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Absa: Here’s what’s wrong with its retail bank

The five not-so-minor problem it aims to fix.
The banking space has become very crowded, and since its competitors haven’t been standing still, Absa must now play catch-up. Photographer: Waldo Swiegers/Bloomberg

In an extraordinarily candid investor day on Friday, Absa detailed the issues plaguing its local retail and business banking division (RBB SA), as well as ambitious plans for each of its business units to grow ahead of the rest of the market from next year.

It absolutely has to fix this unit if the group as a whole is to grow. For FY 2017, RBB SA contributed 57% of group revenue, 54% of headline earnings, 53% of core deposits, and 60% of total advances. This is its biggest business, and arguably its most important one.

First, the problems …

1. It has lagged the market on almost every measure

Source: Absa Investor Day (data source: AMPS 2012-2016; Absa analysis)

2.  This (rather obviously) translated into ‘below market growth’

Source: Absa Investor Day (Absa analysis) Note: Brackets indicate relative market share calculated as the percentage share of market versus the market leader (or versus second in market for the leader); market growth based on an aggregation of Absa and competitor revenues.

3. Its private banking client base is “misaligned to the market”

Source: Absa Investor Day (Absa analysis)

4. It has an ageing customer base

Source: Absa Investor Day (Absa analysis)

5. It’s lost the number one spot in home loans (and its average age is 46, versus a market average of 39)

Source: Absa Investor Day (BA900; Lightstone; Absa analysis)

Arguably, its biggest single problem is in the ‘everyday’ banking (read: transactional banking) unit. This is the core of any bank, and it’s no secret that Absa has been struggling.

It notes that a “suboptimal customer experience” is a key driver of customer attrition” (translated: bad service means customers switch (and have switched).

It highlights three failings in the bank which contribute to this:

– “Inefficient internal key processes, including onboarding

– “Inability to use data to create [a] personalised experience, and

– “Inefficient use of digital channels”.

Under new RBB SA CEO (but old Absa hand) Arrie Rautenbach, the division has overhauled its operating model, which sounds a yawn, until you realise that all its customer-facing units had been stuck a few levels deep, in a single division (consumer banking). Layers across the whole business have been reduced from 12 to eight.

Relationship banking (private and business banking), everyday banking (the transactional, personal loans and card businesses), home loans and vehicle asset finance are now divisions in their own right, and report to Rautenbach. Alongside this sit two channel heads (physical and digital) and certain shared support functions.

These then, are some of the plans for each of the business units:

Relationship banking

– Grow the number of young and self-employed professional customers

– Actually implement ‘real’ relationship banking, with a single point of contact for customers’ personal and business needs

Home loans

– Target first-time homebuyers and claim the “leadership position” in this segment

– Enable “end-to-end digital mortgage delivery”

Everyday banking

– Use analytics to “solution in the moment”, in other words, try to offer you the right product at the right price at the right time

– Target the “core middle” and “affluent” markets

This is beyond the rather obvious basics, which the banks says need to be fixed, including onboarding and service.

Vehicle asset finance

– “Optimise” relationships with dealer networks and leverage these, becoming the “bank of choice”

What’s somewhat perplexing is that much of the above plan is so obvious that one wonders what Absa’s been doing for the past decade!

And some of these plans read as if they’ve been created in a vacuum, with little or no appreciation of the fiercely competitive market in each of these segments.

None of the other banks are standing still. FNB and Standard Bank have been blazing ahead in innovation, FNB’s switching strategy surprised the entire market, its relationship banking push with Premier (neé Platinum) redefined private banking and made it “accessible”, Capitec wins hands down on everyday banking, Wesbank leads the market in vehicle and asset finance full stop, and Nedbank has been writing good business from a challenging position (it looks in much better shape than a decade ago).

Add to this, in the year ahead, the launches of TymeBank, Discovery Bank and Bank Zero, as well as a push at the lower end from Post Bank, and the market suddenly looks very crowded indeed.  

A big ask

If all of Absa’s plans for retail and business banking work – and that’s a huge if – it expects to grow its revenue above the rest of the market from 2020. It is already busy with the hard work of “fixing” the business.

This is a huge ask and one that the bank’s executive has staked their careers on. The first of its revised medium-term financial targets bluntly states that it aims to grow its “revenue faster, on average, than the SA bank sector from 2019 to 2021, with an improving trend over time and within appropriate risk appetite parameters”. No pressure, then.

But the principal challenge for Absa is that most of this ‘struggle’ is internal. Most of this change is “cultural” and Rautenbach will need the bank to change from an “authoritative culture” almost entirely reliant on the “back-office”, to a “market-facing one defined by results, learning, enjoyment and caring”. Plus, the bank has always been focused on products, not customers and their actual needs.

Those are two very difficult habits to break.

Read: Absa: The problem with its revised financial targets …

* Hilton Tarrant works at YFM. He can still be contacted at

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Nobody goes into a branch anymore. Get a smartphone.

