Revealed: how much South Africa’s big banks spend on IT

IT spending by South Africa’s major banks – Absa, Capitec, FirstRand, Nedbank and Standard Bank – is in the billions of rand each annually, and growing fast.

Competition in the sector has driven increased investment in IT as the banks seek to improve customer experience, build better security systems, smooth operational efficiencies, and see off fintech start-ups and mobile network operators that are increasingly muscling into their turf in financial services.

But just how much are South Africa’s big banks directing into their technology budgets each year? The numbers might surprise you.

Starting with Capitec, the Stellenbosch-headquartered bank doesn’t spend as much as its rivals – the traditional “big four” banks – but may not need to.

Capitec spent just over R1-billion on IT in the 2023 financial year, excluding staff costs, a slight increase from the R955-million spent the previous year. But these amounts pale in comparison next to what the big four spend annually. That’s partly due to Capitec’s more modern IT architecture, which is largely unencumbered by expensive-to-maintain legacy systems.

“The availability of best-in-class technology is integral to our objective of providing our clients with an ecosystem of products and services that address their financial needs,” said Capitec board chair Santie Botha in the group’s integrated annual report for the year ending 28 February 2023.

Read: Standard Bank spent R11.2-billion on IT in six months

“To improve client engagement, we have entered into partnerships with leading global technology firms such as Salesforce, Airship and nCino. These partnerships will play a vital role in the execution of the group’s objective of being the best in class for the future.”

Big banks, big spend

As new as Capitec’s technology stack is relative to its competitors, the bank saw an opportunity recently to modernise its IT function further by moving it to the cloud.

“Our migration to Amazon Web Services is nearing completion. We have migrated systems and enhanced our disaster recovery plans, and our banking app is also utilising this platform,” said Botha.

Aside from scale, the more complex the integration between a bank’s core systems to legacy platforms like mainframes is, the higher the cost of its modernisation efforts. Nedbank has been in a technological overhaul it calls “managed evolution” for years.

Read: MTN fintech business valued at R99-billion as Mastercard eyes stake

“The group’s technology strategy and managed evolution transformation programme is focused on building a modern, modular and digital IT stack. At the end of 2022, we reached 91% build completion, and the programme is aiming for full completion by the end of 2024, with the refactoring and modernisation of our core banking systems as one of the final components,” group chairman Mpho Makwana said in the group’s 2022 annual report.

Nedbank expects to spend R1.6-billion/year on the project until its completion. Nedbank’s total IT budget, including staff costs, was R9.5-billion for the 2022 financial year (R6.6-billion excluding staff costs). The largest increase in IT-related costs for Nedbank was in staffing, which grew by R650-million from the previous year.

FNB and Rand Merchant Bank parent FirstRand, meanwhile, spent R12.4-billion on IT (before staff costs) for the year ended June 2022. FirstRand’s IT spending has risen by 9.3% on a compounded annual basis for the past five years.

For the year ended 31 December 2022, Absa spent R5.8-billion on IT, or R12.6-billion if staffing costs are included. That’s an increase of 8% compared to 2021.

Standard Bank, meanwhile, spent R11-billion on IT in 2022, although the report does not segment IT spending, so it is difficult to tell if staff costs are included in this total. Interim results for the first half of 2023 showed R11.2-billion in total IT spending, including staffing costs at R2.8-billion.

Read: Standard Bank unveils plan to become a digital ‘platform’ company

Staff, software, cloud and technology costs were the biggest contributors to Standard Bank’s technology spending in 2022. In the bank’s 2022 annual report, group CEO Sim Tshabalala explained the high spending on technology.

“We experienced a series of prolonged and highly disruptive system outages in April and May 2022. As well as seriously inconveniencing our clients, long outages do immense damage to our brand and reputation, and cause distress to our people,” he said. “It was necessary to restructure the IT function and change its leadership.”  — © 2023 NewsCentral Media

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