Commonwealth Bank pumped AU$752m into tech during H1 2018

Putting AU$375 million of its profit aside to pay its expected Austrac bill, Australia's largest bank has reported AU$4.9 billion in after-tax profit for the first half of 2018.
Written by Asha Barbaschow, Contributor

The Commonwealth Bank of Australia (CBA) has released its financial results for the first half of the 2018 financial year, reporting AU$4.9 billion in after-tax profit on revenue of AU$21.3 billion.

Information technology services expenses were itemised at AU$752 million for the six months to December 31, 2017, AU$350 million less than the technology spend recorded for the first half of FY17.

With 15.9 million customers, the bank counts 6.4 million as "digital" customers, boasting 6.3 million daily logons to either the CommBank app or NetBank platforms. The CommBank app also has 4.8 million unique users, the bank reported, with each logging in at least once during December 2017.

According to CBA, 56 percent of its total transactions by value are digital, likewise 26 percent of retail sales are also digital. Mobile logins also increased by 25 percent in the last 12 months.

In August, civil penalty proceedings were initiated by the Australian Transaction Reports and Analysis Centre (Austrac). It was alleged by Austrac that CBA had been involved in "serious and systemic non-compliance" with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

Austrac detailed 53,700 alleged breaches of the Act, which included failing to hand 53,506 threshold transaction reports (TTRs) for cash transactions over AU$10,000 to Austrac through intelligent deposit machines (IDMs) for almost three years between November 2012 and September 2015.

The bank in December admitted that disparate datasets contributed to a contravention of the Act. In its defence, CBA has asked Austrac to treat the contraventions as one course of conduct, arguing that the reports were late due to one systems-related error.

The bank faces a maximum penalty of AU$18 million for each of the contraventions if found guilty; however on Wednesday, the bank noted it has provided for a civil penalty of AU$375 million.

"The group believes this to be a reliable estimate of the level of penalty that a court may impose," the bank wrote in its half-year results. "This takes into account currently available information, including legal advice received by the group in relation to Austrac's claims."

The write-down is included in the bank's H1 profit.

"We recognise, and regret, that these costs arise from our failure to meet some standards that we should have. We will continue to work hard to do better," outgoing CEO Ian Narev told shareholders.

See also: Commonwealth Bank retail banking exec to replace Narev

AU$200 million in expected costs relating to currently known regulatory, compliance, and remediation program costs, including the financial services Royal Commission that is slated to commence Monday, was also provisioned for in the half-year balance sheet.

During the six-month period, CBA launched a handful of technology-based initiatives, with the bank touting its mobile-based offerings as making payments and budgeting easier.

Through the CommBank app, customers can activate instant notifications to alert them when and where a purchase has been made. Instant notifications are also available through CommBank when customers have insufficient funds to make a payment.

Where payment methods are concerned, the bank now boasts four card alternatives, including the tap and pay sticker for iPhone users in lieu of an Apple Pay integration; Android Pay; payment using a wearables device such as the Garmin smartwatch and the Fitbit Iconic for New Zealand ASB Bank customers; and Beem.

CBA, alongside Westpac and the National Australia Bank (NAB), announced the Beem joint venture in October that is charged with developing a mobile wallet for iOS and Android users.

According to the banks, customers will be able to use the app regardless of which bank they use, including organisations outside of the trio, with the end goal to be creating an "industry-wide payment solution".

The solution follows the three banks alongside Bendigo and Adelaide Bank pushing for regulatory approval to collectively bargain with Apple for open-access to the NFC antenna on the iPhone.

After labelling Apple Pay alternatives "unrealistic" in the Australian market, the banking cartel had their request denied by the Australian Competition and Consumer Commission.

Under an agreement signed with Mastercard and identity and security firm IDEMIA in December, small business customers of CBA using a Samsung device will be able to accept face-to-face payments from a contactless card or mobile wallet using their phone in the second half of 2018.

To coincide with the release of the iPhone X, the bank announced the availability of iPhone X facial recognition on its CommBank app in early November, allowing customers to log on to internet banking using Apple's Face ID function.

CBA launched Ceba in January, its new chatbot that uses artificial intelligence to assist customers with over 200 banking tasks such as card activation, checking account balance, making payments, or getting cardless cash.

Focusing on its South African operations, the bank said it has seen over 270,000 account registrations via 715 self-service kiosks. It also offers a "financial wellness" platform, Tyme Coach, aimed at improving "financial fitness" in the country, which features another AI play, Emyt, an Android, iOS, and web-based chatbot.

During 2018, the bank hopes to roll out its cloud core banking platform and commercialise its blockchain solution in South Africa.

Despite the bank revealing in December it would be implementing the issuance of a bond on the blockchain, the South Africa-based initiative is the only one mentioned for 2018 in its results.

See also: Commonwealth Bank and Wells Fargo claim first interbank blockchain trade

In Indonesia, the bank also has deployed 50 digital on-boarding kiosks.

For the 2017 financial year, the bank reported record after-tax profit of AU$9.88 billion, which was an increase of 4.6 percent over the previous year.


Western Australia-based Bankwest returned CBA AU$339 million in after-tax profit, a 17 percent year-on-year improvement, with banking income for the six months totalling AU$885 million.

The CBA-owned bank last month launched a new way to pay, a ring dubbed Halo that allows customers to "tap and go" at locations where they would otherwise use their card.

According to Bankwest, the speed in which it brought Halo to market is the result of Bankwest's adoption of new ways of working, which was described as a "customer-obsessed, agile approach", as traditional waterfall methodology would have delayed the delivery of such products.


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