The following information is strictly confidential, is to remain in-house at Nedbank Group, is for...

The following information is strictly confidential, is to remain in-house at Nedbank Group, is for in-house purposes only, and may not be disseminated to outsiders.Attendees and staff members are reminded that they are legally bound by all constraints imposed upon them in regard to privacy of Bank information whether in terms of their contracts of employment including the declaration of secrecy, and/or any and all codes and policies relating to conduct, including those restrictive as to share dealings, and in particular insider trading.

The following information is strictly confidential, is to remain in-house at Nedbank Group, is for in-house purposes only, and may not be disseminated to outsiders.Attendees and staff members are reminded that they are legally bound by all constraints imposed upon them in regard to privacy of Bank information whether in terms of their contracts of employment including the declaration of secrecy, and/or any and all codes and policies relating to conduct, including those restrictive as to share dealings, and in particular insider trading.

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Nedbank and the Mzansi Initiative in South Africa

Access Conference – Cartagena 2009

Presented by: Bryan McLachlan

Nedbank and the Mzansi Initiative in South Africa

Access Conference – Cartagena 2009

Presented by: Bryan McLachlan

219 April 2023

219 April 2023RETAIL

Contents

Background to the South African Market

Banking industry rationale for Mzansi

Background to Nedbank

The Mzansi journey for Nedbank

The impact of Mzansi on the South African banking market

Future focus areas for Mzansi

Considerations for banks

Considerations for regulators

319 April 2023


South Africa is a beautiful country…

419 April 2023


The hosts for the 2010 FIFA World Cup…

519 April 2023


And the wealthiest country in Africa.

619 April 2023


Unfortunately, like much of Latin America…

719 April 2023


There is a wide distribution of wealth…

819 April 2023


And not everyone lives in the same conditions…

919 April 2023


The early 1990’s was a time of immense change and transformation in South Africa

Apartheid ended as a system, and apartheid laws were repealed.

Every adult was able to vote for the first time.

Nelson Mandela became South Africa’s first democratically elected, and black, President.

Nelson Mandela and F W de Klerk were awarded the Nobel Peace Prize for guiding South Africa through a peaceful transition.

A new, and very progressive, constitution was written.

South Africa is a very diverse country in terms of race, culture and religion – South Africans say a “Rainbow Nation” was born.

1019 April 2023

1019 April 2023RETAIL 10

However a decade later, in 2003, greater support for the transformation of the country was required from the banking sector:

D. Porteous; ‘The landscape of access to financial services in South Africa’ SARB: Labour Markets & Social Frontiers April 2003

AMPS 2003o Banked 38%

o Unbanked 62%

Finscope 2003o Currently Banked 51%

o Unbanked 49%

International benchmarks 2003 (banked percentage):o USA 90%

o Brazil 35% (household basis)

o Kenya 5.9%

• NOTE: Difference in unbanked percentage is driven by difference in definition of adults (16+ or 18+), and definition of banked and unbanked. Finscope considers the ‘previously banked’ as unbanked.

• NOTE: Difference in unbanked percentage is driven by difference in definition of adults (16+ or 18+), and definition of banked and unbanked. Finscope considers the ‘previously banked’ as unbanked.

1119 April 2023


And the legacy of apartheid was still apparent with the demographic profile of the unbanked predominantly black…

57

43

72

53

43

12

43

57

28

47

57

88

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

Female

Male

Black

Coloured

Indian

White

Unbanked Banked

Source: FinScope 2003

1219 April 2023


The relationship between social issues and being unbanked:

38%

35%

39%

27%

70%

91%

41%

52%

42%

41%

42%

32%

63%

89%

45%

52%

Gone Without Enough Food To Eat

Felt Unsafe From Crime In Own

Home

Gone Without Medicine/Treatment

Gone Without Cash Income

Gone Without Clean Water To Drink

Gone Without Shelter

Gone Without Electricity In Home

Gone Without Fuel To Heat Home

Never Banked Previously Banked

Percentage that said ‘Never’In the last 12 months, how often has your family ……?


1319 April 2023


Leaders of the 4 largest banks decided to proactively transform the industry and pre-empt possible regulation.

4 largest banks in South Africa have +- 90% market share.

Worked with Government to devise the Financial Services Charter:o Charters have their origin in the Constitution and their objective is to achieve social and economic

equity by redressing inequities that exist in the country

o The development of the Charter was of a collaborative nature and was voluntarily developed by the financial sector in order to have effective transformation occuring.

The Charter covers six areas:

o Equity Ownership,

o Human Resources,

o Access to Financial Services,

o Procurement,

o Corporate Social Investment (CSI), &

o Empowerment Financing.

1419 April 2023


Access was defined by distribution and development of an appropriate transactional and savings product:

80 % of the population should be within: o 20 km of first order services (open accounts, queries, transactions).

o 10 km of transactional services where they can access cash (ATM, Cash-back at POS)

Suitable product be developed: > 60% of the South African adult population to be banked by 2008:

Post Bank, a parastatal owned by the Post Office, joined the Access initiative by offering the Mzansi account.

