Bendigo faces identity dilemma as it wins more digital and third party customers

George Lekakis

Bendigo chief Marnie Baker appears to be winning over some of the bank’s critics as her strategic swing to digital channels, third party origination and outsourcing help to crunch costs and boost shareholder returns.

Baker is overhauling the Bendigo business model and investors applauded her work on Monday as the share price soared to a six-month high.

While the Bendigo boss has championed the merits of repositioning the bank as a leading digital player, there is also evidence to show that the transformation program might also be driving a form of growth that collides with the company’s longstanding mantra of offering customers a relationship style of service.

In the last three years Bendigo has grown its home loan book faster than most other APRA-regulated lenders, but its path to winning new borrowers increasingly seems to reflect a transaction-oriented bank rather than one that is relationship focused.

That’s because the great bulk of its new home lending is now originated through third parties such as brokers and online platforms.

According to disclosures made in a slide presentation to analysts on Monday (slide 44), total third party-originated loans held on Bendigo’s balance sheet grew by A$1.7 billion in the December half compared to only $600 million via its branches and other proprietary channels.

Today, Bendigo leverages pricing through indirect channels to win most of its new borrowers – an approach to loan origination that might be considered overdone for a company that still describes itself as a “relationship bank”.

Baker yesterday tried to have it both ways.

In a media release issued before the analysts’ presentation, the CEO highlighted the bank’s traditional footings.

“We are not fair-weathered bankers that are here today and gone tomorrow,” she said in the release.

“We are relationship bankers.

“We are here for our customers through the cycle and have been since 1858.”

However, at the analysts’ briefing Baker seemed to talk more about making a break with the past.

“We will always be proud of our heritage as a regional and rural bank,” she told the tele-conference.

“But there are certain realities and limitations that come with this heritage including scale and customer demographics, which in turn place some constraints on our relative returns.

“We’ve had to face in to that, make changes and invest accordingly.
    
“This is where we think technology is a real game changer for us.”

Baker points to the wholly owned Up mobile banking platform as a manifestation of relationship banking making a successful transition to a screen environment.

“Up is not just a bunch of rate-sensitive customers,” she said.

“Upsiders are deeply engaged with, and trust, their bank.”

Outsourcing is a feature of the transformation program that could be upsetting some of Bendigo’s ability to deliver relationship banking effectively.

The bank is currently losing market share in the business lending market and the reasons for that are not entirely clear.

One possible explanation is that the decision to outsource merchant services last year to instore payments specialist, Tyro, resulted in some business customers shifting their accounts and loans to major banks that were able to provide them with a full menu of banking services.

Bendigo’s reputation as a relationship bank is also likely to come under further scrutiny as the company withdraws more branches from its proprietary network.

Branch closures might be a hotter issue for Bendigo to manage given that its reputation for relationship banking blossomed in the 1990s when the major banks were shutting thousands of outlets.

 

 

 

Bendigo was an outlier in the industry at the time because it was the only national bank expanding its network.