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Interview with Mr Louis Von Zeuner, Executive Director of ABSA Group

Interview - December 2, 2011

ABSA-Making Banking Approachable Throughout South Africa


We’ve got 12million customers in ABSA, of which 7million are entry level customers. An entry level customer will, on average earn less the 100,000rand/€15,000 per annum. South Africa has a substantial unemployment rate, and many of those people are unbanked.
As banks and large corporate clients we have to work together to get the economy going by working with SME’S and entrepreneurs, it is extremely important to South Africa: If you want to deal with the issues of Africa then you need to deal with this.

Est. from two building societies, mortgage finance is a large part of our business, in SA and across the continent, housing the nation is extremely important, it is the largest asset a person will ever own and so important. We brought the four banks together but felt we needed an international partner. We had an office in London, New York and are involved with a private bank in Germany as well as Hong Kong and Singapore.

The ABSA name as such is not internationally renowned and limited in the direction you could take it. In South Africa we were recognized as a retail bank which narrowed down our options for business. If you look back 5 years at Standard Bank or RMB: 5 years ago you would find they were stronger in Corporate and Investment banking, and because of this we looked internationally for a partner to complement our existing business and in 2003 we joined Barclays. At that time, Barclays was not particularly strong in the retail sector and had little presence in Africa, however Barclays Capital is one of the world leaders in Corporate & Investment banking and this was an area we had shortcomings in. So when Barclays acquired a 56% stake in ABSA we really fulfilled each other’s needs as we provided them the number one retail bank in South Africa and made a substantial contribution to their global retail banking initiatives and we got their investment expertise and now we are on par with anyone in the country.

At the time we agreed that we would acquire their African assets, with a view from the outset that South Africa would be the regional Head Office on the continent. They aimed to grow across the continent and with the agreement we had to buy their African assets they put us to the test in Tanzania, however they were way off the mark in their valuation. The difference at that time was as we continuously said that the fiduciary system wasn’t established, there was not sufficient infrastructure in place, and Africa is not only a retail market. It is not running unsecured business like UK & Europe and so we walked away from that. The investors locally and abroad they kept reminding us about being unable to conclude a deal in Africa.

However they gave us a mandate to look after all corporate & investment banking and insurance for Barclays Group on the continent. Barclays bank operates in Botswana, selling ABSA Financial Services Insurance in Botswana, Mozambique and has applied for a license in Zambia and we are pursuing business in Kenya. Africa never stands still.

At the end of 2010, it became known that John Varley was leaving and Africa became Bob Diamonds’ responsibility, he was of the view that Barclays had lost out in Latin America and gained nothing major in the east. Whereas Africa is flush with opportunities, rich in resources and generating interest from the East. Africa is high on everybody’s list, everyone is looking at Africa with a 20 year agenda, and it is going to be Bob’s priority.

Maria Ramos, actively involved with the IMF and a person that understands Africa, nobody better than her to be that link, from that perspective it is an ideal opportunity, the potential is in Africa, the leadership is here and SA is a sound marketplace, the leading market on the continent.

We have established an Africa Board for Barclays, and have started to implement a "One Bank in Africa strategy".

It is a three tier approach, initially we want to relocate the office from Dubai to Johannesburg, which we have just done. Secondly, we are exploring synergies and particularly growth opportunities. If we look at ABSA, after the Barclays transaction we were predominantly a retail bank, today we have many international corporations who have relations with Barclays, who don’t get the service required on the continent but it is now our responsibility to provide it and we drive corporate & investment business on the continent, with companies like Coca Cola and DHL. Our opportunity is to provide them with a banking outlet here on the continent.  We are looking to grow that Corporate & Investment business. We can combine the expertise of both companies and make sure we serve those clients properly. It is a great opportunity at the moment, to grow new business and consolidate existing relationships. Growth will come from corporate & investment, insurance, & retail banking sectors.

Finally, a major cost drive, combining Barclay’s office in South Africa with ABSA’s office is helping to manage costs. In the past India was the center for output and activity, and we could compete but where we lost out was in Telco, this has been addressed and is no longer as big an issue, no reason back office activities can’t happen here and this can help employment flourish. This is very early days, however it really has picked up momentum in the last 12 months and will face challenges however the opportunities are there. If we see the potential for growth for legal entities and corporate clients; we will cross that bridge when we come to it. 

