The release of spectrum will raise the speed of data flows and reduce data prices, which will facilitate and encourage a more digitally-intensive way of financial transacting across the board.
So says Nedbank COO Mfundo Nkuhlu, remarking on the gains spectrum allocation holds for the provision of banking services.
This week, the big-four bank reported itsfinancial performance for the six months to 30 June, revealing that digitally-active clients now represent 61% of the total of main-banked clients, according to Nkuhlu.
“We certainly would benefit with greater migration of the economy through opening up of the spectrum,” the Nedbank COO tells ITWeb.
“We’ve been waiting for a long time…Now it’s [the spectrum process] trapped in legal proceedings, and we hope those can be overcome, so that we can unlock this opportunity for the growth of the economy as whole.”
South Africa’s allocation of high-demand spectrum has been up in the air for a number of years, with the last significant spectrum awarded 16 years ago.
It is expected that the freed-up spectrum will reduce the cost of data and increase access to the internet. Additionally, for government, a spectrum auction means a boost to the fiscus.
Telecoms regulator the Independent Communications Authority of SA (ICASA) was set to auction the long-awaited high-demand spectrum by 31 March 2021. However, it was dealt a blow when MTN, Telkom and Etv took the regulator to court, challenging some aspects of the auction process.
Telkom filed its legal dispute for a number of reasons, including that the way the auction is structured will entrench the dominance of its rivals MTN and Vodacom.
Broadcaster Etv joined Telkom in its legal bid. Its argument is centred on ICASA’s plan to auction spectrum in the 700MHz and 800MHz frequency bands, where spectrum is still being used by TV broadcasters.
MTN also dragged ICASA to the North Gauteng High Court in January, challenging the way in which the regulator intends to license the 3.5GHz spectrum, which it said would result in tier one operators being side-lined in the auction.
In June, ICASA said the ongoing settlement negotiations on spectrum litigation were “unfolding well and with a very encouraging outlook”.
However, nothing has materialised yet.
Digitally-active customers
In its results, Nedbank shows its digital initiatives helped it to increase the number of digitally-active customers in SA to 2.35 million, an increase of 27% year-on-year from 1.85 million in the first half of 2020.
Nkuhlu says for the period in review, the growth of digitally-active customers is reflected in growth of both volumes and value, with growth of digital transactions by volume now sitting at 33% and by value at 27%.
This underpins the overall general direction the bank thinks digital will go, he states.
Additionally, he highlights the COVID-19 pandemic prompted digital sales taking off because the digital economy encourages less human contact.
“First of all, people need to have higher levels of confidence about the security of the transaction platforms that we’re using, and then they also have to appreciate the ease and convenience of that channel. As they grow more comfortable and confident about digital transacting, we think it will take off and that is what we’ve set ourselves up for.”
Amid customers’ switch to more digital banking services, several banking institutions have opted to close some of their branches.
Commenting on this, Nkuhlu says Nedbank sees an opportunity for rationalisation of its distribution infrastructure, those mainly being branches.
“Rationalisation does not mean turning all of them off; it will mean branches that are fit for purpose, in some instances. In the future, we see some as mainly being service centres, to allow and facilitate digital transactional capability.
“The core banking systems will essentially be the front-facing interface with clients. For example, when clients walk into our branches, we anticipate that we will largely be enabling and supporting them to transact digitally with us. This ultimately does coincide with how quickly society makes that transition because you do not want to be closing infrastructure and resources for client transacting without the digital infrastructure being all-pervasive.
“That is why we are pointing to opportunities for opening of spectrum. Shifting the economy in that direction will allow us to time the closure of some of our physical branches in response to that shift. The two are related and we will not consider them independent of the other.”
Investing in tech
According to Nkuhlu, the bank’s “Managed Evolution” technology transformation programme has reached 81% completion, with most foundational IT programmes either complete or nearing completion.
He notes that cumulatively, the bank would have spent about R12 billion on the managed evolution strategy – at an annualised rate of about R2 billion per annum.
Looking to future tech investment, he says the key here is not speed to market, but speed to scale. “Having rolled out the solutions that we have deployed in the market, we will continue to refine those through client-based feedback. We do see the marketplace is largely going to be characterised by both competition and collaboration between established traditional banks like ourselves and fintechs who play in this space.
“The critical dimension of that is the desire to scale as quickly as possible, and we think that some of this will be driven by in-house capability, as well as collaboration with other outfits, given that nobody is going to control the entire value chain end-to-end. That is where we see opportunities – those who get to the tipping point quicker will largely take a disproportionate share of value.”
He notes the payments piece of the value-chain is growing in competitive intensity, which is an area that is of interest not only to Nedbank but also to regulators.
“It is where one facilitates the objectives of financial inclusion, and those can be greatly achieved if the cost of delivery of those services drops.
“Digital is not an area where you invest once-off; there will have to be continuous refresh as we go forward and those will tie with what we will see as revenue uplifts to payback for the investment outlay that we do upfront,” Nkuhlu concludes.
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