It was calculated that 2.2 million new active accounts would need to be sold and each bank was given a target in proportion to their market share.o Nedbank’s target, at 18% was 391,000

1519 April 2023


Key features of

Access to all banks’ ATM’s for the same price (no surcharge for other banks’ ATMs)

Must pay interest to encourage savings

Simple pricing and terminology

National brand to be used by all banks, and logo to appear on all cards (banks contributed equally to advertising expenses to launch the producto R12,000,000 (+- US$ 1,600,000) or +- US$ 400,000 each.

A defined basket of transactions (2 cash deposits, 2 ATM withdrawals, 1 electronic transfer, 1 balance enquiry) to cost less than 1 % of the average monthly income of South Africans.o At launch average monthly income was R1,500 (+- US$ 200) therefore cost to be less than R15

o No monthly maintenance fees allowed

To prevent keep costs low and minimise cannibalisation from other products:o No monthly statements

o Transactions were limited to 6 per month. Thereafter a fee of R10 per transaction was payable.

o No debit orders (standing instructions) were allowed on the account. This was subsequently amended in 2006.

“Know Your Customer” and “Money Laundering Controls” were impractical in remote rural areas or in informal settlements. o Regulators created an exemption on condition no transaction on the account exceeds R5,000

(+- US$ 666) and total transactions cannot exceed R20,000 (+- US$ 2,666) in a month. Accounts need to be automatically frozen if the thresholds are exceeded.

1619 April 2023


Nedbank in 2003:

Traditionally in the affluent market only

+- 18% market share by value but didn’t have sufficient volume to sustain the infrastructure

Had a multi-brand strategy with a small brand (People’s Bank) operating in the mass market and a joint venture with the parent company (Old Mutual Bank)

Almost failed in 2003o Bailed out by parent company (Old Mutual PLC) through a R 5 billion rights issue (+- US$

666,666,666)

Branches and ATM’s were concentrated in affluent areas:Affluent Mass % Mass

Branches 585 15 2.6%

(3 Nedbank, 12 Peoples Bank)

ATMs 1186 71 6%

(32 Nedbank, 39 Peoples Bank)

1719 April 2023


Mzansi launched in October 2004. By December 2004 Nedbank was on 7% market share…

Only sold 24,000 accounts, despite the high profile launch (industry sales: 313,000)

Strategic decision taken to target the mass marketo Build volume to leverage underutilised infrastructure

o Gain credibility with government and parastatals in order to attract business

o Gain credibility with black South Africans and become relevant to all South Africans

The strategic decision to refocus included:o Move to a single brand strategy and re-brand all outlets as Nedbank, to give presence in the mass

market and reduce costs

o Set internal target of 850,000 Mzansi accounts by 2008 (more than double the official target)

o Keep the aspirational positioning of the brand but extend it to all markets

1819 April 2023


Distribution needed urgent attention:

80% of all new outlets and ATM’s opened in mass market areas

A team was created to engage with local communities and community leaders to get buy-in before any new outlets or ATM’s were introduced to an areao NGO’s played a significant role

o Nedbank gained immense credibility from this approach

More than 15 social upliftment programmes were initiated in the communities

A large investment was made in customer educationo Key focus areas in Curriculum

– Banking & Financial Literarcy – Budgeting & Cash Management– Preservation & Life Planning Education: Death, retirement, funeral, wills– Business plan set up for micro entrepreneurs– NCA requirements & credit education– Alleviation of fear & ignorance - empowerment through access & security

Mediums for consumer education include radio & print as well as community workshops, face to face lectures and videos

1919 April 2023


Innovation of physical outlets:

Innovative new outlets:o “Bank in a Box”: prefabricated branch

● Can be moved if the location proves unsuccessful

● Less than 50% of the cost of a traditional branch

o Nedbank in Retailers● In-store branches opened in supermarkets serving this market (currently 50, with plans to roll out a further 50)

2019 April 2023


A new mobile sales team was introduced:

Employees drawn from local communities

Now +- 100 teams

Primary tool is a “Boot Kit” which consists of account opening forms, marketing material, desk and gazebo:

2119 April 2023


The Nedbank Mzansi product was updated

Cannibalisation was understood and the risk did not materialise

Pricing was tweaked to be best in market

High transaction penalty fee eliminated (Nedbank remains the only bank not to charge this fee)

Debit orders (standing instructions) introduced

Access to internet and mobile banking introducedo Only 0.08% of Mzansi customers bank online, however the just having it available is a selling point as

the Nedbank product is perceived to be superior

Nedbank maintained the service positioning from in this marketo Shorter queues

o Mass affluent service levels, staff training etc

o “Ask Once” (if we fail we will donate R50 to charity)

2219 April 2023


And smashed the internal target of 850,000 accounts

2319 April 2023


The results of these initiatives is that sales escalated:

2419 April 2023


Monthly market share has grown considerably from 7%:

2519 April 2023


Nedbank achieved its industry target of 18% of the book…

2619 April 2023


Mzansi has been successful for the industry too:

62.7 60.351

7.5 9.611.5

30.137.5

29.8

0

20

40

60

80

100

2008 (n=3900) 2007 (n=3900) 2006 (n=3894)

Currently banked Previously banked Never banked


2719 April 2023


A new measure which has recently been developed (FSM: Financial Standards Measure) shows significant simultaneous improvement:

19

21.5

15.9

12.8

14.4

15.7

17.7

14.7

11.7

12.5

9.3

7.9

7.4

6.2

3.9

3.2

2.616.9

12.9

12.8 16.1 15.9

14.5

14.3

FSM 1 FSM 2 FSM 3 FSM 4 FSM 5 FSM 6 FSM 7 FSM 8

2007

2008

2006


2819 April 2023


Is Mzansi a success in every respect:

Mzansi is not yet profitable:o Competitor Standard Bank claims to have spent +- R200,000,000 p.a. (+- US$ 26,666,666)

o However:● In the early years acquisition costs make up a large proportion of costs

● (> 90% in year 1, < 30% in year 5)

● POS (card) and electronic transactions are growing very quickly

Dormancy (inactive accounts) is a big problem:

2919 April 2023


Reasons for inactive accounts

Over selling accounts

Abandoned accounts to avoid credit payments

Don’t need an account but want to “belong”o Want an answer to the question: “where do you bank?”

Only use the account to save

Only work part time or occasionally

Recently unemployed

Potential solutions include pre-paid cards, customer education, employee training

3019 April 2023


Market redistributio

n zone

Market developmen

t zone

Total marketTotal market

Currently bankedCurrently banked

Currently unbankedCurrently unbanked

Has access to the product but does not use it

Has access to the product but does not use it Potential

usersPotential users

Market enablement

zone

Does not want the productDoes not want the product

Does not have access to the

productDoes not have access to the

product

Too poorOften go

without enough food

Too poorOften go

without enough food

AwarenessNever heard of

MzansiAwareness

Never heard of Mzansi

Can’t affordEarn to little to afford MzansiCan’t affordEarn to little to afford Mzansi

No IDReason no bank

a/cNo ID

Reason no bank a/c

Physical access

Bank attribute – too far away

Physical access

Bank attribute – too far away

No trustReason no bank

a/c No trust

Reason no bank a/c

There are still opportunities for improvement in the banking industry in South Africa…

27,496,578

19,487,315

8,009,263

6,522,890

1,486,373

253,592

1,497,741

3,245,680

116,268

4,086,734

186,952

114,519

1,371,854


3119 April 2023


What has Nedbank gained from this work:

R 200,000,000 needs to be seen in the context of headline earnings of R 5 billion

As acquisition costs reduce as a percentage, Mzansi is expected to break even on a monthly basis in 2009

Gained knowledge and credibility in a market which Nedbank did not previously service

Nedbank has gained 1,400,000 new customers who are sharing the cost of infrastructure

Approximately 10% of these customers (140,000) now behaving as mainstream banked customers (with accompanying revenue opportunities)

Nedbank has gained credibility with Government and has won a number of important tenders

Nedbank has gained market share of affluent black clients

Nedbank has gained credibility with other stakeholders such as the media, regulators, investors

There have been considerable learning’s which have now been applied to other areas:o Nedbank is rolling out in-retailer outlets to supermarkets serving the mass affluent market

o Mobile sales teams now selling mainstream products such as current accounts, personal loans, insurance, savings

o Applying knowledge of cannibalisation to new funding products and new transaction products

o Able to do lower risk lending of personal loans to customers with Nedbank Mzansi accounts

o Some pilots in the community may lead to greater opportunities

3219 April 2023


Considerations for Banks:

This is an expensive initiative, and consumes significant resources, so requires the drive and will of executive management to succeed.

The business case needs to be considered over 10 to 20 years, rather than over traditional timeframes.

This is an opportunity to grown the market organically. In South Africa the banked market grew by approximately 20% by number.

It is sometimes in the interests of all stakeholders for banks to pro-actively support the agenda of the state.

3319 April 2023


Considerations for NGO’s and Regulators:

There are significant social benefits to have the population banked as financial transaction costs are lowered.

Fraud and corruption is reduced, if social grants are paid directly into a bank account.

“Know Your Customer” and “Money Laundering Controls” are expensive and sometimes impractical in remote rural areas or in informal settlements. o In South Africa regulators created and exemption on condition no transaction on the account exceeds

R5,000 (+- US$ 666) and total transactions cannot exceed R20,000 (+- US$ 2,666) in a month. Accounts need to be automatically frozen if the thresholds are exceeded.

In South Africa, Competition Law has become much stricter since 2003 (as in many other countries).o The collaboration required to bring Mzansi to market successfully would not have been possible today

in South Africa. An exemption in terms of Competition Law would have needed to have been granted for this initiative.

Regulation is costly and can have unintended consequences. Other sanctions are available, including:o Procurement policies of Government, Parastatals, Utilities and other state supported organisations.

o Negotiation

o Lobbying by the state, consumer organisations, NGO’s, media etc.

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