Nedbank Group Disruption in SA Financial Services · innovation creating new value networks &...

Nedbank Group

22nd UBS SA Financials Conference

Mike Brown (Chief Executive)

October 2019

Disruption in SA Financial Services

2NEDBANK GROUP LIMITED – 22nd UBS SA Financials Conference

‘We’ve long believed that

when the rate of change

on the inside becomes

slower than the rate of

change outside, the end is

in sight. The only question

is when.’

‒ Jack Welch (2000)

Agenda

▪ What is disruption?

▪ Successes & failures – what can we learn?

▪ How are incumbents responding?

▪ What is happening in SA financial services?

▪ What do we see as key attributes for

success?

▪ How is Nedbank responding?

▪ Conclusion


DISRUPTION =innovation creating new value networks & marketsnovel integration of

technology & business model

typically serving the unserved, at a lower margin & not initially meeting all the needs

of the higher end of the market. Disruption is not new, but a combination of intense

regulatory focus on big banks & emerging technology is accelerating disruption.

not seen as an immediate threat+

Time

Perf

orm

ance

Higher margin segment

Lower margin segment

Unserved

Incumbents

Incremental (now exponential)

technology advancement

Disruptive offeringSource: Nedbank adapted from Clayton Christensen

but over time reduces returns for established firms & in some cases

replaces them


Successes & failures – what can we learn?

Successes Failures

▪ Innovate – change the way

things were traditionally done

▪ Serve the unserved through

simple innovative solutions &

new business models

▪ Create new value networks &

markets (expand into adjacent

markets)

▪ Transform their business

through digital innovation &

move into adjacent markets

▪ Create innovative challenger

business on the side (then re-

integrate)

▪ Not distinctive, run out of

money or do not scale

▪ Regulation & well entrenched

incumbent base makes

sustainable market entry difficult

▪ Fail to adapt to technology

developments & new client

preferences

▪ Fail to adapt to shifting user

paradigms & become obsolete

▪ Too niche focus & business

model sub-optimal to absorb

market challenges1

Ch

allen

ge

rsIn

cu

mb

en

ts

1 Refers to ABIL that was bailed out

South Africa


Disruption

How are incumbents responding?

▪ Do nothing... and die

▪ Move slowly thinking they still have

plenty of time... and die slowly

▪ Push for more regulation to protect

themselves… and die slowly

Actively transform their businesses:

▪ Set up a challenger business "across the

road“… easier at first, harder over the long

run

▪ Transform from within… harder at first,

more sustainable over the long run

Time

Perf

orm

ance

Illustrative progress of various responses to disruption


How are incumbents responding?

The incumbent’s advantage

▪ ‘Crown Jewels’ – value creating activities,

differentiation & what’s hard to replicate

▪ Self-funding innovation (cash flow, capital)

▪ Brand reach & trust

▪ Existing client relationships & installed

base (scale)

▪ Rich data sets

▪ Intellectual property

▪ Embedded standards

Source: Goliath’s Revenge (Todd Hewlin/ Scott Snyder)

How GM (incumbent) competes

with Tesla (disruptor)

GM has decades of experience in vehicle design, development &

manufacturing & generates > 100,000 sales pa (vs Tesla >10,000).

This enables GM to self-fund its innovations, while it developed &

acquired leading businesses in electrification, ride-sharing (eg

Sidecar, Maven, Lyft) & automation (eg Cruise).

GM leverages its strong, trusted brand (vs Tesla’s limited track

record) & long standing relationships with dealers, sales &

service partners & end users. Its scale gives it cost of sale

leverage compared to new players.

GM leverages data from clients insights, products &

manufacturing etc, as well as learnings from experiments such as

EV1 (7 years before Tesla’s Model S) for development & internal

optimisation purposes.

GM has always been at the forefront of setting vehicle standards

eg safety & pool IP with Ford, Honda, Hyundai etc.

… the jury is out over who will win over the long run


What is happening in SA financial services?

1 Nedbank analysis

Most regulation

Disruptors choose

parts of the value chain

where they stand to get

higher potential returns

& scale (& less

regulated)1

Payments &

remittances

Lending

Small

business

financing

Transactional

Savings &

investmentsInsurance

Business

Solutions (incl. Balance sheet lending)

Incumbent players

Most disruption


What do we see as key attributes for success?

