Nedbank bets future profits on youth market
Nedbank's new digital offering is available only to people younger than 25, which may limit its appeal to older smartphones users
Nedbank, one of the big four banks that is fighting to protect its market share from new entrants such as Discovery Bank, is betting on the youth market to stay relevant.
Nedbank's retail division launched a new e-commerce platform, called unlocked.me on Tuesday targeting younger customers. The platform offers discounts on items most sought after by young people, and value-adds including a digital recruitment agency.
“We realised that young people were starting to lose resonance with the Nedbank brand. It was a shame on us that we hadn’t put anything in the market to respond to their needs. We’ve spent a lot of time on this and all the indicators are that we are starting to regain resonance with young people,” said Mutsa Chironga, the managing executive of consumer banking at Nedbank.
The digital offering is, however, available only to people below the age of 25, which may limit Nedbank’s appeal to the older generation who use smartphones. Digital banks such as TymeBank and Bank Zero are making their low-cost digital offering available to the entire market.
The approach to resonate with youth aspirations is similar to that of TymeBank, which is marketing itself as a bank that wants to help young people realise their potential. Chironga said two years ago, Nedbank would have struggled to have competed with the likes of TymeBank in the youth segment but given the value-add benefits it had on the new platform, it now could.
Chironga said Nedbank’s focus was, however, on the lifetime value it could derive from the young customers as opposed to boosting its transactional revenues right away. “Our engagement with them does not have to be profitable from year one. But if they derive value from our relationship, over time they become profitable clients. We have to invest in our future client growth.”
Chironga said about 40% of Nedbank’s middle-market segments joined the bank when they were young.
Like the new digital banks, Nedbank’s new offering has no monthly fees and customers can pay zero transaction fees if they only use the bank’s digital platforms and make all their payments by card. Through this platform, the bank has effectively joined the low-fee crowd which is set to expand as African Bank and Postbank plan to launch their transactional banking offerings later in 2019 .
Benguela Global Fund Managers head of research Karl Gevers said this was definitely a defensive strategy and the fact that Nedbank was only offering the platform to one segment of customers showed it wanted to protect its revenue base.
He said the strategy would be likely to have little effect on Nedbank’s revenue, but would allow the bank to make more money from lending activities in future. “Nedbank knows it is easier to retain an existing customer than earn a new one. Although someone below the age of 25 has limited banking activity, Nedbank is probably hoping to retain them until those individuals start earning an income and then offer its full suite of products to them like mortgage and vehicle loans."