NAB boss Ross McEwan not a fan of banking as a service, despite global interest

NAB’s Ross McEwan says the bank won’t follow Westpac and dip into allowing other lenders or retailers ride off the back of its core technology systems and accounts.

NAB chief executive Ross McEwan is ramping up the bank’s digital and automation push.

National Australia Bank chief executive Ross McEwan says the bank will not dip into allowing other lenders or retailers to ride off the back of its core technology systems and accounts, but it will continue to manufacture loans for other players.

Locally, Westpac and digital bank Volt are forging into so-called banking as a service, which sees them provide the systems and technology for other players to launch bank accounts and home loans.

Speaking after NAB handed down a 76.8 per cent surge in annual cash profit to $6.56bn, Mr McEwan said he didn’t want to wade into the banking-as-a-service space. However, NAB would continue to provide loans to other players under their own brand, known as white-labelling.

“I’d like to grow this bank without having to let others sit on my systems. I’d rather work them for ourselves for the next probably five to 10 years, but we’ll use white-labelling to help,” Mr McEwan said.

NAB’s shares rallied 4.4 per cent on Wednesday to close at a 32-month high of $30.15, after a spate of analysts upgraded their earnings estimates and target price for the stock. The share price climb comes after the stock dipped 0.8 per cent to $28.89 on Tuesday, as investors combed through the bank’s results.

Digitising NAB’s banking and loan systems and making them more efficient is a task Mr ­McEwan is overseeing with the help of executive Angie Mentis.

Westpac is taking a two-pronged approach on its digital push by simplifying its own systems and also rolling out banking-as-a-service offerings. The bank teamed up with Afterpay and this week the pair unveiled their consumer banking app Money by Afterpay, giving the buy now, pay later giant’s customers access to the bank’s savings accounts.

As well as Afterpay, Westpac is providing banking services to other players including personal lender SocietyOne.

The banking-as-a-service sector is also generating interest offshore. In January, Walmart created a fintech to develop fin­ancial services products in partnership with Ribbit Capital, while furniture group Ikea is moving further into banking services after acquiring a stake in partner Ikano Bank.

Mr McEwan doesn’t see NAB going down the banking-as-a-service path, but it will continue to provide loans for other players through its Advantedge unit and via its purchase of Citibank’s local retail bank, pending its regulatory approval.

“It comes in lots of different guises and in the old days it used to be a white label and now it’s called banking as a service, because you are using the underlying technology,” he said.

“We are in that (white label) market, we’re expanding into that market … but we won’t be using my systems to allow others to sit on the back end of all of my technology and pieces.” On whether NAB would follow rival Commonwealth Bank in offering customers the ability to buy, sell and hold bitcoin and other cryptocurrencies directly through its banking app, Mr McEwan said: “I’m a bit more cautionary. We like the underlying technology of using the blockchain.

“We’ve got one project around carbon trading that we’re using it on and a number of other projects we’re working on using the blockchain. We are looking at various ­options around crypto but we haven’t made a decision on that. I’m always very cautious on things that are going incredibly well and prices are rising very quickly. We’ve got to think longer term on behalf of cus­tomers.”

NAB’s profit results, which showed strong momentum across its business and home lending units, triggered a wave of increases in analyst earnings estimates for the bank on Wednesday, with some also raising their price targets.

Citigroup banking analyst Brendan Sproules raised the NAB target price to $29.50, from $26.75, and increased his expectations for cash earnings by 1 per cent to 3 per cent for the next three financial years.

“We think that NAB has established the best core earnings outlook across the sector. NIMs (net interest margins) have been more resilient than peers; mortgage growth and business lending growth have re-established momentum concurrently; and costs have been, and continue to be well managed,” he said.

Macquarie Group banking analyst Victor German lifted his NAB earnings-per-share estimates and also raised his target price to $30.50, from $29.

“Improved operational performance in the 2021 second half was the key standout, in our view,” he said. “While weak markets income was the key drag on revenue, it was offset by low impairment charges.”

Goldman Sachs banking analyst Andrew Lyons ratcheted up his NAB price target to $31.15, from $30.84, and adjusted his 2022 earnings-per-share estimate 2.9 per cent higher. However, he edged lower his 2023 earnings estimate by 0.2 per cent.

“We reiterate our buy (rating) on NAB and it remains our preferred sector exposure,” he said.

Analysts at Jarden said that, while NAB remained their key sector pick, they cut their earnings-per-share estimate for the bank by 1 per cent in 2022 and 2023, to reflect “some further modest margin compression”.