Hey big spenders! How much SA banks invest in IT

IT spending by South Africa’s major banks – Absa, Capitec, FirstRand (FNB and RMB), Nedbank and Standard Bank – continues to grow as data centricity becomes key to executing on personalisation strategies and AI adoption drives increased investment.

TechCentral pored through the annual results of South Africa’s big banking groups, which mostly cover the 2023 calendar year (despite slight differences in financial year-ends).

The numbers show the completion of cloud migration projects was a major focus for South Africa’s top banks. Although many of these projects are reaching maturity and demanding fewer resources, increased investment in data science capabilities and generative AI have proven to be the biggest contributors to the growth in IT budgets.

Capitec, a relative newcomer among South Africa’s banking giants, spent R1.9-billion on IT in the year ended 29 February 2024 — a 27% increase from the R1.5-billion it outlaid the previous year. This represented the largest percentage increase among all the banks, although it was the smallest (R400-million) in absolute terms.

“We have rebuilt our IT platforms to allow us to scale products to higher volumes. We are focusing on moving all our data to the cloud and on increasing the stability of all our critical systems,” Capitec said in its annual report. The Stellenbosch-headquartered company is now South Africa’s largest retail bank, with 22 million customers as of its year-end on 29 February 2024.

Boosting system stability and limiting downtime has been a key driver of cloud migration projects in the banking sector. For Standard Bank, system outages drove massive increases in spending in the 2022 financial year and those objectives continued in the year ended 31 December 2023.

Big spenders

Group software, cloud and technology-related costs increased by 14% in the period due to higher investment in cloud migration and software licences. Personalisation and other focused AI-driven projects also contributed to increased IT spend at group level.

“System stability and availability was excellent throughout the year. Recognising that resilience in the present is as important as futureproof modernisation, we refined our technology strategy to focus on both stability and innovation. We have witnessed a year-on-year reduction of 60% in the combined number of material incidents across the group and a 43% reduction in the average time to resolve incidents,” it said in its annual report.

Standard Bank had the largest annual increase in IT spend in absolute terms at R1.5-billion.

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Nedbank, on the other hand, had the most significant decline in IT spending, dropping precipitously from R6.6-billion in the 2022 financial year to just R1.3-billion for the year ended 31 December 2023. This 80% reduction was due to Nedbank being in the final year of its managed evolution digitisation project, which began in 2016. The bank expects IT spend to hover around the R1.6-billion mark annually over the next few years.

“At the end of 2023, we reached 95% build completion, and the programme is aiming for full completion by the end of 2024 – on time, on scope and on budget, with the complete refactoring and modernisation of our core banking systems and the digitisation of the two remaining digital client onboarding and servicing journeys, being home loans and vehicle finance,” Nedbank said in its most recent annual report.

Despite the sharp decline in IT spend, Nedbank continued to make new investments in novel technologies. Last month, Asokan Moodley – Nedbank’s head of end user and communication experience, infrastructure and operations – told TechCentral’s TCS+ about the bank’s journey as an early adopter of enterprise AI tools from Microsoft.

Absa is another of South Africa’s big banks that has ramped up investments into AI and machine learning. IT spending at Absa grew by 9% to R6-billion in the year ended 31 December 2023, up from R5.5-billion the previous year. According to its annual report, AI is playing a key role in Absa’s cybersecurity function, including fraud detection. Absa also paid more attention to its data science capabilities, driving investments in both technology and education.

“One of the initiatives pursued during the year has been investing in data commercialisation efforts, enabling the provision of targeted offers to clients. This approach has been instrumental in enhancing client engagement and driving growth,” it said.

FirstRand– parent to FNB and RMB – saw its IT costs rise by 18% year on year to R10-billion for the year ended 30 June 2023, the most recent full-year reporting period available.

It’s clear that data science, AI and machine learning projects are seeing a greater portion of IT spend as cloud migration initiatives near maturity. An increasingly digitised banking environment has also expanded the threat surface area for these financial institutions, leading to larger allocations towards cybersecurity.

The tech skills gap represents a major risk for the banks and, over and above their IT budgets, funds are being set aside to upskill internal staff and offer bursaries to external talent to secure the skills pipeline in AI, ML, data science and cybersecurity. The recruitment budgets for IT staff in South Africa’s financial institutions also reflect this strategic imperative.

“Our commitment to driving digital innovation is reflected in our ongoing efforts to recruit technology and data talent. Notably, 15% of all external appointments fell within these specialised skillsets,” said Capitec.  – © 2024 NewsCentral Media

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