Speaker 1: Welcome to Shared Lunch, brought to you by Chase's. I'm
Speaker 1: Brook Roberts, one of the co founders and co CEOs
Speaker 1: at shas EA's. In today's episode, I'll be speaking to
Speaker 1: one of the big bosses of one of the big
Speaker 1: four banks, A and Z Group CEO Shane Elliott will
Speaker 1: cover the banks for your results, the hot topic of
Speaker 1: competition and where the sector is headed. But before we
Speaker 1: get started, has some important information investing involves.
Speaker 2: For risk you might lose the money you start with.
Speaker 2: We recommend talking to a licensed financial advisor. We also
Speaker 2: recommend reading product disclosure documents before deciding to invest. Everything
Speaker 2: you're about to see and here is current at the
Speaker 2: time of recording.
Speaker 1: Hey Shane, let's start with some of your backgrounds. You're
Speaker 1: a key we now in charge of one of the
Speaker 1: largest banks in Australasia.
Speaker 3: Has banking always been part of your DNA?
Speaker 4: Oh? By accident?
Speaker 3: Has?
Speaker 4: I mean? Wasn't necessarily a plant when I let school
Speaker 4: in the UNI. But after university I I literally fell
Speaker 4: into banking by accident. I responded to a advert in
Speaker 4: a newspaper to work at City Banker as a trainee,
Speaker 4: and so I've always liked sort of numbers and finance
Speaker 4: and things. But yes, and ever since then I've sort
Speaker 4: of stuck it out.
Speaker 1: And now you're the CEO of A and Z group
Speaker 1: that spans across Australia and our teiro.
Speaker 3: How different does A and Z operate in those two markets?
Speaker 4: Well, actually all we operate in twenty nine markets, so
Speaker 4: just to be kid, so all around the world, and
Speaker 4: we've done so for a long time actually, I mean,
Speaker 4: and just to give you a sense of history, we're
Speaker 4: almost two hundred years old. We started here in Australia
Speaker 4: in eighteen twenty eight, in New Zealand and eighteen forty,
Speaker 4: Fiji in eighteen eighty, Papua New Guinea in eighteen ten,
Speaker 4: and then right and now we operate right across Asia Pacific,
Speaker 4: including all the big money centers you know, Tokyo, New York,
Speaker 4: Do Bai, London, Hong Kong, et cetera, and right across
Speaker 4: the Pacific islands, so twenty nine countries. But you know,
Speaker 4: our home sort of, I guess it's what it says
Speaker 4: on the ten right A Z. That's our home, Australia
Speaker 4: and New Zealand. We've been here a long time. We're
Speaker 4: big in both places. What's different lots and then not
Speaker 4: very much. I mean, at the end of the day,
Speaker 4: people want the same basic things, right and certainly from
Speaker 4: an AMZ strategy point of view, people want help saving
Speaker 4: for finding, buying and owning a house, or starting running
Speaker 4: and growing a small business, or at the beginning of
Speaker 4: TOUN if you're a really large company, you want help
Speaker 4: connecting with the rest of the world and moving goods,
Speaker 4: whether that's scairy products, iron or whatever it might be,
Speaker 4: and money around the world. And those are the three
Speaker 4: things we do, and that's what we help people on
Speaker 4: both sides of the Tasman do. So not really a
Speaker 4: lot of differences. They're obviously regulations different, consumer preferences can
Speaker 4: be a little bit different, competitions different, but you know,
Speaker 4: at the fundamental you'd say there's a lot of similarities.
Speaker 1: First off, let's not ignore the A and Z four
Speaker 1: year results. So revenue was similar to last year, down
Speaker 1: two percent to twenty point five to five billion, is
Speaker 1: that four percent to ten point five to five billion,
Speaker 1: and cash profit down around nine point three percent to
Speaker 1: six point seven three billion. There's a ton of change
Speaker 1: happening across banking with open banking and more neo banks
Speaker 1: popping up. How is A and Z placed to keep
Speaker 1: its position and prosper.
Speaker 4: Yes, So when I started done nine years ago as CEO,
Speaker 4: we basically did a lot of sort of soul searching
Speaker 4: about what the environment we felt was going to be
Speaker 4: like and how would you thrive as a large, comprehensive,
Speaker 4: pretty diverse, wide organization like A and Z do you know,
Speaker 4: with ten billion customers across twenty un markets. And what
Speaker 4: we said what we found is and it's not I
Speaker 4: don't think this is rocket science. We said, the world
Speaker 4: we live in, consumers want more, and consumers want more,
Speaker 4: and they don't want to pay for it, right, and
Speaker 4: they're being trained, which is a good thing to want.
