The future of Australian banking

Over the past week, I’ve had the chance to reconnect with some of my Australian banking colleagues. Australia is very unusual from a financial services perspective – they were largely untouched during the global financial crisis, and my suspicion is this has made them a bit complacent.

Whilst the rest of the industry has started its thinking around the future of the industry, and in some cases, has started to modify itself, I couldn’t help but feel I was stepping back in time a bit last week. Nothing much has changed in Australia since I left it six years ago.

Mind you, not all that much has changed in the thinking of traditional banks here, either.

For example, everyone is still parroting on about “customer experience” and “customer relationship”. I say parroting because both of those terms imply something which just doesn’t exist in banks: a cultural imperative to put the needs of customers first.

Working in banks, it is never first about the customer. It is first about revenue and share of wallet. Anything a bank does in terms of relationship and experience is all about making more money under the guise of helping, and this sets up a relationship which is false. Its like the motor mechanic guy who says he wants to help you to your face, but actually cares about working out how to get as much money possible out of you for as little effort as possible. That situation feels false to customers, and when you translate it to banks, it feels just as false.

I mean, why not just admit to customers that you’re out to make money from them, and get rid of the falseness about it all? Banks aren’t there to help customers, they’re there to help shareholders. Would anyone really mind a bit of candour about this?

So I actually said all this to banking people when I was visiting last week, and most of them didn’t get it. Not only did they not get it, they didn’t even agree that their first imperative in all things was to make more money and reduce cost, not to service customers.

Theirs is the extremely dated view that “bank at centre of financial universe” is still appropriate today. It might have been the way things have been in the last several hundred years, but today things are changing.

Banks, today, should be aiming to be invisible, not the centre of all value. When you get a mortgage, the point is the house you’re buying, not the financial services product. You go to the bank as a consequence of house-buying, not because you want a multiple decade loan for its own sake.

Bankers should try embedding the loan into the house buying process so that the money part was as invisible as possible. Why is it even necessary that the bank has a brand on that, anyway? Loans are all about price, and you care about brand and stuff only if you’re going to have a “relationship”. That’s all part of the falseness, of course.

Clever institutions – including one in the UK -  are already starting to get the fact that the best strategic option is to integrate their stuff into things customers really care about, not be the centre of the universe themselves. If nothing else, it removes them from the falseness of their traditional approaches to customers.

Yes, that means giving up on owning the customer. Yes, it means giving up these dated notions that customers actually want a relationship with a bank beyond it working properly. And, yes, it means that the new game is courting people who will integrate your services, not those who will eventually be using them.

This last is the most important point, actually. I’m of the view that the bank that gets the largest number of organisations to integrate with them will win in a particular market. They’ll have a critical mass that makes it more attractive for more people to join up with them. Everyone else will be left in the dust to pick up crumbs.

Now, of course, in Australia, this is not going to happen any time soon. They haven’t had the burning platform the rest of us have had to make change. It is simple and easy to continue the way things always have.

But I will say this: the time is coming when a global major is going to show up and do this. It may not be soon, because there are bigger profit pools available right now. But it will happen, and they will be great at integrating businesses with them.  They are already working out they need to be invisible, not the centre of everything.

So, Australian Banks, if you want to play in this new world order, you need to start getting to this stuff soon. The problem you have is you don’t know how much time you have.

10 Responses to“The future of Australian banking”

  1. Anonymous banking se
    February 23, 2010 at 11:09 pm #

    Completely agree. At the end of the day, banks are privately-owned companies, they're not charities (even though they rely on charity from the government. Boom boom!).
    Even if you look back to the "good old" days of Bank Managers who personally knew their customers, people really only went to banks because they HAD to, not because they had a particular desire to have a deep and meaningful relationship with someone in a position of relative power over them.

  2. Sandra
    February 24, 2010 at 2:44 am #

    very good. the only critique i would make about your article is that local culture is important. for example, 'doing the right thing by you mates' is strongly embedded in Australia. in banking terms, that translates to 'doing the right thing by your customers'.

  3. Matt
    February 24, 2010 at 2:55 am #

    Banks also seem to be oblivious, or blindly ignorant of the fact that people in Australia HATE banks. They see banks as fat, greedy institutions that gouge fees and are slow to bring rates down and quick to yank them up. They do not want a relationship with the bank.
    The second thing that banks think is that it is all about product. Wrong. Customers neither know nor care about the vast array of products that banks generate. Products are artificial constructs designed to control cost and margin. Customers essentially think. 'if i put money in, what will i get out, and if I take money from the bank (loan) how much will it cost.' All else is internal bank language.
    Australian banks in particular have had it way to good for way to long. The time is coming when they will need to change, not right now, but it is definitely coming. The clever ones, as you say, are the ones that think about the outcomes customers want, and facilitate those, with the product attached as part of it. But with the banks siloed along tradition lines, product, channel and function they will be slow to adapt.

