ANZ's telling tech investment

Australia and New Zealand Banking Group's decision to pump $1.5 billion into its Australian business is telling for the future of retail banking in Australia. The ease with which personal banking is now conducted has forced the main players to overhaul their business models, resulting in the big four banks competing to attract customers with ever-impressive applications and more user-friendly online banking platforms.

Unlike Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp., ANZ's strategy puts the emphasis on expanding its online capabilities while at the same time embracing a leaner culture in its branch network.

In contrast to the other three major banks, ANZ was the only one to reduce its branch network in 2012, cutting its network by 4 per cent in 2012, according to a recent Credit Suisse note. The same note shows CBA and Westpac increasing their branch networks by 1 per cent, while NAB's network remained unchanged from the previous year.

That doesn't mean that ANZ has given up on its branch network, just that it is adapting it to be more in line with the future of retail banking. Included in today's announcement was a five-year refurbishment program for its branches across the nation.

By the end of the year, ANZ expects to equip 46 branches with a new design and layout that will focus more on meeting complex customer needs than everyday banking. Part of the plan is also to shrink its branches where possible to save on property expenses.

Credit Suisse's latest research has found that branch profitability in Australia continues to come under increasing pressure, while the role of the bank branch as a centre for transactions is in structural decline, with transaction volumes estimated to be falling by 5 per cent per annum.

Like ANZ, Credit Suisse concludes that branches will remain an important component of retail banking, but they need to evolve to become more cost efficient and to have more of a focus on attracting new customers and providing advice to existing customers rather than routine banking transactions.

This is where ANZ's plan to reduce the size of its branches comes in. Meanwhile, the bank is rolling out video conferencing facilities in a number of regional branches to provide customers with better access to specialists. At the same time, 800 deposit-taking ATM's are due to be in place from early next year.

All of this reinforces the notion that ANZ is meeting customers' needs by providing a faster, more efficient way of conducting daily transactions. But it's also a way for ANZ to cut costs, and quite possibly will lead to more job cuts.

There's no denying that ANZ is going down the right path to attract more customers. Its plan focuses on adapting to evolving customer preferences and behaviours brought about by the introduction of the internet as well as smartphones and tablets.

The changing behaviour is clear even in just the past few years. In 2008, branch interactions for ANZ were around the five million mark. Today that figure is closer to four million.

Even more telling are the online banking figures. In 2004, roughly six million transactions were conducted online through ANZ's internet banking. By July of this year, the number of transactions had risen to roughly 30 million.

As we conduct more of our day-to-day banking on our laptops, tablets and smartphones, banks will have to continue adapting their business models to meet their customers' needs. ANZ's latest investment plan shows its ability to embrace a banking future that prioritises new technology advances but also looks to best utilise its branch network – though quite possibly at the expense of reduced staff numbers.

Video conferencing will be the real test. If ANZ is successful with its video conferencing venture, we could be in for another revolutionary change in Australian banking.