Walk into Nedcor’s new corporate headquarters in Sandton – the Johannesburg suburb that has replaced the city centre as South Africa’s business hub – and you would hardly guess that you are entering the nerve centre of one of the country’s largest banks.
With its calm, tree-filled squares, acres of space, state-of-the-art design and university campus feel, the atmosphere is more akin to Massachusetts Institute of Technology or the HQ of Microsoft. Maybe that’s no accident. As far as Nedcor’s senior managers are concerned, the bank is all about technology. That, they believe, is what will give it the edge in the future.
“Although there’s a slump in technology at the moment, there is no doubt that technology is the future of banking, finance and probably business as well,” says Tony Routledge, the Nedcor executive board director responsible for strategy.
Putting this belief into practice has already resulted in some pain for the group. An 8% stake in London-listed South African wonder company Dimension Data, whose shares first soared and then slumped in the technology boom-bust, led Nedcor to write off R1.5 billion ($143 million) last year.
Management is, however, undeterred. The group has several other large stakes in hi-tech companies – such as the highly regarded smartcard developer Aplitec – and its own technology, insourcing and card-processing services are attracting impressive clients.
Just two months ago, Swisscard selected Nedcor as its partner for card processing. “When they picked us, they said we were two years ahead of anything they had seen internationally,” says Routledge.
Routledge and his fellow directors believe the bank has a key role to play not just in South Africa but farther afield in developing hardware and software that enable other banks to control costs.
“It’s important for Africa to have banks like ourselves to provide IT hardware and software,” says Routledge. “Whatever the size of your institution, the costs are the same and a lot of people just can’t afford the development costs.”
A smartcard rural revolution
Routledge points to Aplitec as an example of cutting-edge technology being deployed. The company has rolled out innovative uses for smartcard technology such as mobile ATMs that are taken into rural areas to pay retired state workers their pensions by use of finger-print recognition.
“They believe that the only way to serve the bottom-rung emerging markets of the world is through smartcards,” says Routledge. “You have no security problems as you do with cash and there is much less risk.” He adds: “It’s very interesting from a banking perspective because there has been no easy way to serve the bottom end of the market here in South Africa, which is where the demand and the political pressure is.”
Like its rivals, Nedcor is trying to find ways to control the risks and exploit the opportunities of expanding its banking services to the emerging mass market. Through its People’s Bank subsidiary, it is active in microlending. It is also setting up operations with retailers such as the Pick N’ Pay supermarket group to target the less well off.
Although the bank has identified trade and structured finance as areas where it can compete in other African countries and farther afield, management differs from rivals in believing that competition is already fierce and that there is limited room for expansion.
Instead the bank focuses on acquisitions in the domestic market, where it has long been a champion of consolidation. Although its audacious bid for Standard Bank two years ago was unsuccessful, it has acquired BOE (apart from the home loan book, which was bought by First Rand) and it believes further consolidation is on the cards.
“We predicted the demise of the second-tier banks but we haven’t seen the end of consolidation,” says Routledge. “We also believe the big-four banks are sub-scale by international standards and that there will ultimately be three big banks, but maybe not for another two or three years.” Don’t bank against another big Nedcor acquisition.
