The big four banks can't afford any more IT mistakes
In the middle of the Commonwealth Bank’s financial planning crisis (A CBA scandal wake-up call to all banks, July 4), Macquarie Bank has sent a research report around the market that should send a shiver to shareholders in all big four banks.
Some 30 per cent of their revenue is set to be the subject of new competition, for which three of the four banks are ill-prepared.
And at a time when the CBA is under most pressure, Macquarie has raised an alert for NAB, Westpac and ANZ shareholders.
If Macquarie is right, NAB, Westpac and ANZ will need to undertake confessions to shareholders of a different sort to CBA .
Macquarie say banks are now in an IT ‘arms race’. Initially, 10 per cent of their revenue (about $9 billion) is at risk because of the challenges posed by online payment players and payments via smartphones and tablets that will spread through consumers and business.
But then there is another threat that arises because groups like Alibaba, Google and PayPal have a much greater understanding of customer spending patterns than banks and will use that knowledge to attack sections of the banking business. That puts another 20 per cent of banks’ revenue at risk.
To combat these threats, according to Macquarie, the banks have one vital weapon: people trust them. That’s why the resolution of the financial planning scandal is so crucial for the Commonwealth Bank.
CEO Ian Narev must go out of his way to make sure that what he has announced works and is being seen to have worked. It’s about restoring trust.
Given the value of ‘trust’, the cost of the Narev plan is immaterial. I suspect the final bill will exceed $500 million.
Macquarie says that to stave off competition and to preserve trust, banks will need to build capabilities in delivering a real-time banking omni-channel presence and to develop value-added services to make better use of their customer knowledge before someone else does it.
Macquarie says that between $500m and $3bn will need to be invested by each bank over the next four years. I suspect that the real figure is much greater.
To the great credit of the CBA board, it invested in technology and it is the best placed of all the banks.
NAB took the ambitious step of developing a new banking system but Macquarie says it is running materially over budget and is delayed.
There is a risk of further over-budget expenditure and delays. That system may determine whether new NAB CEO Andrew Thorburn is successful.
But ANZ and Westpac are running the old Hogan Celeriti systems, which are not fit for the world that both banks are about to be plunged into.
Macquarie has downgraded the earnings of ANZ, NAB and Westpac by about 2 or 3 per cent because of the extra investment.
But the real risk is that they will not take the big steps, and will see their revenues savaged by new players.