Nedbank is staking its retail banking future on what it calls a “warm digital” strategy — an approach that seeks to balance the provision of cutting-edge digital banking capabilities with continued face-to-face human interaction at branch level.
Though SA’s fifth-biggest lender by market value has been reducing its number of branches as well as branch floor space for years, CEO Mike Brown says the bank will not ditch its bricks and mortar presence in the foreseeable future despite its bold digital ambitions.
He simply smiles when asked about the Discovery Bank and Boston Consulting Group (BCG) survey released earlier this week, which showed that most SA consumers believe there will be no need for physical bank branches in five years.
“There is a segment of people who are entirely happy to do everything digitally — but there’s very definitely a segment of people who need some digital coupled with some human interaction,” Brown tells Business Day in an interview. “While banking is increasingly digital, the way we like to think of it is ‘warm digital’: we’re digital when you want it and we’re human when you need it. We feel most clients need a bit of both.”
SA’s big five banks — FirstRand-owned FNB, Standard Bank, Capitec, Absa and Nedbank — are facing a digital onslaught from upstart lenders such as Discovery Bank, TymeBank and Bank Zero, all of which have the benefit of not having to transition their legacy banking systems to new digital platforms. At the same time, they are able to lure customers away from incumbent banks with slick new digital and mobile banking offerings while also offering lower banking fees as they do not have to carry the cost of maintaining an expensive branch network.
“What we’re trying to ensure is that if you choose to come to Nedbank digitally we give you a digital experience that is better than the fintechs or the new bank players because it is equally slick and easy but also gives you access to a full suite of financial services products.
“Most of the fintech or new online players are slick and easy at the front end but, broadly speaking, all they offer is a transactional and deposit account. You can’t easily access many other of your banking and broader financial services needs,” says Brown.
To facilitate its move into a brave new digital world, Nedbank has invested about R10bn of its cash flow since 2015 into revamping its tech stack (new IT build and not day-to-day systems expenditure). That has helped it transition from a complicated legacy IT environment with more than 250 systems to just 76 now. While the rebuild of the Nedbank tech stack is about 90% complete for the SA business, Brown says there are ambitious plans to move the bank’s rest of Africa operations onto the new IT system once the revamp has been completed.
“Our next big thing in terms of what we want to do with our operations in the Sadc [Southern African Development Community] environment is to align their technology systems to the new Nedbank systems,” says Brown.
“They’re now on a system called Flexcube — a different system — other than our Mozambique business, which is on Globus. Once we finish the rebuild of the Nedbank tech stack, when we’re 100% complete, we would want to converge all of those subsidiaries onto that same Nedbank tech stack, which would effectively give clients and customers in that environment access to the same Nedbank digital experience,” says the CEO.
That also speaks to Nedbank’s rest of Africa strategy, which is primarily focused on Southern Africa, specifically Namibia, Eswatini, Lesotho, Mozambique, Zimbabwe and Malawi. However, the bank clearly has ambitions further afield, and while Brown declines to say which countries Nedbank might enter next, one only has to look at where it has representative offices to gauge where it sees opportunity beckoning: Angola and Kenya.
“In that trade zone of Southern and East Africa — that’s where we want to grow the Nedbank brand,” says Brown. “For our clients, the majority of cross-border flows and trade takes place in Southern and East Africa. There’s not huge trade flows between, for example, SA and Ghana or SA and Nigeria. There is some, but it’s nowhere near the trade that takes place in the Sadc environment.”
More interesting is Brown’s hint that Nedbank might spearhead future expansion on the continent using a digital approach rather than looking to set up shop by buying a bank with an existing physical presence in a market.
“Ten years ago we might have had to think of buying something to access a new country,” he says. “Now we also have the option to roll out a digital bank using our existing infrastructure.”
Yet Nedbank’s rest of Africa reach is more extensive than many realise, thanks to its 20% stake in Ecobank Transnational Incorporated (ETI), the Togo-based lender whose footprint covers virtually all of Central and West Africa. The 20% shareholding in ETI gives Nedbank exposure to those banking markets without the headache — and expense — of having to establish a presence across a region with vastly different regulatory regimes to its home base in SA.
“That way you haven’t put too much capital out the door,” Brown says of the tie-up with ETI. “If we’re going to build out more in Africa it will likely be in Southern and East Africa, not in Central and West Africa, which is ETI’s backyard.”
It is a sensible and cautious strategy, which probably underscores why Brown is the longest-serving CEO of any of SA’s big five lenders.
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