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| Client value proposition |
We discussed in our interim results that we have started a
process to transform ourselves from a product orientation to
a client focused organisation, by focusing on all aspects of
client expectation management in determining our strategic
priorities. Over the past twelve months, we have developed
a measurable set of objectives which determines the
customer promise and the extent to which we meet it. The
value proposition is informed by extensive market research
that we have conducted amongst our clients over a period
of time. It is intended to create an emotional connection
between us and our clients through reinforcement of the
positive things that we are known for, such as access and
turnaround times, while addressing the negative issues
associated with us such as high interest rates, not enough
positive behavioural reward, and inflexibility in collections.
Client value covers a multitude of aspects, including ease of
access, product range, price, emotional empathy and
convenience to the client. ABIL has identified strategies and
targets for each of these aspects, which are discussed below.
As part of delivering this value proposition, our branding was
realigned with the repositioning that ABIL is undertaking, with
a new, more modern and dynamic logo and look and feel,
which we have begun to roll out to our branches together
with revitalised interiors, over the past six months. |
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| Reducing the cost of credit for our clients |
One of the most important aspects of our client value
proposition and an integral part of ABIL's mission, is to bring
down the cost of credit for our clients. We have demonstrated
our commitment to this goal over the past two years through persistent and measured price cuts through an iterative
process of testing the price/volume elasticity of consumer
credit. Thus far, prices were reduced in September 2005,
October 2006, June 2007 and September 2007. The volume
benefit of these price cuts is evident in our sales growth of
26% and 31% over the past two years.
Apart from the price reductions, ABIL has also, from
December 2006, extended the term of loans beyond the
Usury Act Exemption Notice limit of 36 months. The
combination of lower prices and longer terms allowed
clients to take out substantially bigger loans, thereby
increasing their utility of credit significantly. The graph below
indicates the most recent drop in prices, as well as the shift
in sales to larger, longer-term loans, weighted towards the
low risk spectrum of our
target market. |
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| It is ABIL's intention to continue to bring down the prices to
its clients thereby increasing the utility of credit and growing
the size of the market. Over the next two to three years we
aim to drop the all-in yield (including interest, fees and
insurance) to approximately 35% – 40% per annum on
average, measured across the entire spectrum of risk
groups. These price cuts will be done incrementally, taking
cognisance of the market environment and risk discovery
for bigger and longer-term loans. |
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| Improve access to credit |
| Access to credit is a significant value determinant and ABIL
aims to differentiate itself in the minds of clients in this
regard by providing substantially higher approval rates than
industry norms, more pervasive distribution, and friendlier
and more accessible branches. Improving access to credit
needs to be addressed both by improving the physical distribution footprint and reducing the number of people
that we are unable to assist with loans (ie improving our
approval rates). |
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Expansion and optimisation of the distribution footprint
ABIL has been expanding its physical branches, targeting
to grow to approximately 700 outlets over the next two
years. The group has also been supplementing the current
branch distribution channel with low cost, highly mobile
outlets. These types of outlets include scooters, kiosks,
large and small vans as well as containers. They provide all
the services, features and benefits of a conventional
branch but are substantially cheaper and quicker to
deploy. This development allows us to bring our loan
services closer to our markets and in so doing, customers
enjoy higher levels of accessibility and convenience.
During 2007, 40 new branches were opened nationally
and 60 branches refurbished. We deployed six mobile
branches during the last quarter of 2007. A further
49 branches were merged, relocated or closed. A total
of 102 new branches were opened during the last
three years, bringing the active branch portfolio to
550 branches.
New outlets are being opened in township areas as
major developments in shopping centres and retail
infrastructure is taking place. We opened ten such
branches this year, and are experiencing an increasing
demand for our presence due to an acceleration in
township shopping centre development.
We are also expanding our footprint through direct onsite
points of presence at various employers. A total of
721 points of presence were opened this financial year,
which provides access to our products at their workplace
to some
360 000 employees. |
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Improving our approval rates |
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ABIL has, since inception, been striving to reduce its
rejection rates as far as possible, and this has built the
brand as an accessible bank who says "yes". More
recently, we have had to re-develop our methodology
post the NCA requirements. Our current approval rate is
hovering at the 73% level, against a target approval rate
of 85%. Affordability reasons account for the bulk of
declines, with credit policy declines having the next
highest impact. The group reviews the reasons for
rejecting applications on a continuous basis to increase
the approval rate, where possible. |
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| Various measures were implemented in the past year to
tighten credit extension to higher risk clients and limit the
maximum instalment exposures per risk group. For a more
detailed discussion on how this has assisted in keeping
affordability levels steady, please refer to the risk
management review. |
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| New products and sales initiatives |
The African Bank credit card product was launched to
address several of the aspects of our client value
proposition. Not only does it provide significant convenience
for clients by making credit available anytime, anywhere, it
also reduces client churn by negating the need for clients to
reapply for credit on a regular basis. ABIL was the first in the
country to offer instant issue credit cards to its clients. At the
end of September 2007, the group had 157 000 cards in
issue with outstanding balances of R466 million.
The credit card book is targeted to be close to R1 billion by
September 2008. Besides benefiting from the revolving
lending to existing credit card customers, the bank will be
extending its offering to a number of new customer
groupings such as its mining and weekly-paid customers. In
addition, the bank plans to transform its one-size-fits-all blue
classic card into a more differentiated proposition, testing a
starter-blue card for customers who would not normally
qualify for a credit card within the bank and offering better
blue classic customers a cheaper offering with higher limits.
