For ANZ, these are services we already undertake and are market leaders in. We have the capacity and increasingly are growing that service as an opportunity with strong revenue potential and low capital intensity – and at very low marginal cost for extra volume.
Take the NPP, Australia’s real time payments network, for example, where we more than doubled payments undertaken for three other banks - within the same cost infrastructure.
We expect these transaction numbers to continue to grow and we will add more banks to this infrastructure this financial year and early next. These new customers represent a variety of different institutions from different regions.
The high cost of compliance, technology and complexity, together with reduced investment funds, is increasing the burden for both FIs and non-bank FIs, particularly those that lack scale or the desire to seek a banking licence. That’s why many FIs are choosing to buy access to ANZs NPP capability for their own customers rather than build their own.
Providing platforms for other banks to use is a natural evolution of our Institutional business and something you will hear us talk more about in the future.
As it stands today, ANZ’s payments and cash management (PCM) business provides three propositions, of which “Powered by ANZ” has the highest growth potential.
Alongside this business, the primary ANZ proposition is the more traditional one of providing treasury and payment solutions to corporates, government and financial institutions. We will also enter into partnerships to expand the PCM ecosystem - our new relationship with global merchant payments specialist Worldline is a key example.
ANZ is building this business as a signficant element of our strategy. We have already seen a number of new, largely retail focused, partnerships announced across the industry, demonstrating the increasing demand for bank to non-financial institution partnerships that can reach a large number of customers at a low cost.
For ANZ, building this business offers the potential for high shareholder value creation as these services open up new, typically large, flow driven fee revenue lines which are high ROE. Offering these services can lead to the creation of long term and/or lead bank status customer relationships over the mid to long term.
As we build out this business, the key market drivers are the introduction of cloud computing, APIs and open banking, which have broken down barriers to entry. Providers are quickly realising they can leverage all aspects of the ‘Banking Stack’ to allow non-bank customers to provide banking services to their customers.
This in turn is driven by changing consumer behaviour and demographics which impel organisations to provide a much broader service – whether that be a credit union offering its customers real time payments or an ecommerce site offering payments and a deposit capability.
As ANZ expands its platform and BaaS services beyond the traditional Financial Institution segment, we are enhancing our cash management platform and shifting the focus to cloud-based services, API driven with scalable capacity.
The customer focus includes government, education and multi-national corporations, stockbrokers, wealth businesses, professional services, agency work and other financial institutions and technology companies - core segments of ANZ’s existing Institutional franchise.
According to Accenture, commercial banks that provide BaaS achieve two to three times the industry average return on assets. We have a strong foundaton from which to build upon and look forward to exciting times ahead for the ANZ PCM business.
Lisa Vasic is Managing Director Transaction Banking and Leigh Mahoney is Head of Wholesale Digital at ANZ