Baptism by Fire: How Adversity Primed Australia's Banking Industry for a Brave New Era  Bryan O'Connell specialises in providing strategic and marketing consultancy services to banks and financial service providers. He has more than 18 years experience in the industry both as a banking lawyer and strategic consultant.He has worked and acted for a wide range of banks, non bank financial institutions and corporations involved in the financial services industry. He can be contacted via email: bryanac@aibf.com.au

It has been a period of vast and unprecedented transformation, change and upheaval, unparalleled this century. It has been a decade laden with trauma and some pain, yielding some of the worst and some of the most outstanding performances from banks. Yet, it has also marked a period of great maturity within the industry.  

And on the eve of a new millennium, massive changes in communications technology have swept away much of the traditional banking system, opened vast new competitive fields that encompass customers on the other side of the globe and presented a fascinating - perhaps infinite - array of methods for doing business. The Internet and electronic commerce is no longer a dream of the next century. It is upon us, and competitive pressures demand that operators and customers in Australia's banking industry engage with maturity the platforms of the new century.  

There have been so many changes in the past brief decade that is impossible to mention all of them here. The challenge is to reflect on some of the substantive changes, analyse what drove so many of the changes, identify how banks responded to the changes, consider the significance of globalisation, and examine some of the key issues that lie ahead as we move into a new millennium.  

We have seen all the major Australian banks make substantial changes to their operations, businesses, organisational structures and strategies, particularly their move to become all-embracing financial service organisations. All are now very different banks to what they were at the beginning of the decade.  

The Commonwealth Bank of Australia has been privatised, it acquired the State Bank of Victoria, and transformed itself into a major financial services organisation leveraging off the largest financial services customer base in Australia.  

It transformed itself from a bank with a bureaucratic and awkward image, to one that is much more innovative and progressive, and which has delivered outstanding shareholder value. It has also made some bold decisions, such as outsourcing its information technology requirements to EDS, and was the first to embrace supermarket banking and the utilisation of other forms of technology to enhance its business. 

The National, which recently changed its name from National Australia Bank, has expanded aggressively offshore. Acquisitions in Britain, Ireland and the United States have melded it into a global bank, with half its income now derived outside Australia. National now owns Homeside, a US mortgage processing company, which processes about the same volume of mortgages as the entire Australian mortgage market.  

Over the decade, National has shown remarkable profit growth and has lead the industry with historic profit performances. 

Westpac, which opened the 1990s traumatised by a billion-dollar loss, created some history in the local industry by appointing an American chief executive to help it step back from the brink of disaster.  

Under Bob Joss, Westpac steadied, regained ground, and along the way made some massive changes to its banking operations. It retreated from its international business by selling many of its operations outside Australia, and embarked on a regional banking focus by buying two regional banks, Challenge Bank in Western Australia and Bank of Melbourne in Victoria. It is the only bank in Australia that operates under different brands in some states of Australia.  

ANZ Bank, which also was badly damaged by losses in the early part of the decade and by bad debt problems particularly in Victoria, has also consolidated its position. It has persevered with several cost rationalisation episodes and, like many other banks, has tried to create a leaner and more efficient organisation.  

It has curbed its international operations to be more focused on its domestic retail bank strategy, although it still has more representation in international markets than any other major Australian bank. Despite its more extensive exposure to South East Asia relative to its Australian peers, ANZ weathered the storm of the Asian financial crisis without any significant problems.  

One of the hallmarks of the 1990s was the emergence of regional banks in Australia. Many were created from building societies that wanted to offer a fresh and more dynamic level of service in retail banking. 

St George Bank is now the fifth largest bank in Australia, its growth aided mostly by the acquisition of Advance Bank, which was yet another regional bank that emerged from a building society. Bank of Melbourne, formerly the RESI Building Society, became a formidable force in retail banking in Victoria and effectively became the number four retail bank in that state, ahead of Westpac which subsequently took it over. 

Metway Bank in Queensland was created from the old Metropolitan Building Society and subsequently became Suncorp Metway with the merger between Metway Bank, Queensland Industry Development Corporation (QIDC) and Suncorp. 

