opinion/analysis The remarkable wave of technological innovation emanating from the Commonwealth Bank of Australia is forcing Australians to redefine their fundamental concept of what a bank is, and reimagine what their basic relationship to such an institution should be.
If you’ve racked up a few decades in this life, your underlying conception of how Australia’s major banks function is probably still based somewhat on the traditional view of them. You know the model: Bricks and mortar branches situated on every main street of every suburb, uniformed bank tellers bearing name badges stuffed behind secure glass counters counting coins, and bureaucratic branch managers who force you to jump through nightmarish paperwork hoops in order to manage your mortgage.
Coupled with this model of interaction has been a certain proprietary attitude on the part of the banks towards your money. The banks have long known that, ultimately, you really have no option: Realistically, you will have to deal with them if you want to draw a paycheck or operate any form of business. This has engendered a certain arrogance: At times, the banks appear to feel as though it’s not your money they are looking after: It’s really their money, and you should only get visiting rights on weekends, under the terms they set.
Now, it’s certainly true that the onset of telephone, and then Internet banking has done much to change this historical vision of Australia’s banking sector. Nobody I know goes into bank branches much any more. Most people, and even many businesses, conduct almost all of their banking online. The tasks of paying bills, transferring money between accounts, and even investing are now almost entirely undertaken through a web browser.
And yet, if you dig beneath the surface a little, you’ll find that traditional banking model I mentioned earlier still exists in a very strong fashion.
Most Australians still laboriously visit physical ATM machines to get cash out, often once a week or more. Opening new accounts is still often undertaken at branches, especially if they are joint accounts or accounts for children. Closing accounts has to be done over the phone in an extremely laborious fashion. Many of us still get paper statements sent to us through the mail. Cheque deposits, too, often still take place at branches, and of course if you need to have a discussion about your mortgage or small business finance needs, that too will often take place at a branch.
And despite the existence of the Internet as a universal communications platform, we still all carry around archaic physical objects of accessing our money: Credit cards and ATM cards, tied to the EFTPOS system which is a relic of the analogue past.
Speed is also still a factor. In today’s age of high bandwidth, emails arrive instantly and web pages load at a second’s notice. The underlying nature of money is the same: It’s just entries in a database on a server somewhere. But transferring funds between banks, paying bills, finalising share investments or processing money from your small business’s EFTPOS terminal usually still takes several days. Many payments only come through in the wee hours after midnight, after your bank has conducted its nightly batch processing.
There is no doubt that Internet banking has changed Australia’s banking ecosystem. But much of its effect has been at a surface level, rather than at the level of a deep structural change. What Internet banking has done is remove much of the easier, transactional banking tasks from physical bank branches. But it still remains true that the bank infrastructure which was put in place decades ago still exists, from the EFTPOS network to physical branches, ATMs and physical cards, and still handles much of our banking needs. And everything is still slow.
It might feel like the future, but when it comes to Australia’s bank sector, we are still actually living in the past.
Now, most of Australia’s banks are demonstrably happy with this situation. When you’re making billions of dollars in profit every year, there is no real need to change, and consequently we’ve seen a very slow pace of innovation from most of the majors. The credit cards of the National Australia Bank, Westpac and ANZ still look very much like they always have. Their branches look very similar. Their ATMs function the same. Their Internet banking platforms are still subject to the same delays. And so on.
However, from one bank — the Commonwealth Bank of Australia — we’re seeing something completely different. This bank in particular is currently driving a wave of change which is already causing a revolution in Australian banking. And there are strong indications that it is just getting started.
What we’re seeing from CommBank at the moment is something akin to the development and uptake of email in the 1980’s, the World Wide Web in the 1990’s, or smartphones in the 2000’s: We’re seeing the bank start to introduce technologies that fundamentally change the way customers use its services, in a way that will unlock whole new cycles of innovation. In this article I hope to go through some of the specific methods the bank is using, to demonstrate a wider theme.
Let’s take the humble EFTPOS or credit card. The fundamental position of most of Australia’s banks is that these bits of cheap plastic — which almost every Australian carries around on a daily basis — will remain the basic way which most of their customers access their money for the foreseeable future, either through EFTPOS machines or via ATM machines.