Nedbank research includes the following banks: Sberbank, Lloyds, ING, CBA, Garanti, BBVA, Itau, DBS & Moneta, along with various Fintechs and platform players

▪ Lead with cultural & leadership change – the

foundation for any business transformation

▪ Relentless focus on client experiences/

satisfaction

▪ Drive digital adoption

▪ Create enabling environments & embrace

disruptive innovation capabilities

▪ Invest in new skills & new capabilities

▪ Experiment in new markets, segments &

technologies

▪ Have a heightened focus on cyberrisk

Build an organisation that

can continuously innovate in

client experiences & deliver

seamlessly on today’s

mission...

more agile


How is Nedbank responding? Nedbank’s strategic enablers

Enabled by

+

delivered through process /

operational excellence

leading to

Client growth & client satisfaction Operating efficiencies

resulting in

2020 financial

targets

ROE (excluding goodwill) 18%

Cost-to-income ratio1 53%

Create great client experiences & grow market share in key

value-creating areas

Target operating model (TOM)(largely by New Ways of Work)

Revenue growth Cost savings

People &

brand

Technology(Managed Evolution &

Digital Fast Lane)

1 In March 2019 we noted to the market that our 2020 cost-

to-income target has become more challenging to achieve.


Disruption through Nedbank’s digital strategy

Aspirations

To be Africa's #1 digital financial services player

Digital 1st & 1st in Digital…to be #1 in client experience & achieve greater cost efficiency

75% digital

sales1

60

NPS

<53% Cost/

Income ratio70% digitally active

clients1

Digitise

Market-leading, cost-efficient

digital platform – clients can

access core products & services

digitally

Three

key

themes

Delight

Distinctive omni-channel

client experience

(simple, fast)

Discover/ Disrupt

Disruptive client growth

through ecosystems

& innovation

Enablers

Technology

Managed Evolution & Digital Fast Lane

+ Data (EDP – foundations & monetisation)

People

Leadership & culture,

capabilities & skills, nWoW etc

1 Across both mobile and web combined (active clients as % of total clients)

Target operating

model



Aspirations



75% digital

sales1

60

NPS

<53% Cost/


clients1

2%

18%

75%

Jun 18 Jun 19 Aspiration

19%23%

70%


26%

37%

60%


55.8% 55.4%< 53%

Jun 18 Jun 19 MLTtarget

Progress to date


Nedbank digital

NPS > 60%



Aspirations



75% digital

sales1

60

NPS

<53% Cost/


clients1


Digitise




digitally

Three

key

themes

Delight


client experience

(simple, fast)

Discover/ Disrupt


through ecosystems

& innovation

Enablers

Technology



People



Target operating

model


Technology – enabling disruption through our Managed Evolution IT strategy

250

176

166

145

129

11

4

11

2

60

10 14 15 16 17 18 H119

20target

Core systems (#)

Rationalise, standardise & simplify

Managed Evolution approach

▪ 24/7, real-time systems

▪ Agile, flexible multilayer

architecture

▪ Digitally fit & analytically

strong organisation

▪ Platforms that are innovative

& responsive to change

▪ Omnichannel client

onboarding & servicing

Business value

IT a

dva

ncem

en

t

Opportunistic

(‘Patching’)

‘Big bang’

Managed

Evolution

Robust,

flexible IT

landscape

2010 2020

2020 outcomes


Technology – enabling disruption through our Managed Evolution IT strategy

New technology enhancements

Core banking modernisation

Client systems

Strategic payments

Enterprise data

Foundations

ERP

0% 20% 40% 60% 80% 100%

IT investment profile – foundations in place, 65% complete & forecast to be materially complete by end of 2020

% completion

Sta

rtin

g s

equ

en

ce &

ord

er

of

exe

cu

tio

n

Bubble size indicates

total estimated spend

End state IT landscape

Agile Infrastructure & Operations

Enterprise data

Enterprise Resource Planning

Credit life cycle

Product life cycle mgnt

Loyalty & rewards Payments

Client 360 CRM

Service Oriented Architecture

Enterprise content

Business process

API

Web

AppNIC

branch

OtherFlexcube (RoA)

Modernised core banking

Best of breed systems


Technology – delivering rapid innovation through our Digital Fast Lane

capability

DFL – ability to roll out client-centred products quickly to market & at a lower cost, using agile methodologies

HIGH VELOCITY CLIENT FEEDBACK LOOP

Client

experience

(prototype)

Technology

(execution &

integration)

MVP LaunchMarket

test

Scale

solution

Production

Commercialisation

Strategy

decision

1. Looks good, proceed

2. Good start, refine

3. No go, learning

Technology

(blueprint)Client-centred

design

(strategy & design)

BizDevOpsHUMAN CENTRED DESIGN(design thinking)

Project delivery methodology

(% of projects)

79%

14%

7%

47%

28%25%

31%

39%

30%

Waterfall Hybrid Agile

2017 2018 H1 2019


People – enabling disruption through leadership & culture change, developing

our workforce for the future, nWoW & other (both hard & soft changes)

▪ Right-fit leadership & creating the right culture

‒ Leading with purpose in an environment of

exponential change

‒ Commercially focused, client-centred & innovative

culture

‒ Organisation wide alignment & collaboration

‒ Digital/ innovation focused immersive learning

experiences at Silicon Cape, -Savanah & -Valley

▪ Developing a workforce for the future

‒ Acquire & develop appropriate skills & capabilities

(eg data, software development, AI, behavioural

science)