Speaker 4: Twenty four x seven amazing services always getting better, largely
Speaker 4: for free. You know, So consumers want more, the community
Speaker 4: wants more. The community expects us to behave differently, you know,
Speaker 4: it's not good enough community expectation to say, well, though
Speaker 4: things are legal, therefore I do it. And so people
Speaker 4: have higher standards at a community about how we behave.
Speaker 4: You know, regulators want more, whether it's about more capital,
Speaker 4: more liquidity, better behavior, all of those things. And then Lastly,
Speaker 4: competition was going to be more intense. I mean, we
Speaker 4: live in a world that is protected to some degree.
Speaker 4: We have a moat you can use in that sort
Speaker 4: of language for good reasons, because you know, we as
Speaker 4: a community who don't want just anybody running a bank,
Speaker 4: because these banks are looking after our deposits and we
Speaker 4: don't want it to fail. So there were reasonably high
Speaker 4: barriers to intrigue yet to be bed, yet to have
Speaker 4: a lot of capital, you had to be well run.
Speaker 4: Some of those barriers have actually come down a little
Speaker 4: bit for good reasons, to encourage more you mentioned neo banks,
Speaker 4: but probably more importantly more people doing payments and people
Speaker 4: like revolution Wiser and or you know, buying our pay
Speaker 4: later and all these sorts of things. So way more competition.
Speaker 4: What do we do well, We said, well, we need
Speaker 4: to be more nimble. We as a big organization have
Speaker 4: historically run ourselves on big FIS systems. You know, we
Speaker 4: invest billions of dollars in big, big computer systems, big
Speaker 4: branch networks, big things. But they're fixed and they're really
Speaker 4: really efficient, but really hard to change. And so when
Speaker 4: competition comes out with something new, or regulated wants something new,
Speaker 4: both things were really difficult to change and we were slow.
Speaker 4: So we said, if we want to stay relevant, we
Speaker 4: need to be nimble, and so we set about basically
Speaker 4: changing the way we operate to be more agile and nimble.
Speaker 4: And that really comes down to two and a half things.
Speaker 4: One thing is people. We need people who have a
Speaker 4: growth mindset, people who think differently, people who are excited
Speaker 4: about change. People are courageous, people who know how to
Speaker 4: see something out in the market and say, hey, I
Speaker 4: know what that means. You are our business. So we
Speaker 4: call that growth mindset. And then we need our systems
Speaker 4: and processes that enable us to embed that change quickly,
Speaker 4: make that change, get that feature to market quickly, you know,
Speaker 4: make that change from a regulation fast in the residnient,
Speaker 4: low cost way. And the half bit was we need
Speaker 4: our people to be able to talk to our systems
Speaker 4: really well. So that was really when we looked at
Speaker 4: what we had and where we started, we said, wow,
Speaker 4: you wouldn't want to be starting from here. So we've
Speaker 4: actually actually replatform our bank and we're now on this
Speaker 4: two platform business where we say we've got these two platforms,
Speaker 4: one for retail and small businesses and one for institutional
Speaker 4: big end of customers, and we're building a whole new
Speaker 4: banking system that is fast, reliable, safe, and really really
Speaker 4: low cost. But from your from a shareholder's point of view,
Speaker 4: probably the two really important ones there. Yes, low cost.
Speaker 4: It has to be low cost. We're in a commoditized
Speaker 4: industry and the systems we have that we can talk
Speaker 4: about it later are dramatically lower cost than where we
Speaker 4: are today. But I think probably the most valuable point
Speaker 4: in terms of competitive differentiation is needs to be fast.
Speaker 4: We need to be able to launch new features and
Speaker 4: functions quickly to stay ahead and satisfy customer needs.
Speaker 1: I remember last time you're on Sheed Lunch, we talked
Speaker 1: a bit about sun Court and acquisition there. That's one
Speaker 1: of the biggest bank acquisitions in a decade and we
Speaker 1: just finalized in June after the Australian regulated the Triple
Speaker 1: acc RAN the ruler over the deal. Can we just
Speaker 1: remind listeners what the advantages this brings and also how
Speaker 1: you've addressed acc concerns about ACCC concerns about competition and
Speaker 1: the national home loan markets, smaller medium sized business banking
Speaker 1: and agricultural banking services in Queensland.
Speaker 4: It's some day that our business is heavily commoditized. Right,
Speaker 4: Our homelands do exactly the same as wespas, our credit
Speaker 4: card does the same as ASP's. You know, I mean
Speaker 4: we're living a commoditized world. That's a good thing from
Speaker 4: a consumer point of view. It means, you know, pretty
Speaker 4: new consumers get pretty good value. It's really really hard
Speaker 4: to compete in that world. And in fact, going back
Speaker 4: to what I just see it as a lot, we
Speaker 4: are very, very dependent on technology. You know, almost everything
Speaker 4: we do today, not quite, but everything is digitized. It's
Speaker 4: real time. You know, at peak on any day, per second,
Speaker 4: we have two hundred customers checking their balance every second
Speaker 4: and making three hundred payments. When you need massive scale
Speaker 4: and technology and all of that doing done digitally, you
Speaker 4: need huge scales to be able to operate that kind
Speaker 4: of machine and that monster rate. But once you build
Speaker 4: that machine, if it's two hundred customers looking every secondiar
Speaker 4: and balance, or it's three hundred, it doesn't really cost anymore,
Speaker 4: or the marginal cost of that scale is much lower.