But the Commonwealth Bank has a fundamentally different view. The bank has clearly taken a position that, over the long-term, customers’ smartphones will replace their bank cards as security tokens to access their money. CommBank already had apps allowing customers to use their iOS and Android devices to pay for goods and services at EFTPOS machines without using their cards. Last week the bank unveiled new functionality that allows customers to access ATMs as well. Suddenly, overnight, you no longer need to carry around a card if you want to access ATM machines. You can just use your phone.
The bank also has radically different positions to its rivals in other areas as well.
Most banks probably define BSB and account numbers as the fundamental way in which customers will identify each other for the purposes of transferring money between unrelated accounts. But CommBank has recognised that a much easier way to identify your friends is by their mobile number, email or Facebook account. So its apps allow customers to transfer limited amounts of cash to each other using these identifying methods.
Most banks recognise that the new ‘tap and pay’ methods of using EFTPOS machines are the logical replacement for the old magnetic strip method. But only CommBank has been highly aggressive in replacing its EFTPOS machines with ‘tap and pay’ models, and only CommBank has been highly aggressive in replacing its customers’ old magnetic cards with new chip-enabled cards. I’ve found it hard recently to find a CommBank EFTPOS machine in the wild which doesn’t support tap and pay. The same just cannot be said of the other banks.
Most banks force customers to jump through many hoops when it comes to account opening, closure and with statements. I recently closed a NAB credit card; yet four months later I am still receiving email statements, and the bank told me yesterday it might take a further nine months to have my details completely removed from its system. I requested a month or ago that St George close an account of mine. Yet it’s still active in my Internet banking.
I used to have a business credit card with St George; after it expired, the bank failed in two separate attempts to send me the new one, because its IT platform was not able to handle the change of address notification I lodged with it several months before. St George was also not able to stop sending me many of the regular paper statements it had signed me up for, for my accounts ranging from business to personal to children’s. And its Internet banking platform would go down every single Sunday night for some kind of weekly processing.
I have a credit card with HSBC. Yesterday it look me half an hour to explain on the telephone in two separate calls to the bank that I didn’t want to receive marketing material about other forms of accounts, after it had started sending me promotional letters in the post.
Eventually I gave up on NAB and St George and shifted all of my accounts to the Commonwealth Bank. I have eleven accounts with CBA, yet have never received a paper statement, because I opted out of that right at the start. All of my cards have chips and allow tap and pay; none of my St George cards did. If I ever have to open or close accounts, I can usually do that instantly, normally through CommBank’s Internet banking platform. I have also used CommBank’s Internet banking to opt out of marketing material. Consequently, I don’t tend to get any physical mail from CommBank at all.
Most banks take a while to process transactions — usually at least one or two business days, and certainly overnight. I get money coming in and going out of my business banking accounts on a daily basis, so I need to keep an eye on my accounts on a daily basis. After switching my accounts to CommBank, I noticed a huge difference: Suddenly, I was receiving payments at all hours of the day, and not just after midnight. CommBank’s “real-time” banking literally takes place in real-time — and there don’t appear to be any midnight batch processes to worry about. And it never goes down.
Are you starting to get a grip on the overall trend here?
CommBank doesn’t want me to go into its branches. It doesn’t want me to pay for things with cards (it prefers me to use my mobile). It doesn’t require BSB/Account numbers to repay my friends money for our night out for dinner. It doesn’t need several days’ notice for account transactions. It doesn’t send me paper statements or marketing material I don’t want. It doesn’t need an age to handle account openings and closures.
CommBank’s ultimate vision for its relationship with me, in short, appears to be that it never wants to interact with me personally at all. Ideally, I feel, CommBank sees itself as functioning as a kind of almost invisible financial overlay in my life. When I pay for things in person, CommBank wants me to kind of casually wave my smartphone at either a merchant or one of my friends, with the money to be automatically transferred in a kind of invisible magical technique. It wants all payments to arrive in and go out of my bank account instantly, so that I never wonder where they are. It certainly never wants to bother me with paper statements, marketing phone calls or having to visit its branches or ATM machines. Those are all things of the past for CommBank.