And expose yourself to fraud, hacking you name it – not likely – no security on smart phones

I would say the damage done by Barclays can only be fixed in the long term.Over that time,it became the least customer centrix bank,and lost significant market share in its previous strong hold of home loans and retail banking.Loss of home loans invariably has an effect in divisions such as Private and Business Bank,and its Private Bank customer base is massively diluted with people earning well below R500k,but the Bank does not have the foresight to move clients out of that division.Its credit scoring systems is also outdated,and that has an impact on its ability to attract new clients.I think Rautenbachs statements are just hollow talk,and i would not be watching this space

ABSA was a train wreck long before Barclays arrived.

When I was still an ABSA transactional banking customer in the late 1990s, my local branch’s systems were offline so often that they commissioned a professionally-made sandwich board advising customers of that, to save them having to print out daily mea culpas to stick on the revolving doors.

My occasional flirtations with ABSA since then (vehicle finance / personal loan) were uninspiring and I wouldn’t seriously consider them for any banking need nowadays. The fact that Barclays walked away really tells the story…I’ll bet they wouldn’t have walked from operational control of Standard or FNB.

I’ll believe the turnaround when I see it, it’s old guard who’ve been trying to turn this around with no success for years. Although I must say FNB has taken a bit of a nosedive since Celliers has taken over as CEO.

I suspect FNB’s strategy is a slightly long game – encourage people to use electronic banking for as much as possible, hook them then ramp up pricing. We shall see.

If its about relationships with clients and meeting the needs of clients, you have to empower the branch manager. For the branch manager to be allowed discretion means that the culture where every decision is made at head office or worse still, the client is referred to a call center, needs to change.

ABSA has been run in an authoritarian top down military style. This is the way their clients are treated. WE know better. These are the products we have. Just look at banking hours for example. If I am not mistaken, Capitec has the longest most client friendly hours, followed by FNB, then Nedbank and Standard and only then ABSA. That is probably how they rank in terms of performance as well.

In addition their record of repossessions and litigious behavior, does not inspire confidence. So rip off the Band Aid and change the culture. From the top. Or continue slowly dying holding onto your rules and regulations manual…

“What’s somewhat perplexing is that much of the above plan is so obvious that one wonders what Absa’s been doing for the past decade!”

I laughed at this.

I was an Absa Private Banking customer for more than 20 years. Financed 6 cars and 2 properties via the bank. The App and website are good, but you hit a brick wall of condescending attitude when you have a problem.
Did not even get a phone call to ask why I was leaving when I moved to another bank.

I don’t have anything bad to say about ABSA specifically, as all the banks treat me like bollie. I miss the days when you could still speak to a bank manager that could make decisions on his/her own.

I’m surprised that there are still people that bank with absa.

I’ve worked for a few banks. The problem is that some bank staff are too mechanical in their approach and don’t have the power or the will to think beyond the training manual.

Banks will become more like FinTech companies. Diversified financial services will the way of the future.

Customer satisfaction will underpin will the most important factor to success.

These okes need to remodel their CVP and the way they do business.

Interesting to see if Discovery Bank will change the game.

I was with ABSA retail for over 15 years. What I really object to is that their terms and conditions keep changing and are somewhat complex. All I wanted was a simple, easily comprehensible account. Aslo, I never got any statements even after several visits to branch and promises to sort matters out.
I cancelled account about four months ago, openned new account with Capitec and never looked back. Capitec are “chalk and cheese” with ABSA.
Also, I have stockbroking account with ABSA. Again, constant changing of “rules” and fees (disproportionately increased, especially this year) which has now prompted me to wind down this account. ABSA Stockbroking was excellent (and competitively priced) when I first openned the account in 2012.
ABSA appear to believe that all one needs to do to increase profitability is to increase fees and continuously downgrade/limit any customer advantages. That won’t work anymore … there is now competition.

It so happened that a friend and i locked ourselves out of our internet banking earlier this year. I bank with FNB and via the internet re set my password with no problem. My friend banks with ABSA and locked himself out on a Friday. he contacted help line and was told to go into the branch. He did this on a Saturday (after 1 and a half hour wait) and was told even though he has full signing powers his ID was not good enough and he must bring his wife’s ID in too. By now it was to late. Monday back to ABSA again over one hour wait he was helped and it took one minute to do. They now bank with FNB.

This is especially bad if you are overseas and they tell you to go into the branch.

A banks first priority is customer service yet ABSA employees sees and treats customers as a nuisance that spoils their time to socialize.

Great article Hilton. Thumbs up for ABSA for candid, granuluar disclosure.

Ramos is a terrible CEO and ABSA wasn’t great to start with. Fire her and all board members with NO banking experience — pretty much all of them

Name one thing that ABSA is good at and then two more…it’s a challenge

Their problems are not unlike those of Old Mutual and Sanlam

Old school. Dead wood. No innovation.

ABSA is by far the WORST BANK in South Africa, perhaps even the world. Fees too high and not client centric!

I’m at that point where, after 10 years, I’m ready to move. Private banking service is actually pretty good but only because they need to have people compensating for tech inefficiency and lousy call centres. Absa leadership consists of entrenched individual fiefdoms The new strategy is just words and not tied to any tangible plans. Their reshuffle pushed some dead wood but also a couple of really capable hands while appointing their compliance chief to run digital strategy and customer value! Does not bode well. Also, their tech stack is from the seventies which why their lovely new app still suffers from the same old service outages as before.

End of comments.





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