CBA to maintain digital 'leadership position' with $5B strategy, fintech investment

Commonwealth Bank of Australia (CBA) has restated its plan to invest more than $5 billion mostly on technology over the next five years, to maintain its leadership position in digital banking.

The bank today also announced an investment in a 'buy now, pay later' fintech, and detailed efforts to fend off the threat of neobanks through improved digital offerings.

“A key pillar of our strategy, and of our customer offering, is being the best in digital,” CBA CEO Matt Comyn said in the bank’s 2019 annual report released today.

“We plan to invest over $5 billion over the next five years with much of that going into technology to keep improving our systems and services, and to maintain our leadership position,” he continued.

The bank continues to be the leader in digital banking in Australia, with seven million active digital customers, 5.6 million of them using the CommBank app.

Both CBA’s online banking and its app have Net Promoter Scores – a standard metric of customer satisfaction – that are significantly higher than its Big Four rivals for both its retail banking consumers and business customers.

A recent review of the apps offered by Australia’s biggest banks by Forrester found CBA’s to be the best, for the third year in a row. That assessment came before the launch last week of the bank’s ‘fourth generation’ app which it says offers customers greater personalisation, more features to help people save and a simplified experience.

“We have an unrivalled leadership position at the moment in digital,” CBA CEO Matt Comyn said in a video message today.

The focus on digital is paying off. The proportion of total transactions made via digital channels rose to 63 per cent in June this year the results noted, up from 59 per cent the same month last year.

The bank is not getting complacent about its digital leadership, however. Being ‘best in digital’ is a strategic priority for the bank, ahead of the arrival of the Open Banking regime which will enable customers to direct that their bank release data, via an API, relating to their use of the bank’s services to a third party.

Crucially it will make it easier for consumers to move between banks, and find better deals. CBA said consumers will be able to share their data –under the Open Banking regime – from February next year, with a second phase of data sharing from July 2019.

To deliver on its best in digital strategy – as well as moves to simplify its business – the bank says it is working to reduce costs, to give it more funds to invest in data and analytics and innovation.

“We are committed to lowering our cost base to create the capacity to invest in market-leading technology and service, in order to deliver the best offering for our customers and performance for the bank. This will help us meet the challenges of increased competition,” Comyn said.

Run costs are being reduced by “rationalising our technology architecture and the number of IT systems we use” as well as consolidating applications and decommissioning ones that aren’t well used. Comyn also highlighted the bank’s move to a “more modular and cloud-based architecture” which will enable it to increase “the pace of innovation”.

To further “extend our digital capabilities” the bank today announced a US$100 million investment in ‘buy now, pay later’ firm Klarna. CBA will become the Swedish fintech’s exclusive partner in Australia and New Zealand, the bank said.

Klarna – a disruptor in the payments space and potential major bank challenger – is marketed as a credit card alternative, allowing shoppers to buy items and pay later, in instalments or a lump sum, typically without paying interest if they pay on time.

IT was the main driver of the bank’s increased operating expenses, however, increasing eight per cent on the previous financial year to $1,904 million. This was due to a “higher investment spend particularly on risk and compliance initiatives”.

These have included numerous “data quality” improvement efforts to support reporting and risk decision making, and “risk systems and innovation” to better identify and analyse “issues and complaints”.

Overall, the bank reported a $8.49 billion cash profit for the full year, down 4.7 per cent. This was a result of higher operating expenses, customer compensation costs and reduced income from fees.