Speaker 4: So once you've got that agility and that scale, you
Speaker 4: want to be as big as you can because you
Speaker 4: can defray the cost over more customers. And it also
Speaker 4: means that the next time we want to launch a
Speaker 4: new feature and new functions, something really cool that customers want,
Speaker 4: it's cheaper if I can spread that cost over seven
Speaker 4: million customers rather than six million. So what does Sutain
Speaker 4: Corp gave us? Gathers and more customers. It's a court
Speaker 4: band for those who know it. It's got about two
Speaker 4: and a half percent market share in Australia, we're about
Speaker 4: thirteen and a half percent share. Because of scale, so
Speaker 4: we bring one point two million customers onto our systems,
Speaker 4: it just demands that we will get significant economies of
Speaker 4: scale by having them on our platform. And from their
Speaker 4: point of view, we you know, without being arrogant, we
Speaker 4: have better systems in technology than some called bank because
Speaker 4: we're bigger and therefore we're able to bring the power
Speaker 4: of those systems and features and functionality to their one
Speaker 4: point two million customers. That's kind of it a triple C.
Speaker 4: So that's the anti competitive sort of regulator and make
Speaker 4: sure we're not doing any you know, we're not building
Speaker 4: monopolies and oligopolies and all that sort of stuff. Look,
Speaker 4: actually what we see to them as well. First of all,
Speaker 4: we're actually relatively modest today. We're thirteen and a half
Speaker 4: percent market share our biggest competitor in Australia. And again
Speaker 4: remember Sun called Bank's only in Australia and our biggest
Speaker 4: competitor here in Australia are CBA. They're twice our size twice,
Speaker 4: so they're at twenty six percent. Sure, I'm at thirteen
Speaker 4: and after doing some callp I go from thirteen to fifteen.
Speaker 4: That is hardly reshaping the competitive landscape of banking in Australia.
Speaker 4: Oh and Westpac is you know, two thirds bigger than me.
Speaker 4: So we were able to show that even with this
Speaker 4: we get bigger and get the benefits of scale, but
Speaker 4: it doesn't really change the needle, even in Queensland where
Speaker 4: Sun Corp is a little bit more, a little bit
Speaker 4: bigger and share. Even in Queensland, it didn't really shift
Speaker 4: the needle on competition. And they're able to look at
Speaker 4: what they look at the public interest and say, hey,
Speaker 4: is there a broader public interest? So we made the
Speaker 4: argument that having a bigger competitors, funny enough, is actually
Speaker 4: good for competition. You know that we're going to be
Speaker 4: more competitive with fifteen percent share because we'll be able
Speaker 4: to do more tech spending and bring more benefits to
Speaker 4: customers than we are with thirteen. And you know, at
Speaker 4: the end of the day, while it was a long process,
Speaker 4: we got that.
Speaker 1: Earlier this year in New Zealand, the Commerce Commissioner Report
Speaker 1: into personal banking was released, citing that the big four banks,
Speaker 1: including A and Z, have a stronghold on the industry
Speaker 1: with little strategic differentiation and growth targets focused on maintaining
Speaker 1: market share and protecting margins and profitability. Also recently, an
Speaker 1: zed to New Zealand CEO and Tonia defended the company's
Speaker 1: profitability in New Zealand, what do you believe are fair
Speaker 1: profits for banks to make and how do you strike
Speaker 1: the right balance between delivering for customers and shareholders and
Speaker 1: wider stakeholders.
Speaker 4: Sure so, probably unsurprisingly I disagree with that assertion that
Speaker 4: it's not competitive. I mean, you know, I've weeked here
Speaker 4: for fifteen years. I'm on the board in New Zealand.
Speaker 4: I know that Antonia and the team, just like we
Speaker 4: do up here, we wake up every morning paranoid. We
Speaker 4: wake up paranoid about somebody's going to come and try
Speaker 4: and steal our business, kind of take our customers. Somebody
Speaker 4: might have a better mouse trap out there, and we
Speaker 4: have to be on our front foot investing heavily to
Speaker 4: delight and retain customers, and that's what we do. So
Speaker 4: Sinny doesn't feel like that from the inside, that assertion
Speaker 4: that people make from the outside, Hey, what's fair. I
Speaker 4: obviously agree with Antonia's ar tatilation of the issue New
Speaker 4: Zealand in particular about Australia too. We rely on foreign capital.
