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
2. This (rather obviously) translated into ‘below market growth’
3. Its private banking client base is “misaligned to the market”
4. It has an ageing customer base
5. It’s lost the number one spot in home loans (and its average age is 46, versus a market average of 39)
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:
– 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
– Target first-time homebuyers and claim the “leadership position” in this segment
– Enable “end-to-end digital mortgage delivery”
– 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.
* Hilton Tarrant works at YFM. He can still be contacted at firstname.lastname@example.org.