CBA defends increasing its business deposit rates

Chief executive Matt Comyn has justified the banking major’s strategy as a way of dislodging business customers from rival NAB.

Commonwealth Bank has defended its decision to offer higher deposit rates to businesses on new accounts, despite admitting it would cannibalise some of its online savings customers.

The banking giant hopes its rivals’ clients will be attracted by the offer and its more tech-savvy proposition.

In a strategy briefing to investors and media that focused on its technology innovations, chief executive Matt Comyn and business banking head Mike Vacy-Lyle said CBA would continue its relentless pursuit of business clients.

“We think it’s important obviously to continue to innovate. We want a point of differentiation – reasons to come and to continue the momentum that we’ve got in business banking,” Mr Comyn said.

CBA has spent more than $600m in the past three years to build a business franchise able to compete with historical market leader National Australia Bank in an attempt to diversify its business slightly away from the highly competitive mortgage market.

JPMorgan banking analyst Andrew Triggs seemed intrigued by the bank’s decision, given it already has the largest market share of business deposits in the country, and that one in four businesses named CBA as their main financial institution.

“It’s not immediately obvious to me that there’s any potentially new entrant into the business banking deposit market which could threaten industry returns,” he said.

“It will drive some compression of deposit spreads within the business banking division.”

Mr Comyn said the level of competition from new entrants “has waxed and waned” as more expensive funding markets made it harder for smaller competitors, and he noted that the market dynamics in that segment were “more rational and stable”.

Some analysts have said the lending giant’s move to pay as much as 2.85 per cent interest to businesses on short-term notice accounts, with almost immediate access to funds, would put margins at risk.

But Mr Triggs told The Australia the move was unlikely “to change the trajectory of margins that meaningfully” but if successful it could force competitors to copy it.

“This is an oligopoly after all, so if it does get traction other banks would tend to follow suit. CBA and NAB in particular are competing hard with each other in the business banking space at present,” he added.

CBA head of business banking Mike Vacy-Lyle. Picture: Nikki Short

Asked about the catalyst for the decision to introduce such a product, Mr Vacy-Lyle said CBA had realised business customers needed better tools to manage their cashflow and the bank’s new “capital growth account” would address that need.

“We’ve factored an element of cannibalisation in our overnight and on our term (deposits) on this … but we really do think that this product, given that it is well differentiated, will be a source of new deposit growth for the business bank,” he said.

The bank said its new 5.0 app update would allow customers to also manage their business banking and CommSec’s share trading accounts, and said that new ChatGPT-like AI technology would allow call-centre staff to navigate its policies and procedures at much higher speed.

“I think the technology in this area has the potential to be transformational in a number of different ways. We are obviously profiling it and our orientation is around how we can serve our customers much better and we see so many different opportunities to do that,” Mr Comyn said.

He declined to answer whether the bank was planning to use AI to replace staff and cut costs, but said CBA had 7,000 engineers writing code to better integrate chatbot capabilities.

“There are enormous opportunities to improve that (technology), we are primarily oriented around how we can serve our customers, protect from scams, fraud, but I do think the technology that we’ve seen over the last six and nine months has the potential to be quite transformational.”

CBA research showed that since the start of the pandemic, one in three Australians had either started a small business or intended to do so in the short term. It said its strategy recognised the crossover between retail and SME services.

It had placed more than 65,000 “smart” payment machines with high transaction speeds and functionality to split bills, into merchants.

For e-commerce customers, the bank late last year introduced PowerBoard, an integrated platform to help businesses manage payments, logistics and cybersecurity.

“CBA is the clear leader in digital and technology (and) has been working hard in recent years to build engagement in the app, which should over time lead to a stickier customer base,” Mr Triggs told JPMorgan clients in a note.

“This has its limitations, though, given certain products (such as mortgages) have become largely commoditised.”