Big-four bank Nedbank’s R9 billion investment in refreshing its technology stack is beginning to bear fruit.
That’s according to Nedbank chief operations officer Mfundo Nkuhlu, in an interview with ITWeb this morning after the JSE-listed group delivered a strong financial performance for the year ended 31 December 2021, as headline earnings increased by 115% to R11.7 billion, although remaining 7% below 2019 levels.
Nedbank’s strategy is delivered through five strategic value unlocks that include delivering innovative client solutions; engaging in ongoing disruptive market activities; focusing on areas that create value; driving efficient execution; and creating positive impacts.
In a statement, Nedbank says underpinning these strategic value unlocks is the “Managed Evolution” strategy and technology transformation programme to build a modern, modular and digital IT stack that has reached 85% completion and helped deliver a number of wins over the past year.
According to the bank, digital initiatives helped to increase the number of digitally-active Nedbank retail clients in SA by 11% to 2 3 million (December 2020: 2.1 million).
It explains that this now represents 64% of main-banked clients (2020: 57% and 2019: 49%).
Money app gains traction
The Nedbank Money app, which makes banking more convenient for retail clients, continues to be rated highly on the Apple and Google app stores, with an average client rating of 4.4 (out of five), the financial services company says, adding the app is actively used by 1.6 million clients, up by 38% (2020: 1.2 million).
Transaction volumes on the Nedbank Money app increased by 54% and transaction values increased by 72% when compared to full-year 2020.
Nedbank points out that simplified digital client onboarding platforms for individual and juristic (business) clients continue to mature and expand, enabling clients to open FICA-compliant accounts remotely through its employee-assisted and self-service digital channels, by providing a seamless omnichannel experience.
It adds that the digitising of product sales to individuals currently includes six of Nedbank’s top retail products; transactional products, personal loans, card issuing, home loans, investments and overdrafts, as well as more than 170 services.
Since its launch in June 2020, Avo (Nedbank’s super app) signed up more than 675 000 consumers (4,7x growth year on year) by December 2021, along with over 20 250 businesses registering and offering their products and services on this e-commerce platform.
Product orders continue to grow exponentially, with 3x year on year growth of gross merchandise value, says the bank, noting that at the start of March 2022, Avo exceeded 1 million clients.
“We have been on this journey for some time; we started a refresh of our technology stack in 2015. Over the time, we have been building a more modular and more agile digital IT stack and we call that programme ‘Managed Evolution’,” Nkuhlu tells ITWeb.
“We are now 85% through with that programme and in the process, we have created an IT asset of some R9 billion. That’s been the level of spend since 2015.”
According to Nkuhlu: “We think that the annual cash flow spend (on IT) peaked in 2017 when we were spending R2 billion per annum.”
In 2021, he points out that the cash flow spend was R1.6 billion, which shows that the spend was coming down.
“That would suggest to us that we are not likely to run the risk of uncontrolled overrun on the investment. Importantly now, this is also underpinning the growth of the business.”
He notes that the percentage of total the clients that are transacting with Nedbank digitally now sits at 32%.
“We see that the growth of the business is certainly in the growth of digital clients, as well as digital revenues.”
For him, the R9 billion investment has helped the bank to drive higher cross-sell ratios because now Nedbank is able to sell more products per client because of the relative ease of transacting across digital channels.
Operationally, he adds, this has also helped to reduce the cost to sell, and as a consequence of that, “we have seen an improved efficiency ratio, which has come down to 57.7% in this period”.
He points out that the goal is to get the efficiency ratio to below 54% by end of 2023 with a long-term goal to bring that down to below 50%.
Endorsement of strategic choices
“So we think the overall direction of progress is set, and these results are an endorsement of those strategic choices that we have made over the years, which are now beginning to be reflected in the operational performance of the group.
“Pleasing for us during this period is that we have been able maintain the integrity and stability of our systems at all times. This is important in a world where we are all working remotely; so to be able to support our staff, as well as our clients; that’s been a remarkable achievement on our side.
“We remain alert and alive to the cyber risks; therefore, the cyber resilience of our systems is a top priority.”
While some South African banks are closing down physical branches, Nedbank still sees value in these traditional platforms, Nkhulu says.
He notes that in 2021, the number of branches declined 9% as a result of rationalisation as well as the reduction of the branch size.
“That’s the activity taking place in relation to a branch. So even if we decide to keep a branch, we are likely to reduce its size because the number of transactions taking place via the digital. As a result, you will see that you save on the footprint cost of a branch as well as the rental.
“So we also stay informed because of our client requirements – some distribution infrastructure is necessary to reach certain client segments and we also do not want to cut ourselves off servicing clients.”
Because of the rationalisation of the branches, Nkhulu says Nedbank has seen an 8% reduction in its headcount.
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