Download
1 / 33
330 likes | 474 Views
Nedbank and the Mzansi Initiative in South Africa Access Conference – Cartagena 2009 Presented by: Bryan McLachlan. Contents. Background to the South African Market Banking industry rationale for Mzansi Background to Nedbank The Mzansi journey for Nedbank
E N D
Nedbank and the Mzansi Initiative in South Africa Access Conference – Cartagena 2009 Presented by: Bryan McLachlan
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
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was a time of immense change and transformation in South Africa • Apartheid ended as a system, and apartheid laws were repealed.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.
However a decade later, in 2003, greater support for the transformation of the country was required from the banking sector: • AMPS 2003 • Banked 38% • Unbanked 62% • Finscope 2003 • Currently Banked 51% • Unbanked 49% • International benchmarks 2003 (banked percentage): • USA 90% • Brazil 35% (household basis) • 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. D. Porteous;‘The landscape of access to financial services in South Africa’SARB: Labour Markets & Social Frontiers April 2003
And the legacy of apartheid was still apparent with the demographic profile of the unbanked predominantly black… Source: FinScope 2003
The relationship between social issues and being unbanked: Percentage that said ‘Never’ In the last 12 months, how often has your family ……? Previously Banked Never Banked 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 Source: FinScope 2003
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: • 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 • 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: • Equity Ownership, • Human Resources, • Access to Financial Services, • Procurement, • Corporate Social Investment (CSI), & • Empowerment Financing.
Access was defined by distribution and development of an appropriate transactional and savings product: • 80 % of the population should be within: • 20 km of first order services (open accounts, queries, transactions). • 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. • Nedbank’s target, at 18% was 391,000
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 product • 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. • At launch average monthly income was R1,500 (+- US$ 200) therefore cost to be less than R15 • No monthly maintenance fees allowed • To prevent keep costs low and minimise cannibalisation from other products: • No monthly statements • Transactions were limited to 6 per month. Thereafter a fee of R10 per transaction was payable. • 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. • 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.
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 2003 • 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:
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 market • Build volume to leverage underutilised infrastructure • Gain credibility with government and parastatals in order to attract business • Gain credibility with black South Africans and become relevant to all South Africans • The strategic decision to refocus included: • Move to a single brand strategy and re-brand all outlets as Nedbank, to give presence in the mass market and reduce costs • Set internal target of 850,000 Mzansi accounts by 2008 (more than double the official target) • Keep the aspirational positioning of the brand but extend it to all markets
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 area • NGO’s played a significant role • 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 education • 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
Innovation of physical outlets: • Innovative new outlets: • “Bank in a Box”: prefabricated branch • Can be moved if the location proves unsuccessful • Less than 50% of the cost of a traditional branch • Nedbank in Retailers • In-store branches opened in supermarkets serving this market (currently 50, with plans to roll out a further 50)
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:
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 introduced • 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 market • Shorter queues • Mass affluent service levels, staff training etc • “Ask Once” (if we fail we will donate R50 to charity)
Mzansi has been successful for the industry too: Source: FinScope 2009
A new measure which has recently been developed (FSM: Financial Standards Measure) shows significant simultaneous improvement: 2008 2007 2006 Source: FinScope 2009
Is Mzansi a success in every respect: • Mzansi is not yet profitable: • Competitor Standard Bank claims to have spent +- R200,000,000 p.a. (+- US$ 26,666,666) • 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:
Reasons for inactive accounts • Over selling accounts • Abandoned accounts to avoid credit payments • Don’t need an account but want to “belong” • 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
Market enablement zone Has access to the product but does not use it Potential users There are still opportunities for improvement in the banking industry in South Africa… 19,487,315 253,592 Market redistribution zone Too poor Often go without enough food Currently banked 27,496,578 1,497,741 6,522,890 Physical access Bank attribute – too far away 3,245,680 Total market Awareness Never heard of Mzansi 8,009,263 116,268 Does not have access to the product Market development zone No trust Reason no bank a/c 4,086,734 Currently unbanked 186,952 Can’t afford Earn to little to afford Mzansi 1,486,373 114,519 No ID Reason no bank a/c 1,371,854 Does not want the product Source: FinScope 2009
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: • Nedbank is rolling out in-retailer outlets to supermarkets serving the mass affluent market • Mobile sales teams now selling mainstream products such as current accounts, personal loans, insurance, savings • Applying knowledge of cannibalisation to new funding products and new transaction products • Able to do lower risk lending of personal loans to customers with Nedbank Mzansi accounts • Some pilots in the community may lead to greater opportunities
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.
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. • 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). • 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: • Procurement policies of Government, Parastatals, Utilities and other state supported organisations. • Negotiation • Lobbying by the state, consumer organisations, NGO’s, media etc.
