Banks launch tech battle

ANZ is working busily behind the scenes on its digital transformation.

A technology arms race will break out in banking next year as ANZ beavers away on secretive plans to roll out a new digital banking platform in the second quarter.

The other major players are also stepping up the pace on technology development.

This column understands a project dubbed ANZx — commissioned by chief executive Shayne Elliott — will be piloted by as many as 150 bank staff in April ahead of a broader launch soon after.

The project is being overseen by Maile Carnegie, ANZ’s group executive digital and Australia transformation, and lieutenant Peter Dalton. It is focused on reinventing the bank’s services and technology platforms and delivering a tenfold improvement in speed and digital capability.

The project is also understood to include a new banking app that could be personalised and different account structures.

Early this year, Dalton said ANZ had more than 300 products in retail and commercial banking, and to reinvent those products using modern technology would take a number of years.

The banks are racing to ensure they are not left behind in the data, digitisation and cloud stakes, particularly as technology giants encroach on financial services.

Westpac is using its investment in Antony Jenkins’s cloud-based 10x Future Technologies to boost its digital presence and customer engagement.

Commonwealth Bank CEO Matt Comyn used a key address early this year to highlight technology spend as he talked up a $5bn investment over five years. The bank had looked into using cloud-based Thought Machine’s technology at its Bankwest division before opting not to proceed.

At CBA’s results in August, Comyn talked about extending the bank’s digital leadership, including having about 95 per cent of information in the cloud in five to seven years.

National Australia Bank has announced a strategic partnership with Microsoft, including plans to migrate 80 per cent of applications to the cloud. Its results presentation last month said NAB wanted to continue to “enhance technology resilience” via insourcing and migration to the cloud.

ANZ’s technology plans come amid heightened scepticism about the ability of new digital banks to compete with the big incumbents. 

Start-up digital bank Xinja this week abruptly handed back its banking licence, given the tough operating environment and difficulties in attracting capital. It is returning deposits and will instead focus on its US share-trading product.

IBISWorld analysis released on Thursday showed CBA, Westpac, ANZ and NAB still command a combined 74.3 per cent of the Australian banking sector’s industry revenue.

“The failure of Xinja highlights the difficulty for new entrants to break into the Australian banking landscape, given the massive scale and entrenched competitive advantages of the big four banks,” IBISWorld senior analyst Yin Yeoh said.

“Amid the ongoing low interest rate environment, Australia’s major banks are looking for ways to cut costs and preserve margins. They will likely focus on replicating the strategies of successful neobanks and online-only operators, which seek to operate at a lower price point by avoiding the high costs associated with physical branches.”

The IBISWorld report highlights that banks are already investing heavily in digital platforms, and will need to keep doing so to retain market share over the next five years.

It can be a vexed issue, though.

Australian bank CEOs are also treading cautiously on technology improvements after the ASX was embroiled in an upgrade problem that saw the bourse out of action for almost a full trading day and riddled with problems last month. In Britain, a disastrous digital banking upgrade in 2018 ended up claiming the job of TSB chief Paul Pester when thousands of customers couldn’t access their accounts.

ANZ’s digital transformation initiative centres on nine financial wellbeing principles.

They are sound money management; putting money aside for an emergency; protecting what you can’t afford through insurance and other products; saving regularly to achieve your goals; borrowing within your means; paying off your most expensive debt first; accumulating savings for retirement; if you have the capacity, investing in things that will grow in value; and where possible giving back to the community.

Separately, Moody’s Investors Service in two reports on Thursday found that overall asset risk is receding for Australian banks, as the economy continues to recover. It still expects reported asset quality and capital metrics to weaken, though, as regulatory forbearance and government stimulus measures are wound back.

But the ratings agency noted significant deposit growth and the availability of central bank funding had strengthened bank funding and liquidity positions.

Life pains

As Westpac restarts the sale of its life insurance arm, NAB quietly this week entered an agreement to sell its New Zealand life insurance business BNZ Life to Partners Life.

Upon completion, which is subject to regulatory and other approvals, the $NZ290m sale is expected to increase NAB’s group common equity tier one ratio by six basis points.

As part of the sale, BNZ will also enter into an exclusive 10-year agreement for the referral of BNZ’s customers with life insurance to Partners Life, “subject to Partners Life continuing to meet agreed operating standards”.

The divestment sale is expected to complete in late 2021.

Westpac is the last of the big four banks to exit life insurance. NAB retains 20 per cent in its business, the bulk of which it sold to Japan’s Nippon Life five years ago.