Speaker 4: There are no home loans or small business loans in
Speaker 4: New Zealand. Without foreign capital investing in New Zealand, we
Speaker 4: don't pay our way. That is just the reality. Now,
Speaker 4: that's okay, because we're still a developing country in many ways,
Speaker 4: we have a massive appetite for capital to invest and
Speaker 4: grow and build a better future for ourselves and future generations.
Speaker 4: It's not necessarily a bad thing, but we need to
Speaker 4: in order to attract that capital, we need to generate
Speaker 4: a fair return. What's a fair return? Well, there's sort
Speaker 4: of techy answer to that is cost of capital. There's
Speaker 4: two costs when you're when you're a business, there's the
Speaker 4: cost of operations, and we're clearly we cover that you
Speaker 4: mentioned before. We make about twenty one billion in revenue.
Speaker 4: Is at the group twenty one billion in revenue. We
Speaker 4: spend about ten and a half eleven running the place,
Speaker 4: so clearly there's a profit there, and then we some
Speaker 4: of that's to cover credit costs. So that's the tick
Speaker 4: we do that. The second one though, is we need
Speaker 4: to cover the cost of capital. We've got seventy billion
Speaker 4: dollars of shareholders capital. That capital comes from all over
Speaker 4: the world, About almost thirty percent of it comes from
Speaker 4: outside Australia and New Zealand, and the rest comes here.
Speaker 4: People give us their capital because they expect a fair
Speaker 4: return on it, not just the dividends, but they want
Speaker 4: to see the share price grow as well. And as
Speaker 4: a rule of thumb, and there's a complex way of
Speaker 4: figuring this out, cost of capital for somebody like us
Speaker 4: said is about ten percent. So basically says, hey, if
Speaker 4: we want to continue to be able to attract capital,
Speaker 4: without which we don't survive, we need to be able
Speaker 4: to generate a return of about ten percent return on
Speaker 4: that equity to keep that money and shareholders happy and
Speaker 4: keep the investments coming so that we can continue to
Speaker 4: lend them home loans and small businesses and do all
Speaker 4: the things we do. And guess what that's kind of
Speaker 4: where we are. In fact, at a group level, our
Speaker 4: ROI lust the result we just have was only nine
Speaker 4: point seven, so we're not even quite there, and New
Speaker 4: Zealand's about the same little bit higher. So that seems
Speaker 4: about fair and reasonable if we want, if we want
Speaker 4: a well developed banking system that's safe and continuing to
Speaker 4: invest in the future. Now, if you don't get that
Speaker 4: cost to capital, and by the way, it's not a theory.
Speaker 4: You can go and have a look in Europe where
Speaker 4: they don't generate cost to capital, what do you end up?
Speaker 4: You end up with banks going backwards in terms of
Speaker 4: actually not being able to support growth and not being
Speaker 4: able to invest in the future. And that's a really
Speaker 4: really bad As they say, there's only one thing worse
Speaker 4: than a profitable bank, and that's an unprofitable bank. Yeah,
Speaker 4: because then the whole economy ends up. You really end
Speaker 4: up in diastrates. And so I think it's about balancing
Speaker 4: pretty much where it is today.
Speaker 1: Could you give a bit more insight in terms of
Speaker 1: the cost of capital here for banks in Australia, New
Speaker 1: Zealand compared to globally and maybe dive into that European
Speaker 1: example a bit more.
Speaker 4: The way you calculate it, you say, well, what would
Speaker 4: a shareholder in or if a shareholder was going to
Speaker 4: give A and Z capital, what would they expect or
Speaker 4: any bank or anybody for that matter, what would they
Speaker 4: expect in return? Whether they said, well, if you're a
Speaker 4: New Zealand investment, the lowest risk thing you can do
Speaker 4: with your money is by government bombs because the government
Speaker 4: can always print enough money to pay you back. So
Speaker 4: it said, okay, if I was going to put my money,
Speaker 4: I remember capital is a long term so what's the
Speaker 4: current Say take the five or ten year bond rate
Speaker 4: in New Zealand and say I can do that all
Speaker 4: day long. So in order to encourage me to invest
Speaker 4: in somebody else, whoever that might be, I want more
Speaker 4: than that. Otherwise it'd be stupid. Why would I accept
Speaker 4: lower to invest in something that's inherently risky and banks
Speaker 4: a risky. Let's not forget banks are leveraged seventeen times now.
