In less than a generation, we’ve gone from no online banking to a world on the cusp of embracing cryptocurrencies like bitcoin. We can now do pretty much all of our banking via smartphone, 24 hours a day, almost anywhere in the world. We can even pay for goods and services through Facebook.

In February 1997, the Commonwealth Bank became the first Australian bank to introduce a committed and functional online banking portal, Net Bank. It heralded a new age in banking for Australian consumers and a massive technological challenge for this country’s big four banks – CommBank, NAB, ANZ and Westpac.

Here’s a very entertaining assessment of Australia’s online bank offerings from that time by Professor Milind Sathye:

“The banks need to know that home banking will be done by housewives and old persons as well who will like the whole thing reduced to a couple of clicks here and there instead of being required to read through the instructions and download things they cannot understand. Make a survey and find out how many housewives know about acrobat and system configuration and all that stuff. Still the Australian banks want them to do Internet banking !!!”

By the early 2000s people were comfortable with the idea of online banking, and that comfort level was raised and accelerated with the massive uptake of smartphones and banking apps in the past decade.

Twenty years on from the launch of Net Bank and the big four are facing another generational tidal wave of technological disruption in the form of blockchain and other developments in areas like Big Data, artificial intelligence and automation.

The much-publicised recent announcement by NAB that it would be cutting up to 6000 jobs (and creating 2000 focused on digital banking initiatives) was another indication the banks know they have another fight on their hands to keep and attract customers who have become permanently conditioned to faster, easier, better banking.

NAB is well aware its major rivals are doing similar things, as well as being aware of the need to fend off challenges from smaller banks and fintechs looking to carve out markets for themselves in areas like home mortgages and business lending.

During NAB’s full year results media conference, chief executive Andrew Thorburn laid out the case for the restructure by saying the bank was focused on efficiencies but also on meeting challenges, especially in digital channels.

“So what we’re doing is we’re simplifying the bank. And as we simplify, we automate processes and things move to digital channels, we will need less people and as that happens we estimate that there will be 6000 less people needed in three years’ time,” Thorburn said.

“Having said that, we’re hiring 2000 people with different capabilities: data scientists, AI, robotics, automation, technology people, digital people, so the net will be 4000 and that’s just a reshaping that’s going to happen.”

NAB came in for some veiled criticism from Westpac chief Brian Hartzer, who implied its strategy was a reflection of its laggard status as an innovator.

“We are not doing a knee-jerk reaction,” he told the AFR. “I know people like big announcements. The reality is we have continued to drive [costs] out at a steady pace.”

“It’s an old-style thing to announce a restructure, and every 10th person goes,” he said.

“That’s not the way to make real structural improvements in costs. What we are doing is being a lot more scalpel-like in identifying the areas that we can get more efficient.”

While there is always plenty of sniping and jostling for position among the big four, especially when it comes to reporting earnings and making strategy announcements, it’s also an indication that the big banks recognise the next five years might be make or break time for them, especially if some of the more outlandish claims about blockchain’s potential impact turn out to have merit.

All four of the major banks have tested and trialled elements of blockchain technology over the past couple of years. This is in line with what major banks around the world are doing, as everyone tries to figure out the ins and outs of blockchain and cryptocurrencies for business models and how this translates at a consumer product level.

Just as the internet was seen as a Wild West scenario in its earliest days, the world of cryptocurrencies and bitcoin mania has left more sober and conservative observers in the banking world nonplussed. And it’s at this exact moment that some will dip their toes and retreat while others will dive in, either to sink or swim.

While the issue of automation and AI is complex to work out at an operational and implementation level, it is still very much about creating better banking services more efficiently. The problem banks face with blockchain is that it goes beyond operation and implementation level change by actually posing the possibility of completely new business models that would upend traditional banking models. Banks need to figure out where they sit in this new world and what value they will be providing to their customers. Otherwise, they may end up in a vastly diminished position in years to come.

Katy Cao

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