▪ New Ways of Work (nWoW) – use of squads, tribes,

agile methodologies, work space design, flexible work

practices etc

▪ Other – change management & communication,

targets, measurement & reward etc

Immersive learning experiences


People




Aspirations



75% digital

sales1

60

NPS

<53% Cost/


clients1

Enablers

Technology



Target operating

model

Digitise




digitally

Three

key

themes

Delight


client experience

(simple, fast)

Discover/ Disrupt


through ecosystems

& innovation



Digitise – Eclipse rollout progressing well, now launched on web & app

H1 2019 Q3 2019 H1 2020 H2 2020

Individual client

onboarding

Juristic client

onboarding

▪ Personal loans

▪ Transactional products

▪ Card issuing (1)

▪ Investments (1)

▪ Overdrafts (1)

▪ Card issuing (2)

▪ Investments (2)

▪ Overdrafts (2)

▪ Home loans (1)

▪ Home loans (2)

▪ Vehicle finance

▪ Wealth products

Inbranch

Client:

Channel:

Product1:

Web & app

Q4 2019

a

a

a

a

End to end digital client onboarding & digitising our top 10 products by end 2020

• Transactional available on web & app

• Pre-approved PL available on web &

app (for existing clients)


Digitise – time to open an account at market-leading levels, while more sales

are being generated digitally

32

≤ 20 ≤ 20

≤ 10

45-50

≤ 20 ≤ 20

≤ 10

2018 End Q2 19(branch)

End Q3 19(branch)

End Q3 19(web & app)

Time to open a PL & transactional product1 (min)

Personal loan Transactional product

0%

14%

73%

0%

37%

71%

2018 End Q2 19(branch)

End Q3 19(branch, web

& app)

Sales through Eclipse (% of total)

Time to open a personal loan & transactional

product (minutes)

Sales through Eclipse

(% of total)

1 For 57% of all TPs opened in June 2019. For 50% of all PL accounts opened in June 2019.

2 For 67% of all PL accounts opened in Sept 2019.

Skilled staff can

do in < 10 mins

1

Existing clients

3–7 mins

2

Paper volumes in

back offices down

50–60%


Digitise – client servicing through digital channels reducing costly branch infrastructure

& processes, leading to cost optimisation. Aim to have > 180 services digitised by 2020

12

70

86

Dec 18Dec 17 Jun 19

ATM limit changes (% digital)

35

50

Jun 19Dec 18

Beneficiary management (%)

67

77

Debit order reversals (%)

56

63

Top 3 digital services1

1 Digital services as % of total services (total services = branch, call centre & digital channels incl web & app)

Branch & call-centre

services digitised (#)


Digitise – client onboarding & servicing through digital channels are reducing

costly branch infrastructure & processes, leading to cost optimisation

Total RBB employees

(#) 2

0 9

10

19

98

0

18

68

0H1 18H1 17 H1 19

Teller activity

(# 000)1

H1 18

18

91

4

18 914

H1 17

15

95

7

12

28

8

H1 19

15 95712 288

Branch floor space saved

(m2)2

24

81

9

28

82

8

37

15

5

H1 17 H1 19H1 18

Cumulative robotics process

automation (#)

18

51

86

H1 19H1 17 H1 18

Staff assisted cash deposits

(%)

57

42

29

H1 18H1 17 H1 19

1 Refers to the volume of interactions | 2 Represents the total branch floor space we saved since 2014 with a target of > 47 000m2 equating to approximately 20% of our

branch floor space in 2014 when we started the journey.

Number of retail outlets

(#)

627 608 592

H1 19H1 18H1 17

(11%) (35%)

(28%)(6%)

~16%of total initial

floorspace


Digitise – leveraging data & artificial intelligence

▪ Draws volumes of rich data from card

transactions & offers a user-friendly

display to help clients make more

informed business decisions.

▪ MIT case study about the use of big data

in financial services

Market EdgeTM

Leveraging data for

client benefit

Executive EySightTM

Real-time CIB client & management

insight from 37 separate systems

▪ Enhance cross- and up-sell

opportunities

▪ Client & business profitability

▪ Predictive analytics through AI

▪ Similar capability in RBB: EPIC tool

Client

Intelligence

Platform

Executive

EySightTM

Commercialisation of Data

Value add for clients & cost

optimisation opportunities:

▪ Data driven marketing – eg

personalised offers for clients &

enhanced cross-sell

▪ Information as a service – eg

better client insights & improved

engagements

▪ Effective data operations – eg

RPA (automation) & operational

insights

▪ Foundations – data from multiple

sources into a single EDW,

investment in analytics & capabilities

Big Data commercialisation


26

37

63

65

60

+

Consumer17

Consumer18

Webtransactions

Appservices

LeadingInternational

banks

Delight – creating great client experiences

2.0

2.8

3.1

3.2

4.1

4.5

4.6

4.7

OldNedbank

App

Bank A Bank B Bank C Bank D NedbankMoney

Bank E NedbankWealth

iOS App Store client ratings1 (stars / 5) Net Promoter Score2 (%)

Largest yoy

increase among

SA banks

Nedbank

1 As at Aug 2019 | 2 Source: Consulta (SA-csi), research of various international banks who are leading in their digital journeys including Sberbank, CBA, Garanti, DBS, Moneta.


Delight – new ‘loyalty & rewards programme’ launched in September 2019,

with more packages & levels to follow

New Nedbank Greenbacks Money Management programme

Card Swiper

Encouraging clients to transact

Money Manager

Showing clients how to get the maximum

benefit from being digitally savvy with their

everyday banking

Responsible Borrower

Helping clients to stay in control

of their debt

Exciting rewards

for all clients, using

all products

Good money

management

Make a difference

too

PA

CK

AG

E

Level 1 Level 2 Level 3 Future levels

Card Swiper

MoneyManager

ResponsibleBorrower

Card Swiper Card Swiper

MoneyManager

Card Swiper

MoneyManager

ResponsibleBorrower

Futurepackages


Discover / disrupt – exploring platform opportunities around selected large

ecosystems centered around consumers & businesses

Source: McKinsey analysis, IHS World Industry Service

~US$ 60 trillion global revenue pool, integrated network economy by 2025

▪ Objective: embed the bank as a

platform within clients’ day-to-day lives

(one-stop market place to serve for wide

range of client needs)

▪ Leverage digital assets that’s already

in place

‒ API Market place

‒ Karri – education, SimplyBiz – SMEs,

Unlocked.me – B2C, HeyNed – digital

concierge, MobiMoney – payment

wallet

‒ Re-use foundational IT infrastucture

▪ Develop around selected industries in

natural adjacencies

‒ 3 segments linked to existing products

Nedbank’s positioning


Discover / disrupt – Nedbank first SA bank to launch Open Banking/ API

Market Place to access new markets (Personal Loans example)

▪ Clients submit documents

▪ Wet signature required

Nedbank Personal

Loans APISecured with OAuth 2.0

▪ 7 screens from interest to

fulfilment

▪ Digital signature

▪ Fulfilment contained within

retailer’s client experience

▪ Direct payment to retailer

▪ Secure integration between

retailer & bank

2018 2019 2020

Complex, bank driven process

(branch & call centre)

Simplified client centric

process on all bank channels

Simplified client centric

process on any channel


Conclusion

▪ Learn from world leading digital players – Nedbank’s journey embraces many of the attributes of

international banks & fintechs that are leaders in digital disruption

▪ Play strongly to the strengths of incumbents eg scale, trust, security

▪ Good progress on ambition to become Africa's #1 digital financial services player

‒ Technology – Managed Evolution has progressed to a stage where it is enabling digital innovation/

disruption, while our Digital Fast Lane capability is delivering market leading innovations & great client

experiences

‒ People – leading from the top, while embedding new skills & capabilities, and transforming our culture

‒ Digitise – leading in client onboarding capabilities & end-to-end digital sales, with clear pathway to

digitise our top 10 products & > 180 services by 2020, & unlock efficiencies

‒ Delight – good progress towards world-class client satisfaction levels, while new innovations are making

a difference for our clients

‒ Disrupt – API market place & platforms provide future potential (leveraging digital assets that are already

in place)

We have deliberately chosen to digitise & disrupt ourselves from within – this is not an easy journey,

but we are progressing well & intend to make it very difficult for new challengers over the long term


Disclaimer

Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and

completeness of the information contained in this document, including all information that may be defined as

'forward-looking statements' within the meaning of United States securities legislation.

Forward-looking statements may be identified by words such as ‘believe’, 'anticipate', 'expect', 'plan',

'estimate', 'intend', 'project', 'target', 'predict' and 'hope'.

Forward-looking statements are not statements of fact, but statements by the management of Nedbank

Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the

group's future performance.

No assurance can be given that forward-looking statements will prove to be correct and undue reliance

should not be placed on such statements.

The risks and uncertainties inherent in the forward-looking statements contained in this document include,

but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as

they apply to past, present and future periods; domestic and international business and market conditions

such as exchange rate and interest rate movements; changes in the domestic and international regulatory

and legislative environments; changes to domestic and international operational, social, economic and

political risks; and the effects of both current and future litigation.

Nedbank Group does not undertake to update any forward-looking statements contained in this document

and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of

the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss

or damage.

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