Speaker 4: I mean most of the corporates that your shareholders, that
Speaker 4: your people who are buying shares might think, you know,
Speaker 4: companies are leveraged two to one, banks are seventeen to
Speaker 4: one times leveraged. Right, they're risky, so you go, oh,
Speaker 4: I want more than that. So that's your starting point,
Speaker 4: and then what you do is you basically there's a
Speaker 4: way of figuring out over long term, what's the premium
Speaker 4: historically the market has expected for that risk and basically
Speaker 4: what it's you know, again, roughly the market is expected
Speaker 4: in order to invest in a bank like anz and
Speaker 4: not just an zid WESPAC or whoever, about a five
Speaker 4: percent premium on top of that risk free rate. So
Speaker 4: that's kind of the cost of capital. Now, if you're
Speaker 4: in Europe, interest rates are lower because their bond rates
Speaker 4: are lower for a whole bunch of different reasons we
Speaker 4: can talk about if you're interested, but the risk premiums
Speaker 4: are also about. They're actually not that vastly different, so
Speaker 4: their cost of capital is a little bit lower than now's.
Speaker 4: And if you're in Japan then your cost cabalis are
Speaker 4: much lighter because they're bond rates of close to zero.
Speaker 4: So it's really just about the investor's preference on how
Speaker 4: they evaluate the risk of investing in a band con
Speaker 4: saying what's a fair return that I would given the
Speaker 4: risk associated with investing in any company? I want more
Speaker 4: than risk free rate? And as I say, long, long, long,
Speaker 4: long term says that number generally is about five ish
Speaker 4: sixtish percent over the long term.
Speaker 1: You mentioned at a conference earlier this year around how
Speaker 1: in Australia we don't bank the middle anymore. Could you
Speaker 1: elaborate on what that meant and does that ring true
Speaker 1: in New Zealand also.
Speaker 4: In a long time ago, and again I'm exaggerating to
Speaker 4: make it, but just you know, a long time ago
Speaker 4: to many of your many of your listeners here or viewers,
Speaker 4: you know, if you wanted a homeowner, you want to
Speaker 4: start a business, you'd put on your best suit or
Speaker 4: your best outfit. You go down to the bank, You
Speaker 4: meet the bank manager, you talk to them about what
Speaker 4: you wanted to do, and they would probably look you
Speaker 4: up and down, ask you a few questions, and they
Speaker 4: judge you on character and all sorts of things, including
Speaker 4: the numbers, and they'd make an assessment right, and they'd
Speaker 4: back people with initiative and good ideas and those sorts
Speaker 4: of things who wanted to have a go today for
Speaker 4: a whole bunch of good reasons. The systems moved on
Speaker 4: and regulation has said, well, we don't like that. We
Speaker 4: want we want you to be safer in your choices.
Speaker 4: We want you to have more robust analysis to back
Speaker 4: up any decision that you make. Spreadsheets, credit ratings, track records,
Speaker 4: all of those things. That's great, that's fine, and those
Speaker 4: are sensible things. Over time, those are becoming more and
Speaker 4: more and more complicated, trying to protect so well intended,
Speaker 4: trying to ensure that no nothing ever goes wrong, so
Speaker 4: nobody ever get We don't like it when people lose
Speaker 4: their house or when their business fails. So the way
Speaker 4: to do that is make it as hard as possible
Speaker 4: to get the loan in the first place. I'm not
Speaker 4: saying that that was the design principle, but that's what's happened,
Speaker 4: and so now we have to go through a lot
Speaker 4: of process, which is all good, but what it means
Speaker 4: is the people that would have had a chance in
Speaker 4: the past and missing out. And so we can see
Speaker 4: the data. It's not just me theorizing here. If you
Speaker 4: look at people who have a home loan today, you know,
Speaker 4: and you look at their level of income, relative to
Speaker 4: the average person in Australia and New Zealand. It wouldn't
Speaker 4: be surprising that over time they've always been a little
Speaker 4: bit wealthier, they've always had higher incomes in the average.
Speaker 4: That kind of makes sense. That gap, though, how much
Speaker 4: higher than the average has exploded over the last ten
Speaker 4: or fifteen years. Yeah, so now to have a home
Speaker 4: loan you need not just five ten percent more than
Speaker 4: the average, you know, and I don't know the numbers
Speaker 4: in New Zealand, but they're rough. You know, in Australia
Speaker 4: it's like forty percent higher than the average used to
Speaker 4: be ten Now it's forty Why, Well, because we build
Speaker 4: all these safety factors in now. Some people say, oh,
Speaker 4: that's because house prices are really high. Yeah, perhaps there's
Speaker 4: an element of that in there. But the real issue
Speaker 4: is that banks it's been harder and harder. I'm not
Speaker 4: the only one saying it. My peers have since it's
Speaker 4: harder to get a credit card in Australian and he's
Speaker 4: on today than it has been in thirty years. In fact,
Speaker 4: that getting a credit card is harder and Australian is
Speaker 4: in than almost anywhere else in the world because as
Speaker 4: a community we've decided we're voting for safety, and so
Speaker 4: we don't like you know, and that's fine. It just
Speaker 4: comes at a cost. And the cost is people in
Speaker 4: the middle. That person that we would have given a
Speaker 4: home line to a credit card or a small business
Speaker 4: flane two ten years ago isn't getting it today. And
Speaker 4: that's a cost. I think that's a real cost. It's
Speaker 4: a cost of aspiration and growth and dynamism and the economy,
Speaker 4: and so I just you know, we raise it because
Speaker 4: we've been worried does it affect the bank, not really
Speaker 4: makes us safer. Actually, I'm not proposing a change because
Speaker 4: of it's an A and z's benefit we're trying to make.