  4. February 24, 2010 at 3:28 am #

    James,
    Totally agree!
    Lack of competition and GFC meltdown of second tier have resulted in innovation avoidance – innovation = change = risk therefore NO!
    NAB doing some interesting things but suspect fee reductions, etc driven by risk of class actions on fees that aren;t justifiable as per UK.
    Here's a preso I wrote 16 years ago on Australian Banking an dhow it could be disintermediated (oops proves I'm a w/banker using that term!)
    http://www.slideshare.net/EmergingThought/microso

  5. February 24, 2010 at 3:34 am #

    I'm still trying to understand how banks are any different in this regard than other for-profit companies. The same thing can be said about Apple, Amazon, and the rest–and yet they somehow manage to make profit-making and doing right by the customer mutually reinforcing. I don't think the problem with banks is their for-profit status–if it were that simple, credit unions would have already taken over.
    And as for the idea of financial products being embedded in the actual products, this already exists–think buying furniture, electronics, cars, etc. The problem is that these financial products are almost universally crappy deals, and consumers have figured that out. So despite all the criticism being shoveled on the banks, they might just provide some value after all…
    BTW, I don't work for a bank, in case anyone is wondering…

  6. February 24, 2010 at 2:49 pm #

    I agree local culture is important, but I'm not sure if you're saying that banks "do the right thing by your mates" right now, are you?

  7. Jan Burnett-McKeown
    February 25, 2010 at 4:55 am #

    Some very interesting ideas, and I agree with much of what was said in the article. There would be many advantages to courting organisations and institutions rather than individual members of the public. The banks could save a lot of money by not having to advertise to the general public via TV, magazines, newspapers etc. It would also mean a lot less money and effort spent generally, in the area of marketing, when a single affiliation with another organisation could result in access to a customer base of thousands. The potential savings in the area of marketing could be substantial, resulting in boosts to profits. If banks didn't have to be so concerned about their brand image, there could be savings on things like corporate logos, which would not need to be as all-pervasive, as some are at the moment.
    I think to some small extent, the courting of other businesses and organisations is already happening, through affiliations with mortgage brokers and the like, though such affiliations are usually not an "exclusive" arrangement. Some years ago, the banks also had various "Affinity" credit card schemes, though most of these no longer exist, and have been absorbed by the banks' mainstream credit card products.
    I'm sure that anyone who has ever worked for a bank will acknowledge that the sole idea behind banks' customer-centric facades, is just to make more profit for the shareholders. There are many ways this can be done – by increasing the amount of bank business existing customers have, bringing in new customers, increasing bank fees and charges, and cutting costs, including things like closing branches and shedding staff.
    With all the electronic means of accessing their bank accounts these days, most members of the public rarely need to visit a bank, which lessens the opportunities any bank has for building a real relationship with their customers. In many cases, people don't want a "relationship" with their bank, because consumer awareness has taught them to "shop around" for the best deals on everything, including banking. So they are less likely to be loyal to their bank if it does not give them the best deal in terms of interest rates, fees and charges etc. There is usually no allowance made for "customer service", since real customer service these days has become almost non-existent in banking. All this means that most people are probably not very interested in their bank's particular brand or image, and would be happy to accept a "generic" product, if it offered a good deal.
    My only concern with the banks courting other businesses, organisations, and institutions, rather than individuals, would be that if one bank does end up with a substantially larger share of the pie than other banks (as indicated in the article), then over time, the industry could find itself dominated by one large (banking) player. However, this may not always be obvious, especially if corporate "branding" becomes much more low-key than it is at present.

  8. February 26, 2010 at 7:58 am #

    I would have expected banks to take the role of the "broker" for the providers of savings bonds, loans, insurance, etc. The bank's core assets are its user base, branches and distribution. Surely they ought to aim to be the interface for the rest of the system. Otherwise they'd just a be a splinted group of product providers sharing a balance sheet.
    My bank already provides credit cards, travel insurance and mutual funds that are "manufactured" by 3rd parties.

  9. Henry law
    March 2, 2010 at 2:25 pm #

    Really good article: fits in with my experience both inside banks and as a customer. Best advice I was given, years ago: "A Bank is just a Shop; they want to sell you things. They don't care about you any more than is necessary for you to continue buying their products."
    But we in the UK, and probably also in Australia, bring that upon ourselves. Nobody is prepared to pay extra for "relationship", in a bank or anywhere else, even if such a relationship might actually be worth paying extra for. My hypothesis is that paying the lowest possible price, regardless of quality, is part of the self-actualisation project; essentially a component of demonstrating an apparent cleverness to everyone else in the worl.

  10. mcman
    March 8, 2010 at 3:38 am #

    Interesting article.
    I don't think that price is quite as important as you seem to think – look at PayPal for example – crappy fx rates and hefty charges to move money but the brand gives people the confidence to shop in new channels.
    The banks want to be at the heart of everything in Australia because they make most of their money on the stored value that sits in the accounts they manage. Once they start to become 'invisible' what is to stop customers upping and moving or not signing up in the first place?

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