Regional banks have thrown up new forms of competition for the traditional banks, and have been most innovative with their services and products. Consider Bendigo Bank, which created and fostered the concept of community-based banking. 

The decade also witnessed the demise of two historic, state-owned banks - the State Bank of Victoria and the State Bank of South Australia. Each was swept into the corporate boom and property bust of the 1980s and early 1990s. In Western Australia, the Government-owned Rural and Industries Bank of Western Australia, was renamed BankWest, then privatised with 51 per cent sold to Bank of Scotland and the balance of shares offered to the public. 

Consolidation across a wide spectrum of the industry has affected many banks and non-bank financial institutions. Regional banks have acquired and been acquired; building societies have merged and later been swallowed by other predators; the credit union industry has rationalised through mergers, and banks have bought managed investment funds.  

Acquisition and the threat of acquisition is now rife in the financial services industry, and the activity extends globally.  

The past decade also saw the emergence of the first true allfinance bank, namely Colonial State Bank, which emerged from Colonial's purchase of the State Bank of New South Wales. Colonial State Bank has aggressively and relentlessly pursued its allfinance strategy, and has added to its portfolio by buying the insurance companies, Legal & General and Prudential. It has also made acquisitions offshore, and recently revealed it would buy Trust Bank in Tasmania.  

Colonial State Bank's moves marked the first successful foray by an Australian insurance company into banking. Other attempts were not so successful: Westpac and AMP dissolved their banking insurance/alliance, and the Chase AMP Bank and National Mutual Royal Bank units were dismantled.  

AMP is having another shot through AMP Bank. It is early days yet, but there are no signs that the insurance-based bank has been able to forge any major presence in the retail banking markets.  

While revolutionising their operational profile, banks were ambushed by a new wave of competition in the retail banking market. If competition was tough already, it got progressively tougher. Mortgage originators rolled into the market and quickly tackled the banks to win a share of the home loan market. A pricing war and head-on confrontation with banks ensued, and in the end the banks lost substantial revenues and Australians relished cheaper mortgages. Now, mortgage originators are being used as distribution arms by some of the banks.  

All that change, and new technology to boot. On the eve of a new millenium, computerised technology, the astonishing capabilities of the Internet, and electronic commerce possibilities have taken on a new meaning. These are now perceived as the biggest drivers of change and, some may argue, of competition. The Internet and the effects of e-commerce have launched what many see as a revolution in banking. 

Then there was the all-pervasive effect of new industry regulation. The latter years of the 1990s were marked by the Wallis Committee's Inquiry into Financial Systems, and the subsequent implementation of its recommendations by the Government. The Australian Prudential Regulation Authority was created, and assumed all prudential supervisory powers over banks and most other non-bank financial institutions.  

More importantly, Australia's industry in the 1990s began to feel the waves of change emanating from the increasing globalisation of the world industry as banks in Europe, the US and Japan embarked on massive consolidations and mergers.  

As we enter the new millennium, we should reflect on what has driven this change, what are some of the key issues of change during this period and what it might presage for the future as this decade - and a very big chapter in Australia's banking history - comes to a close. 

The 1980s - The Darkest Period of Banking This Century 

If the 1990s spelled change, the 1980s was the critical juncture. It is not an easy period for bankers to recall or reflect on. It created a great deal of trauma among several banks, and in some respects it marked the darkest period of banking this century. For some State-owned banks, this was the end of the road; for some other banks, it generated some dire results and massive bad debt write-offs. It put one of our major banks on the very edge of survival.  

How far and to what extent were the events of the 1980s responsible for the changes and transformation that banks experienced in the 1990s? Could they be considered as drivers of change, along with the often cited forces such as deregulation, technology, globalisation and changing customer demands?  

During the 1980s, many banks were caught in the boom and bust of large corporates. Collapses included the retail and shipping conglomerae Adelaide Steamship Co, national beverages group Bond Brewing, leisure and films vehicle Qintex, the Australian rent-a-car franchise Budget, the historic newspaper group Fairfax and Linter Textiles, to name a few.  

