By Gareth Vaughan
Former Kiwibank CEO Sam Knowles, who stepped down from the state owned bank a year ago, says he's not missing the "non-growth" challenges of the banking world but reckons Kiwibank is doing as well as any of the banks in a tough environment.
"Banks are well capitalised so they’ve all come through this recession well," Knowles said. "But the business of banking isn’t growing so they’re having to think of new strategies to compete the business away from each other and that’s probably the hardest part. When you’re in a non-growth sector, what do you do to get customers to come to you?"
"From what I see Kiwibank’s doing as good a job as anyone in that kind of environment."
Kiwibank recently said its annual profit more than halved to NZ$21.2 million as provisions for bad loans rose more than four-fold to NZ$87.1 million. At 10%, the bank's annual lending growth easily outstripped that of its main rivals, with BNZ at 2.6% recording the highest growth rate of the big four Australian owned banks.
'No one misses banking in a recession'
Asked whether he missed the banking industry Knowles said: "Some days, but I don’t think anyone really misses banking in a recession."
He said current weak lending growth rates - Reserve Bank sector credit data shows agricultural debt down 0.7% in the year to June, business debt up 0.7% and total household claims up 1.2% - would pick up at some point.
"(But) I think the real question is will it ever get back to what it was? Will you see, as we saw before the recession started, 10% annual lending growth year after year? I don’t think we’ll get back to that until we have another boom, which given the cycles we’re in is probably five or six years away before we’d see that kind of growth, if ever," Knowles said.
"(And) it may well be that Reserve Banks make the call that actually that’s not sustainable."
Localist 'another start up challenging slow, bogged down incumbents'
Knowles, founding CEO of Kiwibank when it opened for business in 2002, announced his impending departure in May last year and stepped down last September. He now has a series of chairman and director roles including chairing Localist, which he describes as a "directional media business", chairing the government's ICT Council, and is on the board of Rod Drury's sharemarket listed, online accounting software business Xero.
Localist, which has been up and running in Auckland for about six months, now has about 100 staff. It has published five print directories but was built on a software as a service platform and while chasing the small and medium sized business advertising dollar via its directories, also provides a range of services through mobile phones and the internet.
"It’s another start up, not unlike Kiwibank, moving into a challenge where the incumbents (like the Yellow Pages Group) are slow and bogged down with old technology and having to defend revenue, and the market has quite a lot of un-met needs, particularly moving into digital, mobile, (and) integrated offers for small business," said Knowles. "The prime advantage is we’re a start up so we can be reasonably nimble."
He said Localist had about 45,000 business customers in its database and between 7,000 and 10,000 in the five print directories. The business offering was largely about bringing together a bundle of services and trying to provide them cheaper and better than others. The economics meant at this stage the books were an important revenue component.
Asked why in the internet and Google age small businesses needed a service provider like Localist Knowles said: "I think most small businesses still need a support around how they market themselves and how they promote themselves locally. What we’re trying to do is a very low cost package that provides that support and provides tools that doesn’t make it difficult."
"If you’re a small business you have to learn how to manage Google, you have to learn how to manage all the different options," Knowles added. "It’s quite a steep learning curve for people for whom generally their first call in life isn’t marketing."
Small business owners still needed to talk to a person, and this needs to be face to face, he added.
Localist was focused on content, Knowles said, with "what’s good around here" the vision for the business. Allowing consumers, via mobile phones and the internet, to communicate the things they like in their neighbourhoods, communities and businesses, and then enable other consumers to use that information to make purchase decisions.
"There's a lot of focus on content. We’re building up rich content that connects consumers and businesses together," said Knowles.
Break even targeted within two or three years
Parent NZ Post lost about NZ$11 million on Localist in the June year, Knowles said, during which time the start up only had about two months worth of revenue. Localist is expected to break even in its second or third year, he added.
"You have to do pretty well in a business to get it break even by years two and three."
Localist is targeting Auckland's about NZ$300 million slice of the national annual NZ$1 billion directional media market. Although no decision had yet been made to take the Auckland focused Localist elsewhere in New Zealand, it was possible this could happen.
"Post is certainly seeing it as a significant part of its future business," said Knowles.
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