Incumbent banks will need to embrace new business models to ensure their long term survival, argues Shayne Elliott, CEO of ANZ Bank.

Speaking at the Sibos conference in Sydney yesterday, Elliot said 30 years of uninterrupted growth meant Australia was “a great place to be a bank”, but had bred “a little bit of complacency.”

“One of the things that needs to shift, if we are going to be successful for the future in Australia, is waking up to the fact that the strategy of the past is not going to work in the future,” Elliot said.

“We need to shift and we need to shift quickly. We need to do it safely but we need to do it fast, and to me, that is the big challenge for banks operating in Australia today whether you are big or small.”

Elliott also acknowledged the ongoing royal commission into the banking sector, explaining to the global audience of bankers that it was “looking into the behaviour of the past and where our industry has failed.”

The banking boss said the industry “a lot of work to do” in the wake of the royal commission,while at the same time it is being confronting with the challenges and opportunities of digital transformation.

“The challenge for us is grappling with both – dealing with very legitimate issues of the past and making cultural changes necessary – and then really embracing the need to transform for the new economy,” Elliot said.

“I happen to be in the camp that says those two things are really aligned and we can achieve both, by keeping those aligned and front and centre about improving our customer experience.”

“The people that will survive will be those banks that are agile, that can move at pace and that can respond to changing customer needs,” he said.

How many will be able to move quickly enough?

Moderating a panel discussion prior to Elliott’s speech, Thomas Olsen, Partner at Bain & Company posed the question: What percentage of banks are going to be able to pull off the transformation fast enough to ensure their future survival?

Thomas Nielsen, Deutsche Bank’s Chief Digital Officer for Global Transaction Banking, offered a stark assessment of the industry’s future.

“[Incumbents] are not going fast enough. I think half will survive, I think the other half will unfortunately suffer a very long, painful death,” Nielsen said.

The Silicon Valley-based technologist noted a mass extinction won’t occur overnight, but there will be a longtail of closures and consolidation similar to the retail industry once ecommerce sales began to take hold.

“At the end of the day, whether you’re in the payments space, or global trade finance, or card issuing, the rules are changing and the models are changing,” he said.

“We are up against a tectonic shift in business models and expectations.”

Take the business model surrounding payments for example.

“I think the cost of processing a payment will go to zero – it’s just a matter of how quickly – because it’s just a data transfer between two different points. So that tells me that you have to go hunt for new business opportunities,” he said.

Nielsen said banks are moving away from owning the “entire value chain, the entire solution” to an ecosystem of partners.

Play to your strengths

Elliott made a similar observation in his speech, noting the banking model of the past no longer looks so compelling.

“In the past the universal banking model was very, very attractive where everything from the customer all the way down to the technology stack you would own and operate. The way to succeed for many banks was to try to broaden their relationships and try and add more and more things to do.

“Over time what we found was the cost of complexity of running that, whether it’s a compliance cost, whether it’s just general cost of having lots of things to do well has made that less efficient of less sensible for many of us.”

The rise of big data, open banking and the reduction in cost of digital technology has thrown that model into doubt, Elliott said.

“Just kind of turning up and being a bank is no longer a successful model,” he said.

“From our perspective anyway, we think at ANZ the only way to win in the future is to do a few things and do them really well.”

Elliott said banks need to be self reflective to identify their strengths and partner with other companies.

“Banks will look different in the future. Some banks will look the same and other ones like us will take different paths and will explore and experiment with different business models”

“I think it takes a dramatic shift, a reimagining of what customers really want and how do you deliver that.”

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