Many banks and their subsidiaries lost billions of dollars by lending to the entrepreneurial characters leading these organisations and by extending loans over highly-priced property assets. Corporate debt ballooned as banks, domestic and foreign alike, chased the corporate deals.  

A number of bank subsidiaries had to be rescued by their parents, and two of Australia's four state banks - the State Bank of Victoria, which drew its sufferings from the lending activities of its subsidiary Tricontinental Corporation (acquired in the early 1980s), and the State Bank of South Australia - suffered huge losses and were subsequently the subject of separate Royal Commissions.  

Many other non-bank financial institutions faced their own disasters: Trustees Executor & Agency Co Ltd collapsed, as did the merchant bank Rothwells, Spedley Securities, Estate Mortgage and Pyramid Building Society in Victoria.  

Many Australian and international banks were caught up in the maelstrom of hype defining the boom in corporate debt. Traditional credit criteria and lending practices at some banks dissolved as the corporates played banks against each other, seeking more debt to fuel takeovers and other expansionary deals. It seemed all the old rules had been forgotten or abandoned. Why? 

Much earlier in the decade, the Hawke Government, acting on recommendations in the Campbell Report, made three significant regulatory changes. It decided to 

• Float the Australian dollar
• Grant foreign exchange licences to 40 applicants, and 
• Grant 16 banking licences to foreign banks.

The chief executive of the Commonwealth Bank, David Murray, does not necessarily follow this theory. But he told Journal of Banking and Financial Services that in his view the Campbell Report stands alone in terms of quality and in recommending fundamental improvements to the Australian banking system.  

In particular, Murray said, the Campbell Report clearly identified the three objectives that need to be in the banking system: distributive efficiency, allocative efficiency, and dynamic efficiency. Subsequent inquiries that followed Campbell, such as the Wallis Report which dealt mainly with supervisory issues, only "tinkered at the edges", he said. And because Australians are naturally inventive, "that is why we now have a dynamic banking industry - because Campbell deregulated in the way it did."  

Murray believes that the biggest problem of the 1980s era was the way the economy and monetary policy was mishandled by the Government. He argues that the Government's move to push up general interest rates to 20 per cent and home loan rates to 17 per cent triggered the recession that emerged from mid-1989. 
 

"The Government allowed inflation and interest rates to go too high,'' he said. The high interest rates, combined with mismanagement of corporate debt, created a serious recession and eventually toppled companies and some banks alike.  

Murray believes that the Australian banking industry is still paying today for the Government's management of the economy at that time. Its image has suffered, and it has had more regulation imposed. Yet, with the possible exception of the late 1890s and the of Depression of the 1930s, Australia's banks had never experienced such an adverse set of circumstances.  

The head of personal financial services at ANZ Bank, Peter Hawkins, argues that, in hindsight, banks did get caught up in the frenzied hype of the large-corporate debt market during this period, and that there was considerable anxiety among domestic banks in the period just before the foreign licences were granted. The prevalent view was that the foreign banks were a threat to the incumbents, and there was much activity to ensure that banks were prepared for the threat. One of the outcomes, he said, was that banks were more aggressive in pursuing business than they might have been.  

Hawkins believes the banks may have overeacted to the threat posed by the foreigners. Yet at the time, what was considered "a cosy and protected market" was suddenly going to be shaken up with some decent competition. Whether fewer licences would have made any difference seems unlikely.  

Westpac's group executive in charge of Australian business and personal banking, Michael Hawker, who worked previously with Citibank for several years, agrees that Australian banks were driven to a heightened level of competitiveness in the 1980s amid deregulation changes and competition from new foreign banks. Every foreign bank wanted to build a loans base, and they were willing to lend. But they had little or no experience in Australia. They were injecting new capital, and as a result Australian banks faced significantly lower operating margins, particularly in their wholesale activities. In the end, there was a surplus of capital, which combined with competitive pressure, reduced underwriting standards.  