Clients earning less than 10k- amount to 7.4million of our customers, 80% of our clients, represents what is happening in South Africa. Any bank who thinks they can grow without looking at this sector is crazy. There are 13 million people in South Africa who are “unbanked” the real challenge is to get these people involved, don’t be fooled, while it may look poor, money is to be made, US$ 10billion per year in profit and it’s going to grow.

People, who are under banked, we offer them far more than our competitors. The key is innovation and the provision of non-traditional solutions. ABSA has a proud heritage of serving the mass market and looking after our entry level clients very well. We are the leading bank in this sector with a 34% market share. It is a comprehensive service; transactional accounts, savings, insurance, loans as well as fully fledged banking for the mass market. We’re not going to be complacent, we want to continue to lead and that’s why we innovate. We are making banking easier.

This sector makes a huge contribution to ABSA’s profits; this is not a loss making business.
You are not going to win by providing solely for the middle market. With our new concept 1234, it is a totally different way to bank, it has simplified banking (4 products) no counters in these outlets, no cash handling, no tellers, this keeps costs low and allows access for customers without having to pay for it. We have self-service channels, cash accepting devices, self-service kiosks, making it approachable for the ordinary consumer. We are also promoting cell phone banking, this is a much cheaper way to bank and helps drive down the cost of banking. People can transfer money by phone and can collect money via pin anywhere in the country even if they don’t have an ABSA account!  This is helping the poorest people in society, enabling them to bank in a convenient, accessible way.

Not everyone is financially literate so we educate them, we are the only Bank with an education hub in our outlets, over time this changes their transactional behaviour and it becomes second nature to them. 

With our branchless banking strategy we are entering a very exciting stage with remote opening, this allows you to open an account using a smart phone to from anywhere it is paperless and efficient and can be done in 10 minutes with minimum costs. It is accessible on 150 devices nationally. It’s all about changing the way we think about banking, making it more convenient for clients and reducing our costs. But it’s all about changing the way we think about banking. We also work with merchants and rent out POS devices, over 40,000 clients and 50,000 devices, we want to turn these devices into banking devices. These are just some of the things we are doing in terms of innovation making sure we are well equipped to compete as the industry grows and more competitors join the marketplace.

Allpay is a subsidiary of ABSA. In South Africa 10.1mn people receive social protection grants. ABSA is a big player. We pay out in an innovative way to make it easier for people to receive their money in ways that are convenient to the. We use biometric systems to prevent identity fraud , while this is not fool proof we take identity fraud very seriously and have as many stringent measures as place but there is always a way around these things but such is life.

In the middle market there are many opportunities especially when it comes to small businesses & job creation. They are the key economic driver in this country. Financial institutions must come to the party to help the country grow and capitalize upon the real opportunity to grow here. Across Africa the three main sectors for SME’s are wholesale, retail, and manufacturing. 65% of 6.5million SME’s look to us for help, 45 % of business is with closed corporations, 20% with private companies and 17% are family owned businesses. This element is slowly but surely growing and that’s where it all starts, an appetite to grow business! Not just to sustain families but to grow and expand. We assist with mortgage backed loans and provide them with additional tools to help them run their business. We also work alongside and assist them with enterprise development, guiding them on cash flow management, helping them tender for new business, and advising on vendor and procurement finance.

What is Absa doing to assist female Entrepreneurs?

There is a huge focus on female entrepreneurship and there are many initiatives in the way we are approaching this. We have a dedicated team and there is preferential treatment for female entrepreneurs and this helps ensure that women have a prominent role in South African business and ABSA is committed to encouraging and educating female business owners. It is a government priority and is one we fully support and there is a huge drive to increase the role of female entrepreneurs.

What are the efforts you take to enforce and promote entrepreneurship trough strengthening SME´s?

We are also increasing our internet and online facilities, we call it the Bank in the Sky, it has been running for four months, previously telephone banking was limited to personal banking, this platform allows us to service businesses more efficiently. We are expecting 40% of our customers to move into this platform immediately and we constantly look for new ways to service our customers. However as much as we innovate, let me assure you, our branches are going nowhere, people still like to interact on a face to face basis and engage with people so we will still retain that service also.

