In recent months, a prominent bank in South Africa (First National Bank), came up with a financial product which I think will make them BILLIONS! … and so far they have no competition!!

Here is the background. South Africa never had a State Lottery. Under the former White Govt, gambling was frowned upon. But when they created the Black Homelands, they also gave them the autonomy to make their own rules. One such homeland, Boputhatswana (sp?) (also known as: “Bop”), went and created a financial instrument called a “Bop Bond”. The Bop Bond was a savings account which paid a small amount of interest, but it also paid out monthly prizes by entering all the account numbers in a draw. Bop Bonds were very popular among people all across South Africa.

Bop does not exist any more – and neither do the Bop Bonds.

In recent years the Govt started a national lottery – the Lotto. The theory was that it would donate the money it made to charity organisations. The minute the Lotto was launched it was an incredible hit. The first prize varied, depending on the weekly takings, but they were paying a first prize of R20-R30 million per week.

The Lotto was so incredibly successful that many large retail outlets noted a major drop in their sales. It was discovered that South Africans were diverting billions of Rands from normal purchases towards gambling on the Lotto.

But then as the months and years went by, two trends were noted:-
a) People began asking why so very little money was being donated to charity when the Lotto was bringing in billions of Rands per week. The actual monies that went to charity – after many months of wrangling – were a mere pittance – a few hundred million. This caused a certain amount of skepticism among many about how much of the Lotto’s takings were being used for the underprivileged whom it was supposed to help.

b) The organisers of the Lotto began changing the rules and reducing the prizes and the payouts. Relatives and friends of mine who play the Lotto noticed that the payouts became less and less. It appeared to me as if the Lotto was still raking in enormous sums of money, but those organising it were deliberately trying to increase their profit margins (with still no visible payout increases to the charities). (Many questions have been asked in the media about what happened to the enormous sums of money that went into the Lotto).

So early in 2005, in stepped First National Bank, with a scheme which might at first seem quite lame, but which I think will make them untold billions before long.

The idea was really simple: “The Million-a-Month Account”. Since South Africans (of all races) have developed a very big gambling habit, thanks to the Lotto, but they are now frustrated by the small payouts, First National Bank is trying to cash in on the situation. If they do it right, it could turn into one of the biggest money-spinners this country has ever seen. Furthermore, it is possibly only a matter of time before other major banks jump on the bandwagon with similar products. So far, there aren’t any yet, but whoever can move in next and come up with a similar or better product stands to make a killing.

Here is how FNB’s product works: You open a bank account with them which pays no interest whatsoever. However, for every R100 (rounded down) which you have in the account, you get one “ticket” in a prize draw. The draw they started out with is amazingly small really: R1.5 million per month, with a guaranteed prize of R1 million and about 100 prizes of at least R1,000 (among others). In total, the guaranteed prize money they will pay out is R1.5 million per month.

They only started this about 2-3 months ago, and their first prize draw was on 6th March 2005. From then on the prize draw will occur each month.

The logic behind the Million-a-Month account is to suck in the “Lotto players” – the ones who were gambling (and losing ever more) each week. FNB promises that you can withdraw your money on 32 days notice and you will never lose your money. However… you might just win a prize – you could win R1 million without risking a cent.

The Million-a-Month account is great for FNB because they will be earning more and more interest on an investment which people will be pouring more and more money in to.

Since FNB launched the account they have had a very good response. I stand to be corrected, but I think they were opening about 1,000 accounts per day (with a minimum balance of R100).

I think that if FNB runs their Million-a-Month account properly, then they will eventually become serious competition for the National State Lottery – the Lotto. I think the Lotto is already paying out first prizes well under the R20 million mark… maybe even as low as R10 million (I’m not sure).

But given that the Lotto has developed into outright theft, and it has progressively driven away many millions of people who supported it… I think that FNB is going to pick up all those disaffected gamblers – many millions of them.

I think FNB is being conservative by guaranteeing only R1 million as the first prize in the monthly draw. I think that before long they will be able to guarantee much larger prizes – once they have recouped their original investment (which should not take long). It is not inconceivable, if this runs for a few years, for FNB to start matching or exceeding the prizes which Lotto paid out.

I also wonder how long it will be before someone else jumps onto this bandwagon. Personally, I would love to see capitalism (in the form of the banks) running these types of lotteries, because I think that with their business sense they could kill the GREEDY Government Lotto dead.

So far… FNB has a complete monopoly with this product… and I think FNB will make an absolute killing. For example, I think most people who open the account will be depositing money into it regularly. I know people who are already doing that. People who became accustomed to putting money on the Lotto weekly, will now be diverting it to FNB.

The amount of money that people diverted to the Lotto was estimated by economists to be billions of Rands per month. FNB could be tapping into the richest business opportunity that exists in South Africa.

Of course, I would like to see the Lotto die anyway. There was much debate as to what happened with all the billions they made, and I think they have discredited themselves. I am dying to see what the entrepreneurs do with this opportunity. I’m convinced they will manage it properly, deal with the customers honestly and tap into what could be the biggest money-spinner this country has seen in many decades.

But I can’t help wondering if the Government will try and mess up their excellent idea… The Govt has a habit of turning everything it touches into rot… and I wonder if they will be content to leave the banks to do something better than they could. Or will their jealousy and greed cause them to mess up something good which was thought up by our business people? We will have to wait and see…

Jan