Speaker 4: We're trying to make a contribution to the social structure
Speaker 4: and there, and they're cond me to say, is this
Speaker 4: what we signed up for? You know, is this what
Speaker 4: we all agreed as a community. Is that the outcome
Speaker 4: that we wanted.
Speaker 1: Actually, you know, from what I see in New Zealand
Speaker 1: and in Australia, we're really good at paying our debt,
Speaker 1: paying our mortgage, paying our rent of it might be
Speaker 1: you know that is kind of ingrained in our culture
Speaker 1: or the way that we think about money.
Speaker 3: So how do you.
Speaker 1: Go about driving that change so that more people, do
Speaker 1: you know, have the chance to give it a go
Speaker 1: if you know, the numbers don't stack up on day one,
Speaker 1: but they've got the ambition, the appetite and.
Speaker 3: And you know, the ability to make it work in
Speaker 3: the long run.
Speaker 4: We're not allowed to them. That's the that's the point
Speaker 4: we're trying to make the bank. And again I I.
Speaker 3: So the LBR limits as an example.
Speaker 4: And again, so what's happened since the GFC? Largely, I
Speaker 4: mean on the GFC, terrible thing has happened, I mean
Speaker 4: not nobody's debating that largely. It didn't really happen too
Speaker 4: badly in Australians in but it happened really badly in
Speaker 4: Europe and we know and that was awful, right, And
Speaker 4: as a reaction to that, government's regulators community said, oh,
Speaker 4: we don't want that to happen again, right, absolutely, So
Speaker 4: we put in place all these new rules, all these
Speaker 4: speed bumps, all these controls, all well meaning, and they
Speaker 4: grew up over a whole period of time. And what's
Speaker 4: happened It's not like somebody's sat around and wanted this,
Speaker 4: But what's happened is the people who are paying the
Speaker 4: price of all or that are the people in the middle.
Speaker 4: The people are used who would have got a home
Speaker 4: line or a credit card or a small business loan
Speaker 4: then who can't get one now, who are perfectly decent,
Speaker 4: hard working, honest, well intended people because we've said, oh,
Speaker 4: we want to build all these buffers in learning to
Speaker 4: value buffers, interest rate buffers. You know, we have all
Speaker 4: these things we need to do. And again they're well
Speaker 4: meaning and they protect the bank. So you know, again
Speaker 4: it protects us. And it should be no surprise that
Speaker 4: the credit losses in the bank so kind of it
Speaker 4: all time lows. We've never lost so little, right, So
Speaker 4: that's a good thing. It means less people are you know,
Speaker 4: getting into trouble with their home. But my point is,
Speaker 4: but lest people are having a home loan in the
Speaker 4: first place as a result, so the people in the middle,
Speaker 4: So the average Australian and the average of New Zealander
Speaker 4: cannot afford the average Australian and the average New Zealand home. Right.
Speaker 4: So I give you an example. It'd be like if
Speaker 4: we sat around as a community and said we really
Speaker 4: don't want anybody to get hurt on the roads. I mean,
Speaker 4: we would all agree with that, right, So why don't
Speaker 4: we all just drive at five kilometers an hour? Well,
Speaker 4: we definitely stop road accidents, but the entire economy would
Speaker 4: grind into a halt. And it's kind of what we're
Speaker 4: doing in banking. We see we don't want anybody to
Speaker 4: get into trouble with alone. That's fine, but the result
Speaker 4: of that is we lose dynamism. You know, I go
Speaker 4: back and I look at a lot of our customers
Speaker 4: who are now older, who started business as little businesses, startups.
Speaker 4: They were startups who are big, famous business people in
Speaker 4: Australia and New Zealand today. And you go back, asked
Speaker 4: in how they started. How they started? They literally walked
Speaker 4: into the bank, put on their best suit, had a
Speaker 4: big idea when and they got to go because the
Speaker 4: bank backed them into that aspiration and gave them a
Speaker 4: start that would not happen today. It can't happen today
Speaker 4: because we don't allow it to happen today. So I know,
Speaker 4: if you're a small business you want to line, you
Speaker 4: have to show me your track record. You have to
Speaker 4: prove to me you can repay in all these circumstances
Speaker 4: going forward.