It is, of course, not hard to see why CommBank wants this kind of relationship with its customers. Bank branches, ATMs, EFTPOS cards and paper statements all cost banks money — a great deal of money. This kind of largely obsolete infrastructure costs all of Australia’s banks billions each year. If CommBank can cut down its usage of this infrastructure and take everything virtual, it will improve its profit margin massively and engender the love and “delight” of its customers.
Then too, the bank would love it if it could get its customers to stop using cash and pay for everything electronically. This would mean it could track all their spending and build up complex profiles of their life, assisting customers more easily with a whole raft of other financial products. All companies love tracking their customers’ habits because it allows them to more easily sell more targeted products to them. Banks will eventually hold the Holy Grail of data in this respect.
CommBank’s effort to push all customers into purely digital payments also has benefits for its extensive small business customer base. The company is continually launching new small business products, including new EFTPOS terminals and add-ons such as estimate and invoice creation, payment tracking, debt management and so on.
Most of the bank’s statements about its new generation of banking technology are quite technical, focusing on the specific innovations it has introduced. But occasionally, especially through visionaries such as its outgoing chief information officer Michael Harte, who has led much of the bank’s technological change through its billion-dollar core banking project, you can get a flavour for how CommBank really does understand the deep wave of change it is creating.
Harte understands — as few other bank technologists appear to — that it is not CommBank’s rival banks that the company needs to be afraid of in the long-term. After all, banks such as ANZ, Westpac and NAB basically operate in coopetition with CommBank, with all four offering similar product lines. Nor is it smaller banks, which can easily be bought out and neutralised. Instead, it is next-generation technology giants such as Apple, Google and Facebook, which could leverage their platform advantages into new markets such as payments. In the end, banks are just technology companies as well.
“Our strategy is to deliver the world-leading application of technology,” Harte told FST Media in July 2013. “The word many people often miss is ‘application’. This is about maximising our technology investments and building the capabilities of our people to make better decisions faster so we can meet our customers’ evolving needs.”
“It is not just a matter of saying ‘well we have done core’, what it is the next big thing? It is how we leverage the foundational architecture and platforms we have built to deliver faster, better and more insightful products and services for our customers. We have chosen to invest in both the back-end and our front-end, because we believe this gives us a distinct advantage. The new core banking platform helps accelerate new products and services to market.”
And customers are definitely responding. I think even CommBank has been startled by just how quickly Australians have adopted every innovation it has unleashed. Our early technology adopter culture is just soaking this stuff up as fast as the bank can create it. As Harte said in late April: “Mobility is not a trend; it is increasingly our way of life.” The bank’s
Going back to the start of this article, I would remind readers who far in terms of our conception we’ve come. When I think of Australia’s other banks, I am still reminded of that legacy history, with bricks and mortar branches, stuffy bank tellers and limited access to my own money.
But I don’t have that same impression of CommBank any more. I now associate the bank more with technology leaders Google and Apple. Because just as I use platforms from those technology giants many times throughout the day, so do I use services from CommBank throughout the day. All three have faded into the background as almost invisible enabling layers of my life. And that’s a massive change from the way banking was done in the past. It can only be described as a true step into the future.
The problem for Australia’s other banks, of course, is that if CommBank redefines how Australians think of the banking process in general, this will mean that we will no longer think of the nation’s other banks as actually being “banks”, in the modern sense of the world. If CommBank has real-time banking, but the other banks don’t, are they truly “banks”, in the same sense? If they don’t allow smartphone ATM access, are they truly “banks”, in the same sense CommBank is?
Michael Harte said in March 2011 that CommBank’s core banking revamp, with all the change it enabled, put the bank between two and five years ahead of its rivals. At the time, CommBank chief executive Ralph Norris added: “Ten years from now, banking is likely to be very different from the way it is today.”
But I think both underestimated how fast CommBank’s billion-dollar IT investment in core banking rejuvenation and retail bank technology would take effect. That massively changed banking future Norris envisioned is already here. It’s just not widely distributed yet.
Image credit: CommBank