In terms of market share, South Africa and Brazil have shown similar growth; in ease of business we outrank both India and Brazil. There is a negative view in terms of credit here but actual access to finance here isn’t as difficult as perceived. Quite often it’s not access to cash, rather security for the SME’s and we aim to ensure it’s more convenient and secure for our clients, getting cash form under the bed but into safe and secure accounts.

We look at our customers differently; our customer today is different from 10 years ago and will be different in 10 years’ time. We categorize our clients and work with them to ensure they have the best banking experience possible. We want them to look at us as a trusted advisor.

Most start-ups don’t have security so we look at ways to support them, by working with the large corporates within our client base we act as guarantor and ensure large companies work with the SME’s so they can build their business and flourish.

Most businesses fail because they don’t have the right skills to run the business. We have set up 11 centres were we run courses for business owners and guide them. We provide them with assistance from our corporate partners who provide advice and assistance to the owners. We have spent 330million rand in the last three years on sustainable start-ups; this will lead to 40,000 new jobs created over the next few years.

How do you see the role of ABSA concerning Social Responsibility? What is the ABSA Foundation doing?

We allocate a percentage of profits to the foundation. It has a number of priority areas: education, health, job creation etc. It also goes to different regions who submit projects to us and what we do is aim for a system of coaching and mentoring, 12,000 staff voluntarily provide their time to assisting the foundation.

The next step is moving to a more corporate type account, Blue-chip, Exchange listed companies will become a core area for Barcap and ABSAcap going forward. A big challenge in Africa is the underdevelopment of infrastructure. We are working with governments to finance and make capital available for infrastructure projects in areas such as water, energy and transport links.

Africa has a lot of skills but is not utilizing them correctly. People leave Africa to work elsewhere. Now, with operations in 14 countries across the continent we offer can deploy people across the continent.

The focus on governance and regulatory experience is always high as SA and the continent as a whole has a this perceived image as being difficult to conduct business in- however there are minimum requirements relating to Corporate Governance and Compliance in place, Africa is trying to free itself from the image of crime and corruption, the operating environment is more conducive to foreign direct investments. That’s why we are excited about the opportunities for Africa.

It would not be possible to take our business to the next level without Barclays. SA helping corporate clients expand into Africa. They need distribution etc, for us in the past we didn’t have that infrastructure so we assist each other.

In terms of future expansion, what brands will you operate under?

Outside Sout Africa the brand will be Barclays, it is a well-established brand. The important thing for ABSA is that we don’t underestimate the challenges ahead or take our eye off things, we have to watch the bandwidth of our management, it is impossible to manage from a distance, and you have to be on the ground. You cannot manage a business in Nigeria from London, Dubai or Johannesburg.

Investors coming to South Africa need to know who is the ideal partner for them on the continent and South Africa, what has allowed you to become the leading banking brand in South Africa?

Of huge benefit to us is the convenience we offer. We have 900 branched, 9000 ATM´s, and a 30 % larger ATM network than our rivals. We have exposure through sponsorship, ABSA sponsors the South African national team and the main Football League and Sport is a unifying factor here and gives people a common purpose and sense of belonging so we do a lot in the sport and cultural sphere.

You have grown with ABSA, started as a clerk, now a top executive. Please comment on your  personal objectives and goals over the next few years?

There are two main issues for me. The opportunity in SA to change the lives of people is huge, to really make a difference. We have a million mortgage accounts; however there are still vast numbers without the ability to own property. Where can we work within the corporate environment to uplift South Africa? We want to get SA to work! Our aim is to make SA more effective, to make South Africa more effective and reform the image of corruption that exists. Finally, our responsibility is that ABSA has been good for us, you prosper with the trust people have in you and the faith that they place in you, it is our responsibility that when we step aside we create opportunities for the next generation of leaders to emerge.

Very little of what we are doing here is not exportable, whilst we will not try to recreate ABSA directly, each country is unique, but we will be and must be open-minded to sharing and engaging to adapt to each country.