In line with its commitment to continue improving customer
service, a number of unique service elements are in the
process of being implemented in the bank. Pin activations
of our credit card will soon be available on point of sale type
machines located within our branch network in addition to
the currently available telephone (IVR) activation solution.
Our loans business recorded significant growth for the year.
Strategies that directed this performance can be summarised
as follows: |
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Further price reductions to our loan products; |
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Loan terms were extended up to 60 months for the best
risk clients, with average term increasing from 22 months at
30 September 2006 to 32 months by 30 September 2007; |
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Increases in the maximum loan size for debit order
products to R30 000, particularly to lower risk customers; |
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Improved management of higher risk customers via the
implementation of maximum instalment sizes across risk bands and refining of our risk-based pricing model, which
directed those clients to a shorter term and smaller
loan
sizes; |
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Pricing enhancements to our payroll products; |
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Conversion of our mining outlets to the African Bank loan
systems, which allowed us to extend our African Bank
loan product range to this customer base; and |
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Establishment of a product management function that
focuses on new product development as well as
optimisation of all our existing products. |
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| As indicated earlier, our business is moving from a loan focus
to a client focus. This offers us significant opportunity to
improve our customer risk management and simultaneously
improve acceptance rates and loan volumes. Key to this will
be improved customer instalment management achieved
through a number of initiatives including: |
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Better management of clients with multiple African Bank
loans; |
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Addressing the high rejection rates as a result of
affordability declines; and |
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Stronger differentiation amongst client segments. |
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| Debt mediation, rehabilitation and flexibility |
Another important value determinant is empathy and
understanding when clients have a financial crisis or
experience debt-related financial distress. ABIL loses
approximately 15% of its clients annually through delinquency
and this provides an essential focus area if the group wants
to grow its client base.
The group has taken a very active role in an industry
process initiated in late 2006 at the request of the National
Credit Regulator to develop an industry code for the relief of
debt-related financial distress/over-indebtedness through
voluntary mediation.
Critical to the success of resolving a situation of temporary
financial crisis or a case of debt-related financial distress is
co-operation between the multiple creditors involved in
making concessions, or restructuring the debt obligations of
the borrower to ease cash flow and allow them to recover
their situation.
In the absence of such a holistic solution, some creditors
end up agreeing to temporary relief measures whilst others were in the past able to choose to enforce their contractual
rights. This outcome inevitably ended up in the legal
process with a race to obtain judgments and emolument
attachment orders where possible. This was a very
destructive (albeit the only available) process pre-NCA.
The NCA has introduced statutory debt counselling as a
measure that can, at the discretion of the consumer and a
debt counsellor, interrupt the legal enforcement process.
The statutory remedy however, by design, carries punitive
implications for both credit providers and consumers.
The National Credit Regulator has therefore introduced a
standard condition of registration for all credit providers
requiring them to subscribe to an industry code for
combating over-indebtedness. This is in line with a
consistent expectation from government that the industry
would self-regulate towards a voluntary alternative to the
statutory option for the bulk of affected consumers.
Negotiations within the credit industry to establish such a
voluntary debt mediation code and the necessary institutional,
governance and other facilitative arrangements to support the
implementation thereof are far advanced. ABIL intends to
subscribe to the code and play an active role in mediating relief
for financially distressed clients under the code as soon as it
becomes operative, as part of its endeavour to provide a full
value proposition to our client base.
During 2007, the group decided to undertake a
rehabilitation exercise for clients with loans that have been
written off. Many of these loans relate to portfolios which
were acquired historically, such as the Unity, Boland and
Saambou loan books, where the account history is poor
and relates back to loans granted in the late 1990s. Even
though the group writes off loans for accounting purposes,
attempts to collect on these loans continue.
After careful review of this portfolio a decision was taken to
provide these clients with an opportunity to apply for credit.
The reasoning behind this initiative was that the economic
circumstances which may have forced the client into default
could have changed and assuming that the client
successfully applied for a new loan facility and he or she is
not precluded from the application scoring model, he or she
should be given the benefit of the doubt and be given an
additional loan.
In total 180 384 clients were rehabilitated for credit granting
purposes and all adverse indicators were removed from the
system. We took a decision not to communicate this
adjustment to the affected clients and rather to let them reapply for a loan on an ad hoc basis, whilst carefully
monitoring the risk. Indications to date are that these clients
remain of a higher risk profile than our other clients and the
default rates experienced are much higher. The project
continues to provide valuable insight which will be used in
our debt mediation and rehabilitation efforts in future. |
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| Speeding up the application, approval and disbursement
processes |
| Research amongst our client base has often highlighted
quick turnaround times between application, approval and
disbursement as one of the key determinants for our target
segment in selecting a credit provider. ABIL has been
reducing its turnaround times over the past few years.
A series of further process reviews in 2007 resulted in
several steps in the process being adjusted or cancelled for
existing clients. Keeping these steps in place only for clients
where it would enhance the credit granting process, has
enabled us to provide a speedier and more efficient service
to our other clients. Forty percent of repeat clients now have
the loan deposited into their bank account within 90
minutes, relative to 2-3 days when we started the process
in 2005. |
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| Protecting our clients |
| ABIL maintains an independent Consumer Advocate's
Office (CAO) to act as a watchdog of consumer protection
primarily for clients of the group. More details of the
activities of this office are discussed in the sustainability
review. One of the most important functions of
this office is to proactively identify practices, policies and
processes which require transformation within ABIL and
influencing progressive outcomes. During the past year a
number of practices have been transformed, including a
proactive application of the common law in duplum principle
on old accounts not requiring adjustments in terms of the
NCA, as well as more focus on collections activities by
external agents including attorneys. |
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