Aussie Banks Struggle To Keep Up Digitally

Image credit: iStockphoto/Tassel

At major Australian bank ANZ, the bank’s legacy paper-based approvals process means that it takes 51 days to get a mortgage approved. It’s the slowest in Australia.

At a time when the property market is booming, and the size of average mortgages is increasing rapidly, ANZ’s 20th-century approvals process is a disincentive to 21st-century customers and a risk to the bank’s ambitions to maintain its share of the mortgage market.

Understandably, the bank is investing in new digital systems to redress this problem, but it’s been a slow process. The bank is on a five-year AUD400 million digital upgrade program due for completion in 2024, and there are five waves to the transformation, but it has only just completed one.

However, this does mean that soon ANZ will be offering customers a new digital transaction and savings account that will deliver home loan approvals in ten minutes, a far cry from the current 51 days.

The transformation will also enable the bank to cut down the time to market for new products from 18 months currently and down to three months. Where ANZ now updates its app every quarter, soon it will be able to do so daily.

At the same time, ANZ will reduce the number of its systems from 300 down to 120 and cut the number of retail banking systems from 128 down to ten key platforms.

While all this is positive, both for bank and customer, ANZ has been comparatively late to embrace transformation compared to two of its main rivals, the market-leading Commonwealth Bank and the National Australia Bank.

Both of these banks went hard and went early into revamping their digital systems and are well placed to take advantage of their investments as they compete hard not just with ANZ and the other main rival, Westpac, but a new brace of local digital-only banks such as “banking as a service provider” Volt and also the big tech companies such as Apple, Google, and Meta.

Consumers lead the charge

It seems that the Australian market is a microcosm of what is happening globally in the developed world as digital banking technology gains even more momentum due to the COVID-19 pandemic.

Once again, consumers are leading the charge and driving digital behavior, dragging business customers and older banking providers along with them.

A new report from research house Forrester says the past two years of the pandemic have “fast-tracked digital behaviors and redefined how customers engage with their banks.”

“We’ve seen a new cohort of customers using digital banking for the first time, the acceleration of contactless and mobile payments, and a mushrooming of QR-code,” said Aurelie L’Hostis, a senior analyst at Forrester.

According to Forrester Analytics data, in 2021, 76% of Spanish banking customers used their mobile banking app at least monthly, and 34% of U.K. online adults who applied for a loan in the past 12 months did their research on a smartphone. Meanwhile, digital — both online and mobile — is now the top channel for U.S. borrowers to purchase home loans.

“Many banks now acknowledge that digital transformation is never-ending”

The problem for incumbent banks, says Forrester, is transforming fast enough.

“Many banks now acknowledge that digital transformation is never-ending, with 35% of global decision-makers at banks saying their organization is expanding their digital transformation and 19% saying they are currently transforming,” the research house says.

“Security is also a concern, with 25% of decision-makers at banks saying that security is among the biggest obstacles to executing their digital transformation.”

Year of the Challenger

In this environment, there is plenty of incentive for smaller fintech players — particularly in the payments space — to take business off the established players.

Digital wallets and QR codes continue to gain traction as the smartphone increasingly becomes the central point in payment and banking.

Australian banks have long kicked back against Apple’s ambitions in the local market on the issue of access to iPhone chips, which interact with merchant payment terminals, showing themselves to be impediments to change, competition, and innovation.

There was something of a shakeout last year in the digital banking and lending space in Australia. The banks were also behind industry consolidation as they purchased nimbler startups or partnered with them. If you can’t beat them, buy them is a popular mantra for banks as they play catchup.

Regional bank Bendigo and Adelaide Bank purchased digital bank Up, while NAB — which had already launched its Ubank digital unit — acquired a new startup called 86 400 and merged the two.

In proof that it’s not all about the technology, there are reports of executive departures from the new venture driven by culture issues.

Australia now has an Open Banking regime and new payments infrastructure. Its New Payments Platform — begrudgingly funded by the major banks under pressure from the Reserve Bank of Australia – merges with two legacy payment platforms.

The country, however, is still outside the top ten global markets for real-time payments, according to ACI Worldwide data, while the top five are India, China, South Korea, Thailand, and the U.K.

According to Forrester, one of the significant trends for 2002 is that “challenger banks are all the rage,” which is also the case in Australia. It might be time for ANZ to speed up the last four phases of its transformation, or else it might be too late.

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].

Image credit: iStockphoto/Tassel