Tech investment push CBA and NAB further ahead

by Mina Martin14 Feb 2022

Commonwealth Bank and National Australia Bank are well ahead of ANZ and Westpac in the race to snare mortgage customers thanks to investments in technology and systems.

CBA shares were up by 6% and NAB by 8% for the week following the latest round of results and news that surplus capital would be returned to shareholders.

Will Curtayne, Milford Asset Management portfolio manager, said that while buybacks and increased dividends are expected to bring shareholders more returns, with much having already been priced into stock prices, “where the banks should be investing in still is technology,” Australian Financial Review reported.

Rachel Slade, NAB’s group executive for personal banking, said NAB, which posted a better-than-expected performance on margins and smashed system growth in mortgages, had used the pandemic to overhaul its technology.

“We took a step back from aggressive pricing when COVID-19 hit and to be honest, we expected everyone else would do the same, but we came back once we knew that we could actually service the volumes,” Slade told AFR. “We’re not leading on price, but we’re quickly and confidently giving approval, so people are choosing to stay.”

With customer preferences shifting to digital banking due to the pandemic, CBA is mulling a closer look at its branch network and footprint as a result.

Many of the changes NAB had embedded due to COVID-19 would become permanent, Slade said.

“COVID-19 really gave us the opportunity to test what we could do in terms of using data and technology to transform customer experiences,” Slade told AFR. “Those things are having a lasting impact, like video lending appointments, which are about 40% of our total now.”

Through video chat, both new and existing customers can secure unconditional approval, resulting in much faster approval times overall.

“All the data to verify income is there already, so it’s just a matter of being able to digest everything and categorise it,” Slade told the publication. “Already 50% of our customers are getting unconditional approval within the same day and 30% of those eligible are approved within one hour.”

Slade said the bank is now looking to roll out similar initiatives in NAB’s owned channels through the broker channel.

Brokers account for about half of NAB’s mortgages, and applying the faster approval system to this channel would be the focus for the rest of this year.

“For PAYG customers, we’re expanding to more areas and doing the same with brokers, where the loan would have no hands on it through operations,” Slade told AFR.

Angus Sullivan, CBA’s head of retail banking and services, said faster processing times were helping the bank win its share of the market.

According to investors, it’s the spending on technology that set the banks apart during the most recent earnings.

“If they have simple, effective systems – they’re finding it much easier to service their clients and win market share without having to compete aggressively on price,” Curtayne told AFR.

Curtayne said that although CBA had maintained its leadership, NAB was moving in the right direction.

“NAB over the last few years has got its tech vastly improved, and now under [chief executive] Ross McEwan... have become a clear number two,” Curtayne told AFR. “Westpac and ANZ have a big catch-up investment to make there.”