X15 Ventures could help push Commonwealth Bank tech spending past $1bn

CBA chief executive Matt Comyn says he’s open to increasing the bank’s already huge tech budget.

Commonwealth Bank CEO Matt Comyn at the launch of the bank’s X15 Ventures program in Sydney. Picture: John Feder.

Commonwealth Bank chief executive Matt Comyn says he is open to ratcheting up the bank’s $1bn annual technology spend, as he launched a venture group that aims to invest in 25 start-ups over the next five years.

CBA on Monday unveiled X15 Ventures, a technology venture building group that will back and own stand-alone digital businesses that can draw on CBA’s customers, security and balance sheet with the aim of reaching more than three million people.

The bank has partnered with Microsoft and KPMG High Growth Ventures to deliver X15.

Mr Comyn said X15 would be funded from CBA’s $1bn annual technology investment budget, a headline number that he could increase despite resource constraints.

“We believe it’s critical that we are clear leaders in digital and technology in financial services in Australia,” he said.

“That may mean that over time we increase that ($1bn) investment envelope. The biggest constraint from our perspective, at least to date, is being able to actually get enough resources and being able to execute.

“We are not actually financially constrained, we are actually constrained more from the fact that we’ve got broadly 4000 people working across different IT projects and programs across that investment envelope, and we’ve struggled to scale that up.”

Mr Comyn said the X15 initiative would allow CBA to respond to a “new and ever changing competitive context”, by having closer interaction and ownership of start-ups. “We didn’t want to be a passive equity investor,” he said.

X15 — named after an aircraft in a hypersonic research program NASA conducted with the US air force, navy and North American Aviation — will be headed by Toby Norton-Smith.

Mr Norton-Smith was CBA’s general manager of digital innovation and growth and will run X15, with collaboration from the bank.

CLSA analyst Ed Henning said banks, including CBA, were spending more on technology and digital to streamline and improve their operations, boost compliance functions and reduce costs.

“There will be an evolution over time,” Mr Henning said. “Every bank needs to ratchet it (technology spend) up somewhat … People also need to spend up front to get costs out.”

CBA has been working on the plan for more than a year. The bank did not disclose the size of the investment, which will be recognised as an expense.

X15 will draw on Microsoft’s platform and engineering, while KPMG will provide advisory services.

Globally, banks including Spain’s BBVA and Canada’s RBC are employing similar models to CBA in the fintech industry. But CBA is taking a different approach to its main rivals, which have sought to take smaller stakes in the fintech businesses they are backing, rather than full ownership.

ANZ’s innovation and venture capital arm, ANZi, has holdings including in online mort­gage broker Lendi and digital receipts business Slyp.

National Australia Bank makes investments through venture capital fund NAB ventures, while Westpac has backed venture capital firm Reinventure.

Westpac has also invested in 10x Future Technologies and ASX-listed Zip, while CBA has taken an equity stake in Swedish payments firm Klarna.

X15 has a pipeline of businesses it is working with and started with two live ventures on day one. Home-in, a virtual home buying concierge, is linked to CBA mortgages and Vonto is a free app for small business owners that aggregates data and analytics.

Mr Norton-Smith said he expected X15 to have a “decent failure rate” in the businesses it backed, but didn’t elaborate.

“It’s a culture built on being unashamedly different to CBA but at the same time being ­deeply respectful of the challenges that people at CBA face,” he said.

Microsoft Australia managing director Steven Worrall said that, unlike other technology ­giants, his firm had no intention to enter the payments or financial services sector, although would support CBA and others.

“I believe that the next wave of major technology breakthroughs will come from partnerships such as this, bringing together our deep technical capabilities and absolute clarity about the business challenges that need to be addressed,” Mr Worrall said.

CBA reports its interim profits next week, with analysts ­expecting cash net profit to come in at $4.4bn.

Mr Comyn will also provide more insights into the bank’s digital and technology strategy at the results presentation.

Macquarie Group banking analyst Victor German retained his “underperform” rating on CBA on Monday, even as he pointed out it was performing better on home loan growth than its three major rivals.

“Mortgage growth across the majors remains primarily underpinned by CBA,” Mr German said.