In a virtual strategy update event on Friday, Standard Bank Group revealed that it plans to reduce head office and branch space by as much as a quarter by 2025.
CFO Arno Daehnke says head office and branch square footage will be reduced by 20-25% as one of the critical levers to keep cost growth below of inflation.
This will bring the banking group’s cost-income ratio “closer to 50%” from 58.2% last year (and 58.3% in the first half of this year).
In 2019, the bank closed around 100 branches across the country. Although this was the main factor that drove the reduction of the area of the branch of around 360,000 m2 up to 294,000m2 As of late June 2021, it has continued to reduce space since those closures.
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These efforts to reshape its wealth “in line with customer and employee behaviors” have already resulted in savings of R400 million per year.
However, it’s not just about reducing space.
The bank speaks of a “distribution reset” where 80% of the transactions at the branch have been digitized, allowing it to shift the focus from service staff to sales.
It has reduced distribution costs by more than R 1 billion.
In her presentation, CEO of High Net Worth Consumers and Clients, Funeka Montjane reiterated that the bank “will continue to optimize distribution in South Africa.”
The experience of the branch is still ‘key’
Compared to the first half of last year, South African branch volumes have decreased by 39% in line with the “group’s strategy to bring our customers to our digital channels and withdraw cash from our branches, where possible”.
He admitted in Thursday’s financial results that his “branch experience lags behind and remains a key area of focus.”
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It will take advantage of retail distribution partnerships, such as the recently announced agreement to open mini-branches in select Pick n Pay stores, which reduce setup and running costs and give it access to a new customer base.
The banking group also uses Pep and Spar for its Instant Money cash transfer product.
Standard Bank has also boldly stated that it aims to grow its customer base from 15 million to more than 25 million by 2025.
It has 9.7 million active clients in South Africa and 5.26 million retail clients in its businesses in the African regions.
You see the number from South Africa increasing by 1.6 times, in other words, to 15.5 million. You don’t see growth coming from the wealthy or high-net-worth segments; will defend your participation in this space. Rather, all growth will come from so-called “core market” customers.
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The key to this ambitious goal of adding more than five million customers will be its low-cost MyMo digital bank account, as well as its instant money remittance product. It currently has 2.1 million unique instant money senders and more than one million MyMo account customers.
Customers in its African regions will grow 1.9 times, or up to 10 million.
Daehnke says this will translate into a 6% to 8% compound annual growth rate (CAGR) in interest-free income for the banking business over the five years through 2025.
Its insurance and investment businesses will have a CAGR of between 8% and 11% during the same period and it anticipates between R3 billion and R4 billion in non-interest income from initiatives labeled “beyond financial services. “.
This represents a CAGR of between 48% and 58% over the period, certainly off a low base. See new revenue from strategic distribution partnerships of between R5.5 billion and R6.5 billion.
It is this drive, to become a platform, which, according to the bank, will ensure that it does not “disintermediate itself from customers and become a utility company”, which will result in a deterioration in efficiency and a decrease in returns.
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