- Nedbank's Avo super-app has now been around for a year.
- The bank says in just one year, it achieved what many e-commerce players do in five years.
- It says the convergence of banking and e-commerce has changed the future of financial services.
When everyone had to stay home and retailers spun off in-house delivery services overnight, Nedbank decided to join the fray. Late adopters and sceptics were launching into e-commerce for the first time, and for Nedbank, it looked like the best time to test the viability of what it thought was the future of financial services.
A year later, Nedbank's Avo "super app" had 20 000 merchants selling on its platform and more than 250 000 active users at the end of June. The bank believes that in just one year, it has achieved what other e-commerce businesses achieved in five years. Now, Nedbank is looking at the Avo platform as a hive of potential.
After partnering with Sandton City to create an online mall, the bank has big plans to replicate this model in other big malls in the country. But first, it may need to refine the Sandton City offering a bit more to sell Avo as an alternative for going to the mall. The app currently has only 11 Sandton City stores.
But Nedbank is not a landlord that should be concerned with helping its retail tenants make sales. But it has provided a free e-commerce platform to businesses that didn't have online stores before. And it bears the cost of marketing them through Avo.
As more merchants signed up to become part of Avo and the app added categories such as liquor and fast-food delivery, Nedbank poured more money partnering with logistics companies to sort out delivery backlogs to try to compete in the league of same-day-delivery players.
"It was not a cheap app to develop," admits Ciko Thomas, the managing executive of retail and business banking at Nedbank.
The big e-commerce and banking convergence
But why go through the trouble to compete in the space dominated by giants such as Takealot and retailers when selling goods is not the business of banks?
Over the years, Nedbank watched the success of Alipay, the financial services spinoff of the Asian e-commerce giant Alibaba. Alipay has grown to be recognised as one of the biggest disruptors in financial services across Asia in less than two decades.
So, Nedbank thought, why not invert that logic? It already owned a payment gateway. It had retail clients it could easily turn into an e-commerce customer base. On the other hand, its business banking customers would be happy to be connected to a market while the bank gets a small fee for facilitating payments. The bank also knew that people would be more willing to spend their money on new merchants that they find on a bank platform.
"So, putting together those elements we felt here, we could actually play the e-commerce space. We thought, why not? said Thomas. But it wasn't just Alipay that prompted Nedbank in this direction. As it looked at how the business of financial services was evolving globally, Thomas said it became clear that the future demanded that banks do more than just lend and keep people's money.
His team spent some time in Japanese online retail giant Rakuten Group, understanding how it spun off an entire FinTech group that now has insurance, banking and credit card-issuing companies. The bank also looked at companies that had chosen the same route in India, Germany and other markets.
Outside of financial services and traditional e-commerce players, mobile network operators are going the same route. Vodacom has developed a super app in partnership with Alipay. The app thrust Vodacom into the world of personal loans, online shopping and mobile payments.
New revenues, new clients
Apart from the fees it earns from facilitating transactions on Avo, the bank stands to gain more from converting merchants and shoppers that don't bank with it to Nedbank clients. Thomas said 30% of merchants on the platform were initially not Nedbank business clients. But all of them have become Nedbank's business clients.
People that shop on Avo are still predominantly Nedbank customers. But Thomas said there are many non-Nedbank clients too, and some are exploring other Nedbank products through Avo.
"That is curious for me because it's exactly what we wanted to do. We wanted to entice you to try our other bank services because we've used Avo as a gateway," he said.
The bank is also financing high-value items sold on the app if shoppers need it, broadening the reach of its lending business in the retail credit space.
Thomas said the bank has internal targets on how much revenue it can potentially start generating from Avo over time. But that's not something that will happen overnight because even well-known e-commerce giants take time to get to the breakeven point. For now, Thomas said his mission is to make sure that Avo perfects its customer experience so that it can compete with giants.
"My ambition for Avo is that it must make money because customers absolutely swear by the service that delivers. If we can do that, then we'll make money. But if we fail in doing that, we are not going to make money, we are not going to sign up client," said Thomas.