Speaker 1: Obviously there's this movement with open banking. It seems to
Speaker 1: be a lot more advanced in Australia than where it
Speaker 1: is here in New Zealand. And we notice that with
Speaker 1: shareses we can offer roundups and quick deposits in Australia,
Speaker 1: but not here yet. And so let's kind of turn
Speaker 1: our minds to open banking and neo banking. We've seen
Speaker 1: success in the UK and Australia where customers are able
Speaker 1: to be to more easily switch banks or be offered
Speaker 1: more competitive services and products from third party financial companies.
Speaker 1: But how has A and Z approached adopting open banking
Speaker 1: and tech in Australia and will we be taking the
Speaker 1: same approach here in New Zealand.
Speaker 4: So actually, the neo banking thing has largely been a
Speaker 4: failure and I think we should just call it as
Speaker 4: it is. I mean, most of the neo banks who
Speaker 4: started here in Australia have subsequently closed or been a
Speaker 4: quiet yeah. And the reason for that, and again on
Speaker 4: being overly critical probably and overly a bit unfair, is
Speaker 4: because they didn't there's nothing neo about what they're offering.
Speaker 4: Was to a customer. There was nothing new. They still
Speaker 4: took deposits and made light and you know large. Okay,
Speaker 4: the act was a bit sexier, and you know there
Speaker 4: were some nice features around it, but the fundamental proposition
Speaker 4: was the same. Right. In fact, you could argue it
Speaker 4: was worse because they didn't have the breadth of service
Speaker 4: as a big bank hat and really importantly, they didn't
Speaker 4: have the stability that a big bank hats. Yeah, in
Speaker 4: terms of the credit quality and the diversification benefits we
Speaker 4: had so I and that doesn't mean we should ignore acknowledge.
Speaker 4: But where the really profound change hasn't been neo banking
Speaker 4: per se, has been real innovation, which is truly new proposition.
Speaker 4: So whether it's a revolute or why or the way
Speaker 4: that or bond ow po latter on those sorts of things,
Speaker 4: so different ways. I'm engaging with your financials right, those
Speaker 4: are ready where the innovation has come. Now, the challenges
Speaker 4: on a big bank is how do you engineer yourself
Speaker 4: to have the best of both big, stable, diverse and innovative,
Speaker 4: fast clever propositions. Well that's our strategy. That's why we
Speaker 4: launched a m Z plus, our new retail platform, which is.
Speaker 4: We've got roundups too, but we're the only major bank
Speaker 4: who can do it because we've built ourselves in a modern,
Speaker 4: contemporary stack. Now, everybody criticized us for doing it because
Speaker 4: a cost a gazillion dollars, cost a lot of money
Speaker 4: to do, but once you get there, what we're seeing
Speaker 4: today's the advantage. We're only two years in market. The
Speaker 4: cost to service a customer on Plus is thirty five
Speaker 4: percent lower than it is in our traditional bank.
Speaker 1: Now.
Speaker 4: A year ago it was twenty percent lower. So it's
Speaker 4: getting the gats widen it. So that's our future. I
Speaker 4: think the future is all about how do we embrace
Speaker 4: new technology, So we use open banking and Plus. Using
Speaker 4: open banking, you can go in and you can import
Speaker 4: your balances and transactions to view them from one hundred
Speaker 4: and ten other banks in Australia any and see it
Speaker 4: all and see your consolidated financials. That's really really cool.
Speaker 4: Now we're the only major bank that does that as well,
Speaker 4: because we've invested in the technology stack that allows it.
Speaker 4: So banking has always been about people in tech. We
Speaker 4: don't really have anything else right and the technology actually
Speaker 4: banks get a hard time and I'll give a bit
Speaker 4: of a plug for banks, but that it's actually pretty
Speaker 4: good at rolling out and commercializing technology. You know, think
Speaker 4: about these things. We were pretty good at commercializing mobile technology,
Speaker 4: which is only fifteen years old and now is our
Speaker 4: number one channel for customers engagement on here, a rich
Speaker 4: engaging experience on this, you know. So we're pretty good
Speaker 4: at taking technology. And of course the next big thing
Speaker 4: in my mind is AI and that you know, that
Speaker 4: is going to revolutionize the way we service customers and
Speaker 4: the propositions we bring to market. But you need the
Speaker 4: right technology stack to build on to enable it to
Speaker 4: be something really compelling.
Speaker 1: I read something with it about seven percentage that A
Speaker 1: and Z code written last year was generated by AI.
Speaker 3: I think it's get hub copilot.
Speaker 1: Can you tell us a bit about how you envision
Speaker 1: AI technology changing the operational nature of A and Z
Speaker 1: and also the banking industry as a whole.
Speaker 4: One of my one of our customers who had said
Speaker 4: he passed away now Mark Beeson, founder of the big
Speaker 4: number of the big shopping centers and never here Mark.
Speaker 4: I went to see him a couple of years ago.
