking has to be cheaper than cheques’, and if you can inculcate that type of thinking…if you can bring Silicon Valley inside, to your company, you’re going to do well. However, if you try to imagine that times aren’t changing and you think in a linear fashion, those companies won’t be around in ten years’ time. That’s a brave prediction I’m making, but I’m sticking to it.
ALEC HOGG: Michael, there are two things, which happened at FNB under your watch. The one was the innovation – one of the most innovative banks in the world – but one, which many people don’t give you credit for, was holding back from the home loan market at a time when the competitors were rushing in. That, in many ways, gave you that profit cushion, which FNB still thoroughly enjoys. How did you get to that part?
MICHAEL JORDAAN:  I think so many things happened at FNB where I got the credit for it, which I really feel I didn’t deserve. We had such a unique corporate culture, which allowed people to be empowered and to take the right decisions. Something, such as the debate about home loans, was certainly something we debated at strategic level, but I have to give credit to the line managers of the time who didn’t give in to a pressure, which happens in all companies in the world, which is to grow market share. One of the guys I know also loves Warren Buffett – you attend his conferences – he calls it the so-called institutional imperative. The institutional imperative is ‘you always have to grow. You always have to increase market share’ and the way he handles it, by the way, is not paying his managers or paying his managers even if they do nothing, when the insurance cycle is at the bottom. That’s just something we try to do in the lending market. I believe it’s a very tough thing to do, to sometimes hold back, but you’re quite right in that when you do, you don’t see the results immediately. However, in the long term, it’s very gratifying.
ALEC HOGG: Well, today it’s the bank that’s gone way ahead because of that strategic decision you made back then. Since leaving, you also got involved with Mxit. Last time we chatted, you said you’d just been to India to launch Mxit there. In a world where we have WhatsApp and Tencent, where is Mxit’s place?
MICHAEL JORDAAN:  It’s a very, very tough market. I’m acutely aware of the fact that in joining Mxit, we’re taking on global competitors, but it’s a bit of a ‘David versus Goliath’ battle. I just refuse to believe that it’s a market where one winner takes all. I believe there will be niches, particularly for messaging and chat, where it can differentiate itself. When I think of Mxit, it was WhatsApp. It achieved what WhatsApp did by competing against the SMS market, but unfortunately, it failed to make that leap when Smartphones came along. However, it existed prior to WhatsApp. It could have been the R19bn company, had it seen the opportunity in Smartphones. I don’t think now is the time to give up. There’s a very, very smart and capable team working on a whole range of innovations where we believe we can actually measure up to these competitors, and leapfrog them, and particularly do so in emerging markets where feature phones will still remain a feature (if you’ll excuse the pun) for a couple of years to come.
ALEC HOGG:Â How much of a role do you play there?
MICHAEL JORDAAN:  I’m strategic. I’m the Chairman. That means chairing the board, which is about four times per year, but I do like my interactions with the CEO Francois Swart. He’s a very capable individual. He’ll call me from time to time. He’ll email me. I like being involved in those discussions, but I’m strictly hands-off. The role of a Chairman, as always, is to set a CEO up for success and that’s how I see it. Be in the background, but help when asked for it.
ALEC HOGG: We both know Stafford Masie very well and he’s had some interesting debates that I’ve listened in on for the two of you, with him saying ‘watch out, banks’ etcetera. His new pebble technology, I think that you plug into a Smartphone and it takes care of the big machine you swipe credit cards through: how did FNB miss out, on that one? I see Absa now has it. Is it ‘one of those, which away from you’?
MICHAEL JORDAAN:  I think it’s a very interesting technology. I think Stafford has done a great job. I think they’ve also done incredible well by being in the market first. FNB has its plans but unfortunately, I can’t reveal it. Firstly, I’m not an executive and secondly, some functional decisions were made, but I do believe the solution that will come – and hopefully, soon – will be functionally superior.
ALEC HOGG: All right. So, don’t worry, Stafford. You enjoy your day in the sun.
MICHAEL JORDAAN: Â Absolutely, and plenty of luck.
ALEC HOGG: Downstairs, here at the JSE, you were talking with John Mauldin and Justice Malala about a range of things, but there were a few that jumped out. Firstly, your passion for education: that’s what’s going to change South Africa.
MICHAEL JORDAAN:  I don’t think I’m alone in that. I think any person who has had the benefit of an education, realises that so much in life is opportunity, so much in life is luck, and so much is being exposed to education. It’s the thing that pays the most dividends. It’s not shares on the stock exchange. It’s the education. I think firstly, from an individual capacity, we all have to embark on lifelong learning. You have to learn as though you’re going to live forever, and it’s particularly valid in a world, which is going to change faster and faster (what I spoke about earlier). Secondly, I think education is, by far, the biggest priority in South Africa and the thing that we really need to fix to get economic growth and to create employment in the country. One little example of that is when I was with FNB, we would probably have employed 200 Java employees on the spot – people who could code in Java. Now, that has to be contrasted against this massive unemployment we have in South Africa. Most companies will tell you there’s a real need for skills out there. Then, you have all these people looking for jobs and the bridge between those two things is simply education.
