Big-four bank Nedbank is nearing the completion of its multibillion-rand digitisation project initiated in 2016.
So said Mfundo Nkuhlu, Nedbank chief operating officer, in an interview with ITWeb after the bank this week announced financial results for the 12 months to 31 December.
On the digital front, Nedbank says its strategy to build a modern, modular and agile technology platform has reached 91% completion of the IT build.
In August, the bank said the R9 billion digital transformation project was 89% complete.
According to Nkuhlu, the bank expects to finalise the project, dubbed Managed Evolution, in the next 12 to 18 months.
He anticipates that by the end of this year, the project will be 96% done.
“We reported that our IT build programme, which is a refresh and modernisation of our technology stack, is now 91% complete,” he said.
“We still need to refresh core banking – that’s the major outstanding programme – the refactoring of core banking to touch on deposit and transactional products.”
On top of modernising core banking, the refresh of the payments platform also remains.
“In the years ahead of us, we expect to spend in the magnitude of R1.6 billion per annum to complete the programme.”
Curtailing over-spending
From a capitalisation of the balance sheet point of view, he said, this peaked at 2021 at R8.9 billion, and in 2022, it was at R8.3 billion.
“As you can see, even from an asset capitalisation point of view, it is coming down. So, what does that tell us? It tells us that the risk of over-spending on this programme is behind us. Also, the fact that the capital on the balance sheet is coming down tells us that we should anticipate the slowing of the rate of increase, as we depreciate the asset through the income statement.
“Remember this is capital on our balance sheet; and once we deploy the solution to the market and we start generating revenue on the back of it, we then amortise that asset through the income statement.
“Based on that, we think the spend is controlled. So, shareholders should not be worried that this is going to be another white elephant which we have invested in.
In terms of benefits, Nkuhlu pointed out that Nedbank has now realised 53% of its run rate benefit to 2025.
“We still have some upside to realise and that will continue to feed into our revenue and top line growth, and we expect that to continue.”
Thanks to the technology refresh, he noted 99% of Nedbank’s retail clients are now making use of digital technologies.
“It’s a fully-digitised process for the clients. For commercial and corporate investment banking clients, we are expecting 100% of them to go digital by the end of this year.”
At the moment, he revealed, about 75% of these clients have gone digital.
“On sales, 53% of the bank’s sales are now coming through digital channels and in 2019, the number was 12%. This shows the rate of change in tech enablement, as well as in consumer behaviour. Sixty-eight percent of our main-banked clients are transacting with us through digital channels.
“We also rolled out our super app Avo, and we have now reached over two million clients transacting through that platform. What we are looking to do is to lock in benefits, particularly savings, to justify the investment spend, and then to grow revenues.”
On the back of the modernisation of the technology stake, the bank has also been able to rationalise its physical infrastructure.
“We have reduced our branches, as well as headcount, by 11% over the last few years as a result of natural attrition. We did not have to take an active programme of staff reduction, but we are just using technology more efficiently.”
Skills gaps
However, he said the bank requires data analytics skills in order to fully take advantage of the digital refresh.
From the IT platform, Nkuhlu stated Nedbank is deriving valuable insights about customer behaviour, and the likelihood of the choices that will make.
“We are able to use data as well as artificial intelligence and predictive analytics, and now we are better-placed to realise the full commercial value of the vast amounts of data that we sit on as a bank.
“We have to recognise there are skills gaps in the market, particularly in the new areas of growth. There is dearth of available skills since this is a competitive space among ourselves as banks. We also compete with fintechs and telcos. It’s a fiercely competitive space and we expect there will continue to be cost pressures on those skills.
“However, these are skills that are necessary, so we have now embarked on a programme to build capabilities of data analytics, working in collaboration with colleagues in the IT sector. We are now creating a data analytics work stream to support colleagues in IT, risk, sales, marketing and HR.”
Cyber security is another skillset Nedbank is looking for, to mitigate the risks presented by the growing digital channels, he said.
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