Speaker 4: He is ninety, and I was asking about how he
Speaker 4: was Another one of those migrants who came to Australia
Speaker 4: with nothing and ended up You know, has you know
Speaker 4: a billionaire families created an immense wealth and prosperity from
Speaker 4: the thousands and thousands of Australians who work in their company,
Speaker 4: right and really good people. He said to me our
Speaker 4: ninety fifty six in CR National Cash Register Nember Cash Registers.
Speaker 4: They took us on a trip to Boise, Idaho, and
Speaker 4: in nine fifty we saw the future. We saw supermarkets
Speaker 4: and shopping centers, and we came back and that's what
Speaker 4: we did. Right. Well, I've seen the future as well.
Speaker 4: Maybe it was obviously everybody else. You know. I spent
Speaker 4: a bit of time up in California recently, and the
Speaker 4: future is generative AI. And I know probably people are
Speaker 4: sick of hearing about it, and there's no doubt there's
Speaker 4: an element of overhype. That's true in any new technology.
Speaker 4: But I've seen that future. And the future is going
Speaker 4: to come in two ways. All of us, all of
Speaker 4: the banks, we'll all everybody will start using these co
Speaker 4: pilots that are embedded in every single tech tool we have.
Speaker 4: Microsoft Outlook. It'll be in Salesforce, it will be in
Speaker 4: every tech tool we have your phone, and they'll be
Speaker 4: great and they'll make it all more efficient, just like
Speaker 4: email made us all more efficient. But the benefits of
Speaker 4: that won't differentiate you. They'll all get competed away for
Speaker 4: the benefit of customers, but you still have to do
Speaker 4: it great. The real opportunity is how do you then
Speaker 4: take those AI tools and intelligent automation that comes with
Speaker 4: it advanced analytics and embed those in propositions. Yeah, so
Speaker 4: imagine if on your amzid plus you had a virtual
Speaker 4: personal banker who you can ask questions of. Am I
Speaker 4: going to be able to form to go on holiday
Speaker 4: this year? Tell me where my money went last month?
Speaker 4: Talk to me about am I saving enough to form
Speaker 4: my retirement? All the beaks will do the productivity stuff,
Speaker 4: contact centers all that. Son who have the right tech platforms,
Speaker 4: we're able to build better propositions and that's obviously where
Speaker 4: we aspire to be in Australia and in New Zealand.
Speaker 3: So, you know, thinking about the year ahead, what excites
Speaker 3: you the most?
Speaker 4: Got a lot of work to do at a z
Speaker 4: embedding and integrating the sun cork one point two million customers.
Speaker 4: We've got a ZI plus on market. We have about
Speaker 4: eight hundred and fifty thousand customers already who've chosen to
Speaker 4: move to am zip plus already, which is a great achievement.
Speaker 4: And next year we're actually going to start moving our
Speaker 4: existing customers. We've got six million customers and our a
Speaker 4: Z Classic offering and we need to move this is
Speaker 4: in Australia, we need to move them across. That's going
Speaker 4: to take a couple of is what we're start next year.
Speaker 4: That's really exciting. And then of course what I just
Speaker 4: talked about, we've got our first AI virtual CFO tool
Speaker 4: being built in Palo Alto with a partner at the
Speaker 4: moment hook to be able to roll it out for
Speaker 4: small businesses in the middle of next year. Because our
Speaker 4: strategy is, look, we need to give our customers better tools.
Speaker 4: People want tools to manage their money, make their money
Speaker 4: go further, own the home faster, not slower. We want
Speaker 4: people to own the home faster, and we want people
Speaker 4: to be able to save for their retirement better. And
Speaker 4: the way you do that is with better tools. You know,
Speaker 4: the tools and the insights and the data. And we
Speaker 4: think the way that will come together in this AI
Speaker 4: world and that's you know, that's really really exciting.
Speaker 1: We had a rugby game in the weekend given you
Speaker 1: a key we bit. You've lived in Australia for a while.
Speaker 1: Are you a Wallabies or an All Black supporter?
Speaker 4: I find that question insulting. Actually, I can't even imagine.
Speaker 4: I can't imagine reading for the Wallabeds. I'm a die
Speaker 4: hard or Blacks fan. I mean, I'm a total New Zealander.
Speaker 4: I don't have an Australian past, but I don't want one.
Speaker 4: I love Usustralia and the lovely people all that. But
Speaker 4: I'm a very passionate Kiwi. But I'm a big passionate
Speaker 4: or Black supporter.
Speaker 1: Well, I love to wrap up with a really offending question.
Speaker 1: He thanks so much, Shane for you for coming on
Speaker 1: she Lunch Day. I really appreciate it you and thanks
Speaker 1: everyone for tuning in. Be sure to watch Shared Lunch
Speaker 1: on YouTube or on your favorite podcast app.
Speaker 3: Have a great week.