Banking doubts to aid Coles’ foray into financial services

SHAUN DRUMMOND
The Australian Financial Review
Loss of confidence in banks after the global financial crisis and their links to financial planning scandals is aiding the grocery giants’ push into financial services, Coles finance director Rob Scott says.
“What happened with the GFC is that it led to a loss of public confidence in big financial institutions, [including] the quality of advice and disclosure and the need for taxpayer support,” Mr Scott told The Australian Financial Review.
Despite compliance costs soaring in banking and potentially crimping the big profits on offer, the explosion of ­digital technologies in the sector is slashing operating costs and giving a boost to Coles and many other challengers to financial services incumbents.
In addition, the amount of information available to consumers is undermining the brand power of large financial institutions.
“Technology will be a very important differentiator for financial services providers as regards to offering better services and reducing costs for consumers,” Mr Scott said. “Customers will have more information available to make decisions and therefore the value associated with some of the more traditional brands in financial services may not be as relevant.”
Mr Scott also said “disclosure and advice frameworks” were ineffective.
Half of the supermarket’s 350,000 insurance customers – a number which has more than tripled in two years – didn’t sign up online, but that’s changing fast. Three-quarters of customers for a new life insurance product Coles is offering have signed up online.
Last week Coles said it would offer personal loans in 2015, as well as credit cards, and launched its “mobile wallet” which achieved 5000 downloads in its first 48 hours, to which it will add new services.
It also moved to change its relationship with its credit card provider GE Capital from a “white labelling” of its products to a joint venture to get more control over what it offers.
“With the joint venture, we will become an issuer of the card; we will be responsible for the lending activity and we will have far more influence on the customer offer and the funding of that,” said Mr Scott, who was formerly the head of Wesfarmers Insurance which backs Coles’s Insurance.
ONE EYE ON BRITAIN
Two years ago his predecessor, Tony Buffin – who was brought in from ­Britain by Wesfarmers’ former adviser, Archie Norman, along with other members of the Coles turnaround team – told the Financial Review that term deposits and savings accounts could easily be their next step. These, along with mortgages and many other financial products, are now offered by the big British chains such as Tesco, Marks & Spencer and Sainsbury’s.
Coles is understood to be applying for a banking licence, but Mr Scott is coy on what extra products they will move into. “I wouldn’t comment on how similar it is going to be to [the British grocery chains],” he said. “We haven’t been commenting on exactly what products we will offer in the future. Before we launch products we want to ensure our offer is best in class.”
But he claims they are exceeding the offers of the British mega-chains because they are learning from them and using more up-to-date technology.
“One difference is that we are utilising technology in a more sophisticated way and being later to the market has enabled us to use newer platforms and be quicker to the market at a lower cost,” he said.
Mr Scott’s views on how the brand dominance is waning for the dominant players in financial services is backed by recent research. It is also echoed by banks in Britain, where the loss of confidence is much higher amid repeated high-profile scandals following the GFC, including rigging of interbank lending benchmarks and currency exchange.
Research conducted by banking analyst Martin North of Digital Finance Analytics, about who people trust to do their banking, found institutions that didn’t exist – such as Google Bank, Apple Bank and Microsoft Bank – achieved much higher ratings among “digital natives”, usually younger people, and “digital migrants”, usually middle-aged, than many large and small banks.
“Coles Bank”, however, along with the regional banks, scored the lowest among digital natives.
On a recent visit to Australia, Catherine McGrath, head of retail transactions at Barclays, said Tesco was the biggest external challenger to the banks at the moment due to supermarkets being relatively untarnished, their ability to offer rewards on other products such as food and their more sophisticated use of customer data.
“We have a richness of information that some of the new players would love,” she said. “But banks have a very interesting tightrope to walk [with the use of data]. If we lose trust, then we lose to [the likes of] Amazon.”
The Australian Financial Review
BY SHAUN DRUMMOND