Hawkins argues two important consequences flowed from the events of the 1980s. Firstly, there was a substantial review of the prudential aspects of banking, particularly those concerning credit. An enormous effort was made to reassess credit processes and standards to ensure that it would not happen again. This overhaul happened at all the banks, not just at ANZ. Hawkins says the second important consequence of the 1980s problems was that the Australian banking industry lost as much as three years of development because banks were "consumed with putting their houses back in order". Yet soon after there was a "rapid catch-up" to make up for those years when so much of the banks' resources and attention was devoted to credit issues.  

Michael Hawker suggests that some banks in the 1980s were ''focused on self survival", and as a result made many "customer-unfriendly decisions" that were aimed at keeping the bank intact. Westpac, for one, has been busy since rebuilding its brand and the "trust" behind the brand. Hawker contends much of the "bank bashing" today results from what occurred in the early 1990s. Banks, he said, "are seen as gouging the customer". Yet banks are really trying to focus more on what customers want and manage the relationship. "That is the social responsibility of banks,'' he said. ''To make sure they are sound to provide support to the business and consumer communities through the business cycle."  

Of course, nobody really knows whether or not the new credit standards and systems are totally foolproof until Australia endures another economic downturn of similar magnitude and pressure is again brought on the system. Yet Hawkins is certain that today we are seeing the results of the substantial reviews that resulted from this era: credit processes and prudential standards are much more robust than they were. And that, he says, has been a very positive outcome.  

WESTPAC  

No-one should underestimate the seriousness of what the 1980s era created for Westpac, and the subsequent action and changes that were made as the bank staggered close to failure. In 1993, Westpac suffered its biggest corporate loss in its history, a whopping $1.6 billion wiped from the bank's ledgers.  

The US-born Bob Joss, who this year left his position as Westpac chief executive, commented on the bank's precarious position and his period as CEO in a newly released book, Managing in Australia (written in cooperation with David Mair), which was co-authored with fellow American Frank Blount, who left his CEO post at Telstra earlier this year. As Mair explains: 

"As a result of the recession of 1990, Westpac's earlier attempts at global expansion had exposed the bank to a number of high risk property portfolios. Management and the board were reluctant to acknowledge just how high risk the loans were until the Reserve Bank of Australia intervened in early 1992. Suggesting that provisions for the bad loans were woefully inadequate, the Reserve Bank painted a bleak picture of the true financial picture of Westpac. Things were becoming so bad that a US bank in a similar position would probably be under formal supervision by the USA Federal Deposit Insurance Corporation. The percentage of problem loans hovered around 14 per cent, whereas the world average for similar banks was around one per cent with anything over four per cent seen as worrying. In urging a more realistic presentation of Westpac's state of affairs, the Australian Reserve noted that if things weren't corrected to its satisfaction, its powers included the option of replacing the entire board. This was no longer about public relations positioning, it was about the very survival of the bank."  

In a number of ways, what happened at Westpac in terms of the changes that were implemented in the 1990s are very much related to the problems, mistakes and failures that occurred before.  

One of the first big changes at Westpac was the appointment of a new CEO. Major banks in Australia had never appointed an outsider as CEO, let alone someone from the US. Joss brought a new style of management and experience from a leading US west coast bank, Wells Fargo, into Australian banking. In terms of people issues, and how far Joss had to implement change, Managing in Australia editor David Mair says: 

''Initially, Joss wasn't sure exactly what he had to work with amongst the upper and middle management levels. Their skills and experience looked good on paper, but his gut instinct told him that if the branch staff were pulling their weight as it appeared, then the problems must be found somewhere within the top 2,000 to 3,000 employees. This group had the power to recruit the right people to make the right decisions. History would suggest that Westpac had a surplus of the wrong people making the wrong decisions." Joss says: 

"The culture had been one of passing orders, moving things as quickly as possible from the in-tray to the out-tray . . . There was no ingrained sense of responsibility, ownership or accountability. I could see how this would lead to a level and depth of experience that was much weaker than I ever thought possible".  

Michael Hawker says Westpac in the early 1980s pursued the difficult, and ultimately unsuccessful, strategy of becoming Australia's global bank.  