ALEC HOGG:Â Competition was another issue, which you spoke on with some passion.
MICHAEL JORDAAN:  The competitive intensity of business in South Africa… Now, with that, I’m not trying to say that we don’t compete.  I’m sitting in front of you with many grey hairs and it’s all due to competition, so we do compete. However, I do think the competitive intensity needs to be stepped up, particularly if we accept that we compete in a very global environment. Nowhere is that more apparent, than with technology. Take something for example like apps on a mobile phone. You can come up with the most brilliant app in South Africa, but it’s very difficult to compete against the same app, which has come out of Silicon Valley, just because they have the benefit of a venture capital industry and they have a very, very big market. That type of trend – what we see for the simple app – is going to become pervasive across all industries. Barriers to entry are getting lower. Technology is becoming more pervasive across different industries, and we simply have to step up our game. It’s a little bit like sport. If you see that the other side has come up with a new way of scrumming or line-outs, a different way of tackling, or interpreting the rules, you really have to lift your game very, very quickly – in fact, before the next game.
ALEC HOGG: As with sports, we have quotas. Our business in South Africa have quotas in the sense of trying to redress the past through social engineering…
MICHAEL JORDAAN:  There are different rules, which hold back or promote businesses in each of the different countries. I’m of the view that one should make a very, very conscious decision towards growth first. I don’t think that that’s always easy, particularly in a political setup where you have to deal with opposing parties, but you make that decision about growth. Secondly, you have to make sure that type of growth is inclusive. In that sense, I’m a proponent of the quota system, and that it can be something that develops talent for the longer term, too. In the first instance, however, you have to select so that you can win a game. I suppose the same applies to the economy.
ALEC HOGG: It’s difficult. Michael, are you still tweeting?
MICHAEL JORDAAN:  I do. Twitter, unfortunately, is something that becomes very catchy. I like to tweet sometimes about interesting things happening to me – at least, I think they’re interesting – and I want to share it. Mostly, however, it has become the immediate way of catching up with what’s happening in the world, and that’s very addictive.
ALEC HOGG: What got you into it? You have, by far, the biggest following amongst any business executive in South Africa.
MICHAEL JORDAAN:  I wish I could say it was a very deliberate strategy, and that it paid off. It was actually just experimental. I heard about this thing, called Twitter. Initially, I thought it was quite a strange name. I like trying new things and new technology. I started using Twitter and immediately, it just caught on.
ALEC HOGG: Given the time you’ve spent in your time away, of thinking and being exposed in Silicon Valley to new ideas, is there another Twitter on the horizon, or is Twitter for instance, just going to get bigger and bigger, as with Google? How are you reading the whole social media field?
MICHAEL JORDAAN:  There is a very interesting thing called Metcalfe’s Law, which is a way of expanding the network effect. Once you’ve created a network, it becomes incredibly powerful. For example, if you’re the only person with a fax machine in the world, it has no utility. The minute there’s a second person the utility doubles, but when a third person enters…. It’s the same type of thing with many of the businesses, which we see now – Facebook is certainly a benefit of that – and once you have all your friends on there, the chance that you will migrate to another business is very small. In that sense, some of these businesses are building a powerful barrier to entry for themselves, by virtue of network effect. Will there be new businesses, businesses we’ve never heard of to date, or businesses with strange brand names who do things we haven’t contemplated yet? For sure. Do I know where they are and how to invest in them? Unfortunately not, but I’m going to do my best as a new venture capitalist to look for those South African examples.
ALEC HOGG: So you’re playing in this country and making those bets – small, as you say – but looking for innovative people. Where do you find them?
MICHAEL JORDAAN:  The phone rings or the email inbox is full of them. You then have to go through quite a rigid process of sifting through them. The hit rate for venture capital is rather low – one percent – if you really look at it that way. I must tell you that I’m so enthused by what I see. There are many people out there who don’t wait for, for example government policies or somebody else to make the decision. They are young entrepreneurs. They are optimistic about the future. In fact, they want to create the future, and they don’t see the obstacles. I must say that I am enjoying being exposed to that segment of the economy.
ALEC HOGG: And you said ‘South Africa’ so clearly, you’re looking at home. Do you see the glass for this country as half full?
MICHAEL JORDAAN:  I’m very optimistic about this country. We have a wonderful country and we have wonderful people in this country. When I define leadership, I don’t just look at the few people who are on the news all day. I look at the people around me, and there are incredible people in this place, who are making things happen. That wasn’t meant to sound like the pay-off line of one of my competitor banks, but it really is true that we have people who just get on with it, who don’t worry about getting the glory, and that gives me energy.
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