Nedbank, Under-banked Stokvel Accounts

Kelley Connect Week, Summer 2015Team 17

Evan Crouse ebcscr@gmail.comTravis Kunnemann tkunnema@umail.iu.eduTom McGrew mcgrew.thomas@gmail.comJohn Stillwagen john@stillwagen.comMichael Yack michael_yack@praxair.com

2

The Situation

Since 2010, Nedbank’s retail market share has underperformed compared to disruptive market entrant Capitec. Nedbank’s market share has remained stagnant in segments which still have significant opportunity for growth.

Under the current market conditions, how can Nedbank drive profitability, new customer acquisition, and a higher market share while aligning with their goal to be a leader in sustainability?

3

Fair Share Marketplace

Fair Share Digital Marketplace – Links Club Accounts together to provide enhanced purchasing power.

New Affinity Club Account – Incentivize new individual transactional accounts by linking new accounts to existing Club Accounts.

Data Analytics – Captures customer information to better meet the market needs and enhance firm performance.

Net Present ValueR211 million

4

Existing South African Stokvel Markets

• Stokvels constitute a known market of over R44 billion per year– Estimates up to R75 billion– Experiencing a growth rate of R80-90 million per year

• Over 45% of households contribute to at least 1 Stokvel per month

• 400k+ Stokvels currently in South Africa consisting of 11.5M members

48%52%

Stokvels tied to Formal Institutions

Banked

Unbanked Savings Burials Groceries Birthdays Others Investments0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Type of Stokvels Used

Source: Stokvels - A Hidden Economy Source: Stokvels - A Hidden Economy

5

Challenges for Nedbank in Stokvel Market

• Group savings accounts currently exist in marketplace– Simple accounts for individual groups– Nedbank “Club Account” is a highly competitive product

• Nedbank market share decline in the banked Stokvel segment– 2010: R6.0B (22% market share)– 2014: R1.5B (7% market share)

• Significant opportunity to better understand segment– Industry wide lack of data collection– Nedbank has very limited understanding○ Only 3 signatures required to open account○ Limited information required of signators

Source: Case Study

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Fair Share Digital Marketplace

• Link Club Accounts to other similar goal Club Accounts• Utilize a digital marketplace that brings economies of

scale to deliver low cost purchases supporting Fair Share 2030 goals

• Formally unable to pool enough resources to make significant large scale purchases

• Marketplace provides venue for linking vendors with Club Accounts

• Value add to multiple market segments

7

Digital Marketplace: How Nedbank makes things happen!

Soweto StokvelNeed: Solar PowerSegment: Transitioning ELBChallenge: Unable to afford community purchase!!!

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Affinity Club Account

• Incentivize opening of a new individual Club Affinity Account, as well as linkage to parent Club Accounts• Drives incremental account generation and transactional

revenue• Drives incremental data collection

• Account rolls rewards into Club Accounts based on usage• Utilizes existing fee structure and Affinity program• Drives greater intimacy with customers

Club Acct

Club Affinit

yAcct

Club Affinit

yAcct

Club Affinit

yAcct

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Data Analytics

Customer behavior of the club account segment is an un-mined market, and will provide a competitive edge to Nedbank

Analyze

Target

Influence

Purchase

Multi-source Data Collection• Club accounts• Individual accounts

Benefits for Nedbank and Clients

Leverages existing platform to keep costs low and reduce implementation time

Customer Centered

Innovation

Targeted Marketing Increase Sales

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Financial Summary

Net Present Value

84

127115

145137

0

20

40

60

80

100

120

140

160

2016 2017 2018 2019 2020

Ran

d in

Mill

ion

43

66

59

7671

0

10

20

30

40

50

60

70

80

2016 2017 2018 2019 2020

Ran

d in

Mill

ion

R211 million

2014 2020

12.2% New Club Accounts

New Individual Accounts

9.2% 30k850k

Entry Level Market Share

Customer Acquisition

Incremental Cash Flows

Incremental Revenues

Path to Success

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SHORT TERMINTERMEDIATE

TERMLONG TERM

8 months 16 Months > 16 Months

Project Development and Analysis                

Primary Survey of Current Accounts  

Fair Share 2030 Digital Marketplace Development              

Build Business Intelligence Capabilities for Stokvel Data Build Analytic Tools for Making Data Based Decisions

Nedbank Brand Advertising Design and Creation

Build Vendor Relationships

Marketing and Outreach in Preparation Pending Launch OOH Media Campaign (Wall Media, Taxis, Sign Posts)

           

Current Customer Outreach Marketing Campaign            

--FAIR SHARE 2030 DIGITAL MARKETPLACE LAUNCH--

               

Outcome Analysis, Growth and Realignment

Validate Business Intelligence Algorithms and Incoming Data

       

First Targeted Product Communication w/ NCA Data          

Re-Analyze Market Trends

CHRISTMAS LAUNCH

Stokvel Data Sales

Launch Nedbank Club Affinity Account

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Risks & Mitigations

• Identify incentives to drive legacy accounts to update information

• Narrow product focus further to ensure positive product buy-in

• Transition marketing program to more direct focus, using known information about existing users

Risk Factors Mitigating Actions

• Unforeseen barriers to collecting information on existing Club Accounts

• Poor vendor partnership for sustainable product offerings

• Lower than expected acquisition of Club Affinity accounts

X

X

X

RISKSEVERITY

LIK

ELI

HO

OD

OF O

CC

UR

AN

CE

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Make Things Happen

“There is no shortage of ideas about what needs to be done to improve the economy of townships, the

challenge is to incentivize and mobilize local communities to urgently implement appropriate

solutions” Asad Alam

World Bank Group Country Director for South Africa

To secure first mover advantage, the time to make things happen is now!