Joss made many substantive changes at Westpac and brought it back on to its feet by redirecting its resources and staff, and by implementing a series of strategic changes. The plan was to focus Westpac primarily as a major regional bank in Australia and create ''Best Bank" principles.  

"By 1999, Dun & Bradstreet showed that Westpac had the best risk portfolio in the country, with the lowest share of high risk loans."  

There is perhaps no better example of a bank that had to implement dramatic change as a direct result of the mistakes and problems that had been created in that preceding era as Westpac. 

WHAT BANKS DID NOT ANTICIPATE  

As noted earlier, the problems of the late 1980s and early 1990s slowed the ability of many banks to develop and address developmental and other efficiency issues for some time. The focus for many banks during the early 1990s was sorting out the crises engendered by the recession and corporate debt burdens.  

Banks simply had not anticipated many of the problems and changes that were to occur. David Murray believes that no one could have anticipated the degree of work out that was required, or the resources that would be tied up in 1990, 1991 and 1992.  

One of the most important issues of the 1990s has been the banks' earnest focus on costs.  

ANZ's Peter Hawkins says costs certainly were an issue before the 1990s, but banks did not fully understand what they needed to do to control costs. They were late in grasping the cost agenda compared to other industries such as manufacturing and the mining industry, and banks therefore have been in "a catch up game" compared with other industries, Hawkins said.  

As well, notwithstanding the effect of deregulation, banks in the 1980s were not fully exposed to the rigours of competition such as witnessed in the 1990s, nor the full effects of globalisation. In many respects, while the banks could not have anticipated the problems they were to experience with debt and credit management, they also did not understand and anticipate that the 1990s would be a much more rigorous period in terms of competition. They failed to see they could not carry the same cost structures as they had in the past. Perhaps if they had, some of the subsequent pain of downsizing and rationalisation could have been reduced. 

Yet the debt and credit management problems did blur the vision of bank managers and turned their attention away from strategic planning and business discipline that was required in planning for the future.  

The 1990s -- Consolidation, Competition, Globalisation 

One of the highlights of the changes in the 1990s has been the banks' improved efficiency, productivity product and service offerings and cost structures.  

David Murray believes that after the consolidation moves of the early 1990s, banks enjoyed substantial productivity improvements. This enabled margins to fall, he said, and in the end meant the industry was much more efficient, and particularly able to benefit its customers. 

Murray also contends that hand-in-hand with the productivity improvements came a dramatic change in management know-how. Now many techniques adopted by the banks are in line with world's best practice. This applies to credit portfolio management and asset liability management.  

Murray argues that this step-change in management skills was put to the test during the Asian financial crisis in the latter part of the decade: notably, Australia did not suffer a secondary financial crisis or a slowdown in the rate of credit formation.  

Michael Hawker believes one of the most significant changes is the proliferation of new financial products and services. The old system limiting customers to simple cheque accounts and a narrow range of loan products has been overwhelmed by a sophisticated array of choice. But massive choice means not all consumers understand the new products. While some grasp the benefits of new technology, others do not have the opportunity to use the new system or they are confused by the number and types of products and financial services now offered. For this industry, the challenge is to educate consumers, including business customers, about what choices are available and how to use the technology. As Hawker concedes, all this change has also been difficult for staff. 

Globalisation poses both threats and opportunities for Australia's banking industry. Major international banks are creating all-pervasive global banking institutions at a staggering pace. In Europe conglomerate finance houses have become behemoths: Union Bank of Switzerland and Swiss Bank Corp, Deutsche Bank and Bankers Trust. In the US, Citicorp merged with Travellers Group, Wells Fargo with Norwest, Bank One with First Chicago. And in Japan, the massive Mitsubishi joined with Bank of Tokyo.  

There is little doubt that the forces behind major consolidations of the type mentioned above are size and scale. David Murray suggests there are three major scale drivers: the need to have suitable scale in asset management; scale in saving costs; and scale in information technology. In Murray's view, the moves of the banking industry are no different to the way other industries have approached their need for suitable scale: witness, the world auto industry where the number of manufacturers has reduced dramatically. 

