​ME sets sights on being a 'challenger brand' in banking

Australian industry super fund-owned bank ME has recently completed its five-year technology transformation, and believes it is now well placed to become a competitive digital bank.

For Australia's big four banks, face-to-face customer interaction has played a crucial role in their strategy, but for ME, it's all about being a digital-only bank.

ME made the decision to close all of its branches in 2011. To compensate for it, two years later, the company rolled out the trial of its virtual bank teller systems. The kiosks were built into its ATMs, and, using Cisco's telepresence technology, customers were able to call ME staff and speak face to face. But that was pulled after one year, in April 2014.

Speaking to ZDNet, ME's recently appointed chief information officer Mark Gay said that when the company made the decision to remove its physical presence altogether, it was because the company didn't have the scale to sustain it, compared to other banks that have an enormous branch footprint.

Off the back of this decision, the industry super fund-owned bank decided to launch and invest AU$90 million over five years into overhauling its legacy infrastructure and "cleaning up the back end", which it recently completed.

"I think the evolution is for banks to think less and less like banks, and think more and more like tech companies. When we look at engagement surveys internally, we tend to benchmark ourselves with tech companies. I think if we can crack the nut -- and we think we're on the journey of cracking the nut -- we think that will be our competitive advantage," Gay said.

The transformation saw the bank employ 25 vendors and more than 700 personnel to write over 1 million lines of code, as well as build and integrate seven new software systems and move 320,000 customers on to these systems.

More specifically, this involved updating its core banking system, reporting platform, and new business process management (BPM) tool.

Pegasystems' BPM platform was chosen as the BPM platform to allow customers to open transaction accounts online. ME picked the Temenos T24 CRM and product lifecycle management software platform for its core banking, switching from the Windows-SQL-based NTBS and Solaris-based Ultratracs, which the bank had in place for close to a decade.

It also opted to use Windows Server 2012 and SQL Server 2012 instead of a Linux alternative, which the company said at the time of implementation would cost AU$100,000 more.

Off the back of this transformation, the bank has since been able to maintain a centralised record for each customer, which gives customers the opportunity to receive a consistent experience, no matter what channel they use to interact with ME.

The bank has also been able to build eight new banking products, including a new mobile app, which has been downloaded more than 50,000 times since its launch six weeks ago.

ME is also preparing to launch a new internet banking platform, Gay said.

"Obviously, when we take the branch network away, customers want to interact with you easier from a digital perspective. These kinds of customer-facing experiences are only possible once we've gone through and cleaned up the whole back end and legacy infrastructure," he said.

The bank added that the time it now takes to open a deposit or transaction account has been cut from five days to five minutes, while the time to get conditional approval on a home loan has been reduced from three days to three minutes.

One of the other standout outcomes of the transformation has been the ability to offer new competitive variable home loans, Gay said.

"Traditionally, we had been a mortgage business, and we've grown into a retail bank in the last couple of years with credit cards and transaction account capabilities, but absolutely, mortgages will always be our bread and butter as an organisation.

"The old technology we had made it very cumbersome, and in some places impossible to launch new products, whereas this new technology allows us to go to market quite quickly and launch products like variable rate home loans, which in today's market a majority of Australians are chasing."

According to Gay, such a transformation was necessary to enable the bank to remain competitive, particularly given the decision to become a digital bank.

"I think the evolution is for banks to think less and less like banks, and think more and more like tech companies..."

— Mark Gay, ME CTO

"With this kind of transformation that we've been through, that straight through processing is absolutely paramount. We need to be really, really good at it. Absolutely, it's the basis of it; without that transformation, we couldn't have competed digitally long term," he said.

Looking forward, the bank hopes to triple its size by 2020 in terms of customer numbers and profitability. Internally, Gay said the profitability benchmark will continue to grow at approximately a 25 percent or higher rate as the intention is to achieve AU$60 million profit after tax this year and AU$75 million profit after tax next year.

"We're growing well against the rest of the banking system, and we're thinking that's a pretty big achievement, given we've been in transformation for the last five years. We have plans in place to leverage that investment, which will really give that growth a kick in the next couple of years," he said.

He added that ME is "a challenger brand" in the banking sector, and is now well placed to continue to be, with the completion of the technology transformation.

"We're certainly significantly smaller than the big four, so we don't claim to be competing in that space, but we see ourselves as a challenger brand in the marketplace. We think with this technology, the challenge we put out there is quite real."