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Banks need to look outside their core banking business for innovation in the new digital and low growth world, says PwC

Banks need to look outside their core banking business for innovation in the new digital and low growth world, says PwC

By Gareth Vaughan

A joint venture between a bank and social networking behemoth Facebook could be a feature of the new banking digital age, according to auditing and financial advisory firm PwC.

PwC financial services partner Sam Shuttleworth told in a Double Shot interview that adapting to the digital world is the major challenge looming for banks today.

Shuttleworth was speaking ahead of today's launch of the latest PwC bi-annual Banking Perspectives report entitled NZ banks go from strength to strength despite global uncertainties.

A shift to digital banking was being driven as digital native Generation Y enters the workforce expecting the world at their fingertips, now. It also comes with the banks covered by PwC's report - ANZ, ASB, BNZ, Westpac and Kiwibank - operating in a low, or no, growth environment. In the second-half of their 2011 financial years the five's combined lending portfolio slipped slightly to NZ$276.3 billion from NZ$276.4 billion.

Their net interest margin growth and tumbling impairments on loans which drove 2011 profits to record levels at ANZ and ASB and delivered strong profits at BNZ and Westpac won't continue, PwC says, meaning cost cutting and efficiency gains are in focus. And here, as well as wooing young customers, digital technology can lend a hand.

So what can we expect to see from the banks?

"Basically anything is open," Shuttleworth says. "It could be as simple as, every transaction for example, is sent to your Facebook or Twitter account so you know when something's being used."

"It may mean, for example, loyalty cards. Instead of swiping at the eftpos terminal, the banks have sophisticated tools that can identify you've just bought petrol from this petrol station, (and) that it's (a member of) a loyalty programme. Instantly that updates your account."

One existing example of what Shuttleworth says we might see more of is BNZ's GlobalPlus credit cards and home loans. When a customer buys something with their GlobalPlus credit card, they earn Air New Zealand airpoints dollars. And with a GlobalPlus home loan, borrowers earn one airpoints dollar for every NZ$1,000 outstanding per year. 

Facebook to muscle in on the banks?

But Shuttleworth suggests, things could go further than that as banks move to embrace the threat - or opportunities - of social media. Because the likes of Facebook, Google and Microsoft are just so big - Facebook has more than 800 million users - they could move into bank territory.

"They won't set up a bank to lend and do residential mortgages, but they could facilitate payments between members," says Shuttleworth. "And so therefore the bank as an intermediary could be left out of the equation. They've got the technology and the deep channels to do that."

To combat this threat, banks could align themselves with one of the big technology companies and establish a joint venture.

"To find innovation in this new age, you may need to look outside of the core bank. There's a lot of smart people who think differently in these technology companies," Shuttleworth added. "We're in this tipping point where digital technology will change the way that we've become accustomed to doing things."

See PwC's global banking report on the Digital Tipping Point here.

Shuttleworth notes investment in key technology systems is required to ensure banks can progress their digital ambitions.

“Investment in and replacing key infrastructure systems will be costly, yet is vital if the banks wish to retain today’s technology savvy customers who expect banks to offer a 24-seven digital banking service."

"The traditional nine-to-five hours of the branch are increasingly incompatible with modern-day lifestyles," Shuttleworth says.

"However, we don’t believe this is the end of the Main Street branch as it’s still highly valued by many customers, and has an important role to play in attracting big-ticket business such as signing new mortgages, as well as increasing brand visibility."

'Self funding'

Meanwhile, Shuttleworth points out the lack of lending growth means the banks have been able to self fund since the second-half of 2009 with their increase in retail deposit funding greater than their increase in lending.

"With no significant growth in lending likely, we expect the New Zealand majors to be able to continue to self fund in their 2012 financial years as deposit growth continues to outpace lending growth," Shuttleworth says.

PwC is auditor for ASB, Kiwibank and Westpac NZ.

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Plan B, your post has been deleted for legal reasons. Fair comment on PayPal though, one to watch.

PWC seems to have missed Paypal completely in their report.

Wish I had seen your post Plan B. I posted a while back on an issue with Pay Pal.
As a result of a dispute in a US court Pay Pal handed over their records to an online service provider at the request of that court, despite the fact that the complainant had previously been turned down in another state. Pay Pal did not contest the ruling. 
Moral of the story is that your private transactions are not private at all when conducted through Pay Pal. Don't use them if you value your private information.

Other new areas for banks:
1. Microfinance    -   little small loans for small business ventures,   e.g. $3000 to help setup a web business
2. Proactive advice / reviews for customers:  e.g. look at range of accounts / creditcards / ODs then mopup with loan topup etc  -   ie roll their sleeves up get in their with budget advice, re-structure loans, perform cc balance transfers - thinking thru the eyes of their customers ...
3. Advise customers on how to setup a transactional account from which to buy shares etc ...
4. Start using EMAIL  - rather than play voicemail tag with customers over 3 days!

"With no significant growth in lending likely, we expect the New Zealand majors to be able to continue to self fund in their 2012 financial years as deposit growth continues to outpace lending growth," Shuttleworth says.
So what's the deal with the 'expensive' covered bond issuance?

Watchdog fines Ernst & Young $2 million over audits

Reuters - 1 day ago


Type in PWc and Fines, Criminal, etc into a Google New search, the numbers of reports are staggering. All of the big 4 firms are at it. In New Zealand they use the brand names but that is probably all. My contention is that they should be broken up into smaller more useful less dominate firms and that they should not use the corrupted brand names. That is all.


it also means i want someone to tell me their latest floating rate after threatening to walk to another bank in a customer retention senario or from just switching banks too
i remember quite clearly the break fees in a fixed mortgage senario when they had everyone by the short and curly's so now that  the shoe is on the other foot and people can switch banks without penalty from these same banks that are full of profit and have also promised themselves into the future some fixed rate to cover all floating rates the banks are carrying
ie. that is to say banks are faced with break fees themselves - which they might not want to pay, so they will be happy to provide the same services at a less profitable rate, rather than paying a penailty themselves...
perhaps we can see some frenzied rentention - i notice my floating rates slipped back to advertised rates - that is not good enough - so who's up to tell me the best rate in town...