As scale becomes more relevant in Australia, the critical issue will be can the banks export their banking skills, or will they be taken over by a bigger banking house? In Murray's view, in order to be able to export skills successfully, you need a level playing field internationally in terms of regulation.  

Importantly, he also raises the issue of whether the burden of regulation is more than is reasonably required to govern the industry well. Perhaps, in the post-Wallis Report era, there is a trend to regulate for no discernible reason or advantage to the customer. 

He also points to regressive taxes such as FID and Debits Tax which, despite the Howard Government's promise, now will not be lifted after the imposition of a Goods and Services Tax in 2000. As well, the regulation of the Credit Code and its incredible complexity, has not provided any discernible advantage to the customer, but has resulted in huge costs - costs which will be passed on to the end-user.  

Murray also notes the Government did not adopt the banks' arguments on the GST, so retail customers will be worse off. And the proposed changes to accountancy standards, under CLERP 6, will create undue complexity and cost.  

All up, David Murray's view is that this is not an environment conducive to creating a team effort, one where all the fantastic skills developed in the banking industry can be harnessed for export. Instead, all it does is tilt the playing field in favour of offshore competitors.  

Peter Hawkins emphasises that suitable scale can drive down unit costs throughout an organisation. This is the key factor driving merger activity, particularly in the US.  

In Australia, the restriction arising from the so-called Four Pillars policy means the focus is instead on what rationalisation might occur around the regional banks, and the possibility of merger activity between banks and funds management companies, Hawkins said. There is a better appreciation by banks of what these non-banks have in terms of products and the access they have to the customer's wallet. On the other hand, banks have the sizeable customer bases and distribution networks that insurance companies and funds management groups would like to get their hands on. 

Hawkins does not see an immediate threat from global banks in the short to medium term. But over time, global banks will have an advantage to provide competitive financial services. If the Australian banks do not address this as a group and become part of it, then in Hawkins view "we will find it increasingly difficult to make the investment in order to take the business (of banking) forward, and will struggle to be competitive with the cost base as opposed to those who have dramatically bigger scale".  

National also believes in the argument of economies of scale, particularly in the aras of processing. NAB's chief economist, Alan Oster, believes without those economies of scale in processing, a bank runs the risk of either being inefficient or being taken over. Inefficiency eventually means the operator needs protective barriers, but protective barriers cannot exist in the current environment with global technology. 

One way of gaining scale is by outsourcing tasks to a specialist, or creating scale internally. One example is NAB's Homeside, or the Bank of New Zealand running its business on the same platform as the Australian operations of the National as another. Oster says in the new business model of the NAB, global products have been devised so that products are basically the same regardless of the country, and the bank's managers include a global head of cards, global head of leasing and so on. 

He also refers to economies of scope, or sharing information, so that when you sell a customer a banking product you are also in a position to sell them an insurance product; the kind of selling proposal offered by the merger of Citicorp and Travellers. 

Westpac's Michael Hawker argues that a significant aspect of globalisation is the free flow of capital and information. Over the past five years, international players have re-emerged on the Australian scene: both Merrill Lynch and Morgan Stanley have developed significant operations here, ABN AMRO is growing rapidly following its acquisition of BZW Australia, Dutch-based ING acquired Mercantile Mutual and Deutsche Bank purchased a local broking house/invetsment bank Bain & Co. Yet this agglomeration of small players by global players seeking an Australian foothold could lead to a business phase similar to that seen in the late 1980s. It is possible that these ambitious new entrants may not achieve sufficient return for their substantial investment, with the likely result that some may shut up shop. Australia attracts much foreign capital because international players consider it a testing ground for new ideas and new products. The result is that Australia ends up with more capital than required, and not, reactive competition from domestic players market. Tight internal controls on capital management should help avoid a revisit of the late 1980s, says Hawker. 

