Opportunities abound as traditional banks unbundle

When you consider the pace of change in financial services, barely a month goes by without seismic shifts swelling through the digital pond.

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New technologies, nimble fintech players, rapidly changing customer behaviours and mega-deals – how can a big bank stay ahead of it all and deal with the attacks on its business model?

" Our future is going to be a combination of competing and collaborating and cooperating and partnering.”

Rather than the big banks’ entire business model being under attack, ANZ’s view is more in line with what CB Insights described accurately a few years ago as the “dismantling” of the traditional bank. The tech intelligence group pointed out these emerging companies were not going after any particular major bank, rather they were picking off products and services that were inefficient, where the customer experience was lacking, or where costs weren’t in line with market expectations.

Based on what we’ve seen in recent years, you’d have to say the gradual dismantling of the traditional bank is in part true. But as with most things, it’s not quite as simple as that. These dismantler organisations also want to partner with and work alongside banks – and there’s good reason for that.

In many cases they need the existing infrastructure of the big banks and they also want access to the banks’ customer bases. Everyone in the market, including ANZ, is trying to get to the same place: we're trying to make it simple and easy for people to consume the products and services they want at any point in time.

Take accounting service providers like Xero, MYOB and others. They are moving towards the revenue pool financial services has. Financial services companies are trying to move closer to the data and the customer – either by offering improved services or partnering with other companies.

Everybody's trying to get to the major profit pools, to have a closer relationship with the customer and have access to the data. That means success is all about how you execute.

Tech platforms eyeing financial services

On top of that dynamic you have  big tech platforms like Alipay and WeChat in China and the American giants Apple, Google, Amazon and Facebook. They are innovating around financial services and posing risks to established players by offering effective and intuitive products, fostering a direct relationship with the customer and using data in a very sophisticated way.

The WeChat platform in China is a great example. They've integrated the ability for customers to both live their lives and transact - all through an app environment. Companies like Square have made the user experience completely seamless and cost effective at the point of transaction and they are using that as a base to expand into micro-lending.

So while those competitive threats are real, I would argue the ability of companies like ANZ to respond is also growing. Our future is going to be a combination of competing, collaborating, cooperating and partnering.

That’s where the 1835i team comes in. Our mission is to source, screen, evaluate and provide partnership opportunities for the bank to deliver those experiences.

1835i – formerly known as ANZi – is an integrated innovation function designed to bring every tool in the toolkit to encourage successful innovation to benefit the bank, our customers and our partners. It comprises 1835i Ventures to source, invest and help ANZ partner with these companies; the 1835i Creation Lab – a business incubation lab for developing and launching new businesses which support the bank’s strategic objectives to create ecosystems for customers and for commercialising ANZ intellectual property.

Ensuring the toolkit is full

1835i’s structure gives us the flexibility to either partner with or invest and partner with great emerging growth companies. We also have the capability to acquire companies of significant strategic value to the bank. And if there is no company to partner with, we can build it ourselves in the 1835i Creation Lab.

By having every tool in the innovation toolkit we’re not limited to being a venture investor nor are we limited to being a development lab. The strategy is to provide ANZ with a growing and evolving portfolio of companies; whether we’ve built them, acquired them, invested in them or partnered with them to create optionality for ANZ across all business units.

But the portfolio companies also get the benefits a big four bank like ANZ provides. We have a lot of customers, we have a lot of industry knowledge, we have subject matter experts across everything to do with financial services and a global institutional business.

We take what they bring to the table and add a little fairy dust to see if combining the competitive advantages of both can result in benefits. After three years it’s so far, so good. And we’ve just taken the next step to externalise 1835i.

By taking 1835i outside ANZ, our mission statement remains 100 per cent the same. We still work on behalf of the bank in the strategic focus areas – helping people own their own home, helping customers start, run or expand their business and helping customers move goods and services around the region.

But we do that without trying to fit a round peg in a square hole. 1835i and the businesses we run are not banks. We're in service to ANZ but we are not a bank.

By running this model and combining the relative strengths of a major bank and a nimble start up, we stand a great chance of helping ANZ deal with the rapidly evolving competitive landscape that lies ahead.

Ron Spector is Managing Director of 1835i

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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