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Appendices

15

Cash Flow AnalysisWACC = 13.5%Marginal Tax Rate = 45%

Rand in Million 2015 2016 2017 2018 2019 2020Incremental Revenues

Club Accounts 2.86 3.91 3.56 4.48 4.24Individual Accounts 81.61 111.39 101.37 127.72 120.70Data Analytics 0.00 11.53 10.49 13.22 12.49

Total Incremental Revenue 84.47 126.83 115.42 145.43 137.43

Incremetal Costs - Electronic Marketplace (3.16) (6.25) (6.56) (6.89) (7.24) (7.60) - Data Analytics (0.16) (0.03) (0.03) (0.03) (0.04) (0.04) - Marketing & PR (0.50) (0.38) (0.39) (0.41) (0.43) (0.46)

Total Incremental Costs (3.81) (6.66) (6.99) (7.34) (7.71) (8.09)

EBIT (3.81) 77.81 119.84 108.08 137.72 129.33Taxes 1.71 (35.02) (53.93) (48.63) (61.97) (58.20)

Net Cash Flow (2.10) 42.80 65.91 59.44 75.75 71.13

NPV @ WACC 210.84CAGR 10.7%

Microsoft Excel Worksheet

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Stokvel Demographics and Competitive Statistics

Stokvel Population vs. City Populations Stokvels and Banks

Stokvel by Category

Stokvel Contributions

*http://www.africanresponse.co.za/PressReleases/Documents/2012StokvelHiddenEconomy.pdf

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Club Affinity Account Linking

Nedbank

Club Account

Club Account

Club Affinity

Acct

Club Affinity

Acct

Club Affinity

Acct

Club Affinity

Acct

Club Affinity

Acct

New Offering

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Marketing Plan – Club Affinity Accounts

• One Week Television Blitz for product launch• Nedbank Brochure and other physical advertising design and manufacture• Nedbank Website Augmentation and SEO for new product • Research and create list of viable vendors to build relationship with• Negotiate market maker fees with vendors• Taxis are estimated by the South African Advertising Research Foundation

(SAARF) to be the most viewed channel for OOH advertising, marginally ahead of street poles and billboards. (South African entertainment and media outlook: 2013-2017)

• Average weekly reach, 2012 (% of population) Taxis 77%, Street poles 66%, Billboards 65%

• Website must be leader in class for digital marketplaces (e.g. Ebay, Amazon, Alibaba). As such must be created with a strong focus on design, usability and market use testing.

• Christmas Season Target – Instead of buying gifts, buy solar for your group!• Primary Marketing Survey – What is your group used for? What sorts of

things are you interested in purchasing for your Stokvel groups/Community?

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SWOT

Opportunities Threats

• Large footprint in ZA• Significant market penetration

within affluent and business banking

• Losing stokvel market share• Competitors have a stronger

foothold in entry-level banking sector

• Brand image associated with more affluent banking sector

• Competitors imitate with a similar product offering

• Nedbank has been disrupted before

• Percentage of unbanked stokvels are high

• No digital group buying mechanism exists today

Strengths Weaknesses

Source: Case Study

Source: Largest bank sites in ZA, Stokvels: A hidden economy

Source: Case Study, Largest bank sites in ZA (i.e. Nedbank, FNB)

Source: Case Study, Stokvels: A hidden economy

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Sources

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2. "TMS: Marketing Opportunity: Adding value to Stokvels who ..." 2013. 4 Jun. 2015 http://www.themarketingsite.com/knowledge/3361/marketing-opportunity-adding-value-to-stokvels-who-are-sophisticated-business-entities

3. "How banking institutions can benefit from big data analytics." 2014. 4 Jun. 2015 http://www.caldwellpartners.com/how-banking-institutions-can-benefit-from-big-data-analytics/

4. "Know What Your Customers Want Before They Do - HBR." 2014. 4 Jun. 2015 https://hbr.org/2011/12/know-what-your-customers-want-before-they-do

5. "Mastercard Could Sell Consumer Data - Business Insider." 2014. 4 Jun. 2015 http://www.businessinsider.com/r-mastercard-expects-big-growth-from-big-data-insights-2014-11

6. "Analytics in Retail Banking - Infosys." 2010. 4 Jun. 2015 http://www.infosys.com/FINsights/Documents/pdf/issue8/analytics-retail-banking-why-how.pdf

7. "Stokvels - A Hidden Economy - African Response." 2012. 4 Jun. 2015 http://www.africanresponse.co.za/PressReleases/Documents/2012StokvelHiddenEconomy.pdf

8. "Investigate Vehicles for Banking the Unbanked - bankseta." 2012. 4 Jun. 2015 http://www.bankseta.org.za/downloads/Vehicles_for_Banking_the_Unbanked.ALP_Team2.pdf

9. "Investment in stokvels gaining ground | Fin24." 2014. 4 Jun. 2015 http://www.fin24.com/Savings/Get-Saving/Investment-stokvels-gaining-ground-20140709

10."Analyst presentation - Nedbank Group." 2015. 4 Jun. 2015 http://www.nedbankgroup.co.za/financial/2014AnnualResults/pdf/2014annual_group_results_presentation.pdf

11."Old Mutual | Emerging Markets Showcase." 2014. 4 Jun. 2015 <http://www.oldmutual.com/event/downloads.jsp?event-id=23182>