Senior Westpac banker Brian Hartzer says banks should try to act like start-up companies if they are to thrive in an era of sweeping technological change.
In a speech on Thursday, Hartzer said the digital revolution that is reshaping the industry would only accelerate as more customers manage their finances online or with smartphones.
Banks are already spending billions of dollars overhauling their IT systems as more customers conduct their banking digitally. But they are also facing competition from new sources, as technology firms and other businesses, such as supermarket chains, eye their hefty profits.
In response, Hartzer said Westpac was trying to “think and act like a 200-year-old start-up company” as it faced rapidly changing customer demands.
“Disruption happens when businesses don’t pay close enough attention to the needs of their customers,” he said in a speech to the Centre for Economic Development of Australia. “We also know that new business models are developing – and they won’t fit neatly inside our current operating model.”
The comments highlight the long-term challenges facing Australia’s big banks, which are tipped to make profits of more than $29 billion this year. As more people manage their finances online, banks concede they will face growing competition in core businesses such as payments services and lending.
Last month the co-founder of technology firm Atlassian, Mike Cannon-Brookes, described bank profitability as “insanity”. He said other companies, including payments firm Tyro where he is a director, were targeting the potentially lucrative market.
Banks as ‘disruptors’
Hartzer runs Westpac’s Australian Financial Services division, which houses its flagship retail and business banks and accounts for more than half of the bank’s profits. Banks needed to act as “disruptors”, he said, but he conceded they had not always done this well in the past.
He cited PayPal – which stepped into a market gap that appeared in the 1990s because banks failed to adapt credit card processes to the online world. “PayPal was the disruptor – but only because the banks dropped the ball. We can’t make that mistake again. We have to be our own disruptors and make technology work for our customers.”
Hartzer cited innovations such as contactless payments and moves to allow customers to withdraw cash from ATMs with their smartphones. Westpac has also started a $50 million venture capital fund, Reinventure, which this year invested $5 million in peer-to-peer lender SocietyOne.
While start-ups are small and nimble operations, huge companies with tens of thousands of staff – such as banks – often find it harder to adapt to deep-seated changes such as new technology. Hartzer said technological change was the biggest disruption facing banking since deregulation in the 1980s, which ushered in a new era of competition by allowing foreign banks to set up in Australia.
*Original Article by Clancy Yeates: http://www.brw.com.au/p/business/banks_need_hartzer_act_like_start_zi8aKxDwj0Trx8en3LGCII