Big-four bank Nedbank is left with a R1.3 billion kitty to complete its digital transformation initiative.
This was revealed by Nedbank chief operations officer Mfundo Nkuhlu, in an interview with ITWeb this morning after the JSE-listed group announced its financial results for the first half of 2022.
For the period, Nedbank delivered an excellent financial performance, with 26% growth in headline earnings per share and robust balance sheet metrics enabling an 81% increase in the interim dividend, now back above the 2019 pre-COVID interim dividend level.
Nedbank’s Managed Evolution technology strategy has reached 89% completion of the IT build, enabling continued double-digit growth in client digital metrics, says the bank in a statement.
It notes these initiatives helped to increase the number of digitally-active retail clients in SA by 10% to 2.4 million (H1 2021: 2.3 million) and by 60% since H1 2019. This now represents 67% of main-banked clients (H1 2021: 61% and H1 2019: 47%).
In March, Nkuhlu told ITWeb the bank’s R9 billion to refresh its technology stake was beginning to pay off. At the time, the project was 85% complete.
The bank adds the Nedbank Money app continues to be rated highly on the Apple and Google app stores, with lifetime store client ratings exceeding four (out of five).
It notes the Nedbank Money app is actively used by 1.8 million clients, up by 13% year-on-year and 167% since H1 2019 (H1 2021: 1.6 million).
Since its launch in app stores on 19 June 2020, the Avo super app has signed up more than 1.5 million users, up 4.6 times year-on-year, along with over 24 000 businesses registered and offering their products and services on this e-commerce platform, up by 37% year-on-year.
Final touches
Nkuhlu attributes these digital successes to the ongoing Managed Evolution technology strategy.
“We are expecting to complete the Managed Evolution technology strategy over the next two years,” he tells ITWeb in a video call.
“With 89% of the project being complete, that means in terms of the IT cash flow spend, we are at about 98%. In our estimation, we are left with about R1.3 billion of additional spend over the coming years principally to address three areas – refactoring of core banking, particularly in respect of deposits and transactional products; the completion of the payment modernisation programme; and thirdly, some outstanding components of onboarding and servicing of clients.”
Nkuhlu adds: “What’s gratifying about this is that there is little risk now because we now know where that spend will be going. This minimises the risk of overspend on the programme; knowing that IT programmes always run the risk of overspending, we think we have now moved away from that.”
Already, he adds, Nedbank has been able to realise 51% of its planned run rate benefits from the digital transformation programme.
“The benefits are already coming through and that’s important because that is the basis of the business case. We will be able to eke out these benefits relatively quicker and we will sustain them over time.”
Nedbank is largely running the project internally, he notes. “We have the internal capacity to do this with the consulting services of McKinsey and PwC.
“What the Managed Evolution technology strategy does is it allows us to innovate quickly because we have modernised our infrastructure which is now more agile, more modular and it allows us to innovate faster. It has also allowed us to rationalise our IT platforms from 250 to 76 now.”
Digital sales boom
On the innovation front, he says the bank is witnessing the uptake of digital sales in the group, which stands at 50% up year-on-year.
“Digitally-active clients are now at 37% of total active clients and they are at 67% of main-banked clients. So you can see the ramping up of digital as the channel of choice. We see that reflected in banking app volumes growing 35% year-on-year.
“As a consequence of that, the growth also extends to our ‘beyond banking’ initiatives where we focus on platform ecosystems, as well as ongoing disruptive market activities. In that regard, Avo, which is our super app, now has over 1.5 million users registered and actively using that platform.
“We now have access to over 10 000 drivers, which is the delivery network across the country that allows us to complete the last mile of delivery of goods to clients. That is reflected in a nine-fold growth in gross merchandise value. So Avo, as our super app, is up strongly, consistently with what we see on our digital channels.”
As a result of more clients using digital channels, Nedbank also reduced its physical branch footprint, says Nkuhlu.
“As clients start to transact more digitally, we also have to rationalise our physical infrastructure. Over the past two-and-a-half years, our physical branches have reduced by 8%. We also see that benefit coming through on the headcount front, which is now 10% down, and we have largely achieved that through natural attrition, so we have not embarked on an active programme of staff reduction.”