CBA should build out its business units to offset threats from fast-growing neobanks

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Australian Neobank Timeline

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Commonwealth Bank of Australia (CBA), one of the country’s Big Four incumbent banks, released earnings for its fiscal H1 2020 (ended December 31, 2019), giving updates on both its consumer and business banking units. The results were strong in both segments, though they also highlighted areas in which the bank might be vulnerable to the rise of neobanks.

Nearly 36% of Australians are using CBA as their primary financial institution (FI). CBA counts 24.9% of the home loan market and 26.8% of the deposit market in the country. And CEO Matt Comyn noted that the bank has seen a notable uptick in younger consumers using it as their primary FI, which he attributed to its investment in digital.
CBA issued $19 billion in new business lending in its fiscal H1 2020 — and it is building out this unit. Comyn described the firm’s value proposition and customer promise as making “business banking easier” and announced CBA will launch a fee-free business transaction account. This could be a play by CBA to compete with National Australia Bank (NAB) — also part of the Big Four, and the country’s largest business bank — which offers a range of business accounts, some with no fees.

CBA needs to continue to innovate on its digital offerings for both consumer and business banking, as the threat posed by the nascent Australian neobank market continues to grow. These challengers have accrued millions of dollars in deposits since they launched less than a year ago.

Almost two-thirds of CBA’s transactions are done digitally, but its customers’ propensity for digital banking could indicate their willingness to switch to neobanks that have more compelling digital offerings. Consumer-facing neobanks — like Xinja and 86 400 — have seen rapid success since introducing their high-interest savings accounts last year: 86 400 received $100 million in deposits since launching in September 2019.

Beyond competitive interest rates, neobanks are adding personal finance management tools, further distinguishing themselves from incumbents like CBA. The incumbent should therefore incorporate more tools of this nature, such as a budgeting tool, to shore up its offering against those from upstarts.

CBA also faces competition from business-focused neobanks, which are positioned for sustained growth this year. Judo Bank, a neobank which caters to small- and medium-sized businesses (SMBs), reached a total of $1 billion in deposits in its first nine months of operating — seeing $124 million in deposits in January 2020 alone.

The neobank attributes its above-market interest rate of 1.25% as a driver of its deposit milestone. If CBA can’t compete directly with neobanks’ high interest rates, it …read more

Source:: Business Insider

      

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