In Australia, banks need scale opportunities to keep creating efficiencies, Oster says. As margins continue to be squeezed, there is no choice other than to keep working on creating economies of scale and greater efficiencies. If a bank does nothing, Oster says, it risks being ''picked off". A good example of a global bank doing this in Australia is Rabobank, which has more rural customers than the National and a bigger market share in rural business.  

TECHNOLOGY TRANSFORMS  

The Internet poses incredible challenges to banks. They must learn how to use the technology to serve their customers better, find ways of offering new products, offer more information, while trying to reduce costs and create greater efficiencies.  

Michael Hawker argues that the Internet highlights the need for strong product branding, strong logistics management due to the automation of many processes, and cost control. Many players can now deliver the same products and services at significantly lower costs than rivals operating from bricks-and-mortar outlets. As well, while the Internet is crucial for delivery of financial services seven days a week, 24 hours a day, it should be recognised as just one arm of a distribution network. Financial services providers must also provide other distribution outlets (eg. the telephone) to maximise customer convenience and access. 

At the same time, technology will throw up the threat of new entrants and new competition. It may once have driven fear into bankers, but modern day bankers perhaps are not quite so threatened. Indeed, in some respects they welcome it. In David Murray's view, "the more competition, the better", and "everyone adds something to make the industry more dynamic". 

In the past decade, banks in Australia have learned to live with competition as well as react to it in a positive way. One could argue the banks needed the discipline of sharp and intense competition to keep lifting the performance of their own organisations, and to keep driving successful change. In itself, this has been a significant change. It marks a new maturity in the industry.  

Peter Hawkins believes technology may give new entrants and global players an edge over others, a little like the mortgage originators did. From a consumer point of view, that can only be "good news". In turn, David Murray says technology is driving a dramatic change in the level of customer service and changes in how banks provide for customers in the future.  

Customers are driven by self reliance from retirement income, and demographics and work patterns.  

Murray argues that customers want services that help them with financial management and support throughout life, as well as services that offer convenience. 

That means bank must bring several 'tools' to customers, for example, the Commonwealth Bank's discount brokerage business which allows customers to bypass stockbrokers and trade shares on the Internet. New technological developments have enabled the bank to offer more information, more tools and more choices of product. Still, for customers who need to sit down and talk to someone, the bank will continue to have a significant branch network. Murray is adamant that the Commonwealth Bank will continue to expand its distribution network. 

While some banks have branches only, the Commonwealth Bank has an additional 3,900 agencies and an extensive representation through EFTPOS terminals: these have swelled from 7000 to 90,000 units. Automatic teller machine numbers doubled when other banks were not investing in ATMs.  

The bank also insisted on industry-wide interchange so that anyone can go to another bank's ATM for a transaction, and it has installed Ezy Bank kiosks in Woolworths and Safeway supermarkets across the country, adding a further 640 sites to its extensive distribution list.  

Murray wants the Commonwealth Bank to be easily available to the customer. The strategy is to expand distribution and create more wealth management for customers, so that the customer feels he or she is doing a good job running his or her finances in a self sufficient way.  

SUMMARY  

The last decade of banking has been one of truly historic transformation. Deregulation, new technologies and globalisation helped foster the changes, but much has been driven by the events and circumstances of the 1980s and early 1990s. Banks must never forget the lessons learned in this period.  

To be sure, bank managers could not have anticipated many of the events that did transpire this decade. But they have overcome adversity, adapted, and greatly accelerated productivity within their organisations as well as sharpened their management skills.  

Critical issues that must remain uppermost in any strategy are technology developments and evolving to meet customer needs. That will at least help Australia's banks meet competitive challenges, because certainly globalisation remains the greatest threat and opportunity for the industry as we move into the 21st century.  

Footnotes 

1. Bank Lending and Securities in Australia, W.S. Weerasooria. Butterworths (1998), pp. 61-69.  

2. Bold Riders, Trevor Sykes. Allen & Unwin (1994 & 1996). See generally, chapters 2, 4, 5, 11 and 12  

3. ibid, Sykes. p.17.  

4. ibid, Weerasooria. p.62.  

Also, Managing in Australia, By Frank Blount and Bob Joss with David Mair. Lansdowne (1999).