There are few business buzzwords that get more airtime than “disruption,” and few industries as exposed to this trend as financial services.
KPMG last month predicted there would be more changes in banking over the next 10 years than we have seen in the past century, amid huge technological shifts that are transforming how we deal with money.
As consumers do their banking on smart phones or online, this is creating all sorts of challenges for the incumbents, not the least what to do with all those existing branches, automatic teller machines, or decades-old computer systems.
However, the technological changes sweeping finance are not all bad news for the biggest players.
Indeed, barely a week goes by without news that shows you how the country’s largest financial institutions are also busily trying to exploit shifts in technology to boost profits.
In the past month alone, there have been changes aimed at slashing loan-approval times, moves to make it easier to invest in the share market, and a bet on robo-advice from embattled wealth giant AMP.
These are all useful reminders that the digital revolution in finance can also create opportunities for the established giants, as well as the many start-ups targeting their turf.
Two recent moves from the Commonwealth Bank point to the wide range of ways in which lenders can use to technology to lift their earnings.
One such change is a plan by CBA-owned Bankwest to eliminate the use of 2.3 million pieces of paper by allowing customers to sign home-loan documents electronically with an “e-signature”, rather than filling out the forms by hand.
It may be dull and procedural but a change like that can save time for customers and staff, save the bank money, cut errors and improve security, Bankwest says.
The lender believes the change will allow it to have new loans ready for settlement within four days, down from the current 13 days.
CBA also last month launched an app that allows you to invest in the sharemarket with as little as $50, compared to the minimum first investment of $500 previously, in response to popular micro-investing apps, such as Raiz.
Westpac has also provided some tangible examples of the big savings that can be made at institutions of this size, thanks to technological change.
In May, it said the bank had cut its use of paper by 50 tonnes, while removing a whopping $700 million in cash turnover from its branches.
‘Big bang’ approach
On their own, none of these moves are big enough to move the needle at companies the scale of Westpac or CBA, which spit out annual earnings of more than $16 billion a year between them.
However, they illustrate how the largest banks are busily trying to use technology to slash their costs and improve their service and products.
Others in the financial world are taking more of a “big bang” approach to technological change, and a prime example of this is AMP.
The 170 year-old wealth giant, which has endured a torrid 18 months thanks to the banking royal commission, this month said it planned to slash its financial adviser numbers by as much as a third, and put more resources into robo-advice.
It is not exactly clear what AMP is planning to do in robo-advice, a model where algorithms, instead of people, give clients investment advice.
But from the firm with one of the largest financial advice networks in the country, it’s a bold and controversial move.
Clearly, AMP believes there is significant money to be made from robo-advice, which is already being offered by smaller players, including Stockspot and Six Park.
Over at National Australia Bank, one of the most important issues for investors is the bank’s ambitious plan to lower its costs by cutting 6,000 jobs, while hiring 2,000 tech-savvy staff, and invest in new technology, including automation.
These examples of banks attempting to grapple with the big changes in technology have tended to be overshadowed in recent years, thanks to a run of scandals and the Hayne royal commission.
Even so, how the sector deals with the digital revolution will probably be just as important for investors as the recent trashing of banks’ reputations.