Universal banking is past its sell-by date. That's according to one of Australia's biggest banks.
In the digital age banks should hive off services others can do better, said Shayne Elliott, chief executive officer of Australia and New Zealand Banking Group Limited (ANZ).
The universal banking model, which brings together a wide variety of financial services under one brand, including both commercial and investment banking services, has been widely adopted and thrived for decades. Notable examples include HSBC, Bank of America and JP Morgan.
However, it's a complicated business and becoming increasingly so, making for increased costs as resources become stretched and compliance needs rise.
At the same time regulations and customer demand require banks to expose application programming interfaces (APIs) and connect to third-party distribution channels.
Globally, tech-savvy upstarts could impact up to 80% of existing banking revenue pools by 2020, according to consultants at Accenture.
“The only way to win in the future is to do a few things well,” Elliott said at the Sibos conference in Sydney, where around 7,000 technologists and bankers have gathered this week to discuss the future of banking.
The question is: which few things?
“Every bank will be grappling with its source of competitive advantage,” Elliott said.
ANZ has partnered with US technology firm Cisco to help farmers in Australia to sell their grain to merchants across Asia. Using cutting-edge distributed ledger technology, the Australian bank is documenting and guaranteeing every step in the grain supply chain.
ANZ sold its life insurance business to Zurich Insurance Group in December for A$2.85 billion ($2.14 billion) but will continue to distribute the products over its platform.
“Turning up and being a bank is no longer a successful model,” said Elliott, who has been CEO of ANZ since 2016.
He said the Swift payments cooperative of connecting 10,000 banks shows that banks at an operational level can partner successfully.
“We need to bring those skills to the foreground,” he said.
Partnering with nimble non-bank partners and open APIs will play a big part in this metamorphosis.
“Banks are going to look less and less alike,” Elliott predicted.
The Australian government is also moving towards implementing its operating model and regulatory framework for open banking based on the Farrell Review recommendations made in February.
An open banking regime will give Australian citizens greater access to, and control over, their banking data. The accumulation of data will no longer be a unique selling point for financial services firms; how smart they are at analysing the available data will be the next battleground.
Australia also launched a New Payments Platform (NPP) in February, which created open access infrastructure for fast payments.
On its own, the NPP is “not very innovative in a global context” said Elliott, but combined with open banking it could create a sea change in Australian banking circles. “We’ll see an explosion of new businesses, new business models and new revenue streams,” he said.
Elliott sees customer experience as a way for banks to differentiate themselves in a world of open banking. ANZ has partnered with ApplePay and hired Maile Carnegie, the former boss of Google Australia, as ANZ's group chief executive, digital.
If banks can get partnering right and invest wisely in payments, Accenture estimates a potential of 30% growth in revenue by 2022, along with increased customer loyalty.
On the flip side, complacent banks will be engulfed by change.
The people that survive are those that can adapt at scale and at speed, which will be a challenge for large banks with an entrenched culture and strategic direction, Elliot said.