​Commonwealth Bank ups technology spend to AU$1.2b in H1

During the six months ended December 2016, the bank spent AU$1.2 billion on technology and made AU$4.9 billion in after tax profit.

The Commonwealth Bank of Australia (CBA) spent AU$1.2 billion on IT services in the first half of the 2017 financial year, up from the AU$752 million it spent during the corresponding period a year prior.

With total IT spend increasing 54 percent, the amortisation of software assets cost the bank AU$613 million during the six-month period, while AU$222 million was spent on technology application, maintenance, and development.

For the six months ended December 2016, CBA reported statutory net profit after tax (NPAT) of AU$4.9 billion, up 6 percent year on year. Operating income for the period experienced a 6 percent increase to AU$13.1 billion.

Retail banking pulled NPAT of AU$2.5 billion, while business and private banking accounted for AU$791 million, institutional banking and markets took AU$683 million, and wealth management took AU$249 million.

The bank's New Zealand banking operations reported AU$471 million in NPAT, while wholly-owned subsidiary Bankwest made AU$355 million in after-tax profit.

Cash-based internet transactions for the period reached an all-time high, with 684 million instances performed via internet banking -- 80 percent via mobile -- and accounted for 53 percent of the bank's total money transacted for the half.

5.8 million CBA customers are currently using a digital channel to perform banking-related activities, with the CommBank app recording 27 million logins on average per week.

During the half year, CBA introduced instant transaction alerts for credit cards, as well as camera pay, which allows customers to use their smartphone camera to scan a code to send and receive money.

"Our job as a major financial institution is to maintain a focus on the long term, whilst ensuring that we can withstand nearer term shocks," CBA CEO Ian Narev told shareholders on Wednesday.

"Our contribution to Australia's economic growth must continue to be the combination of strength and innovation that has served Australia well through global volatility.

"We will continue to manage our balance sheet, and our expenditure, conservatively. But we will also continue to invest confidently so we can play our part in the bright future that we see for Australia."

In October, CBA entered into a memorandum of understanding with Alipay, Alibaba's online payment platform, to deliver payment solutions to Australian and Chinese consumers and retailers.

Under the agreement that saw CBA the become the first Australian bank to secure a deal with Alipay, the Chinese giant will use the bank's digital payments infrastructure to enable Australian consumers to make purchases across Alibaba Group's ecommerce websites including AliExpress.

During the half, CBA, in partnership with Wells Fargo and Brighann Cotton, claimed the first interbank trade transaction combining blockchain technology, smart contracts, and the Internet of Things (IoT).

The transaction, which took place between Brighann Cotton US and Brighann Cotton Marketing Australia, and their respective banks Wells Fargo and Commonwealth Bank, involved a shipment of 88 bales of cotton from Texas, USA to Qingdao, China.

At the time, the bank said the advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger will reduce errors and accomplish in minutes what used to take days.

"This proof of concept demonstrates how companies around the world could benefit from these emerging technologies," Michael Eidel, executive general manager of CBA's Cash-flow and Transaction Services, said.

"The interplay between blockchain, smart contracts, and the IoT is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain."

In announcing its first half results, CBA said the investment in blockchain will continue throughout the rest of the 2017 financial year, with the bank announcing last month that the Queensland Treasury Corporation (QTC) will begin using a prototype of the bank's capital markets blockchain platform, to be executed via a virtual "cryptobond".

QTC has already successfully used the bank's distributed ledger to generate a bond tender, view investor bids in real time, finalise investment allocation, and instantly settle with investors.

CBA also entered into a partnership with Barclays in September that saw the banks connecting with each other's apps to allow mobile payments between Australia and the UK.

At the same time, CBA also opened the doors to an innovation lab in London, joining Barclays' own Rise innovation hub, which has focused on fintech since 2014. CBA's innovation lab network now spans Sydney, Hong Kong, and London.

CBA's Albert -- which was launched in FY15 -- also had an active six months, adding 13 new apps to the 70,000 the "clever" eftpos devices deployed around the country.

The bank revealed in September it would be copping a AU$2.5 million write-off due to a programming error that resulted in CBA breaching responsible lending laws when providing personal overdraft facilities.

For the 2016 financial year, CBA reported statutory net profit after tax of AU$9.2 billion, up 3 percent year on year; operating income increased 5 percent to AU$24.6 billion; and revenue from ordinary activities came in at AU$44.4 billion, down 2 percent from the previous corresponding period.

"We have pursued a simple, consistent strategy for over a decade now. Continued execution of that strategy, focused on customer satisfaction, innovation, and strength, has again driven solid operating performance and balance sheet growth for the group," Narev said at the time.

Total IT expenses came in at AU$1.5 billion for the full year. Specifically, software amortisation increased by 23 percent to AU$379 million, while application maintenance costs went up 19 percent to AU$511 million. The largest IT expense for the full year was the desktop line item, which increased by 30 percent year on year to AU$143 million.