Bendigo and Adelaide Bank's Baker: "The current focus on trust and fairness for consumers plays to our strengths"

When Marnie Baker assumed the role as managing director(CEO) of Bendigo and Adelaide Bank(Bendigo) in March this year, the board chose an executive from within who has spent almost 30 years with the bank. Baker was chief customer officer in the last three years where she drove the successful delivery of the bank’s customer-connected strategy.

Australia’s fifth-largest retail bank with more than 544 service outlets that were built over the last few decades offers a unique value proposition in the Australian market. It adopts a customer centric approach and a branch franchise model, whereby branches would be owned by hundreds of local people within each community. In excess of 300 of Bendigo’s service outlets are community owned.

“We are the only bank that is headquartered outside of a capital city in Australia. That’s a part of the secret in relation to staying close and having close relationships with our customers. I can say that for the over 500 communities in every state and territory. People on the street know that I work for the bank and openly tell me where I am right or wrong. When you are residing among your customers, you can never lose touch of what is important. It will keep you very grounded and rooted,” Baker explained.

Focus on customers and communities

The bank's business was founded on the belief that successful customers and communities create a successful bank—in that order.

"People might think of a physical network, a branch network, as just bricks and mortar, but we are seeing it as being a part of a community. It’s much broader; the bricks and mortar is a secondary thing rather that those people who are living and operating in and among their community,” she added.

The bank leads the financial services industry in customer satisfaction and scored third highest among the top 10 corporates with a positive net trust score (NTS), according to a Roy Morgan study. In comparison, all big four commercial banks were part of the top-IO brands with a negative NTS. The bank’ industry leading net promoter score(NPS) stood at 27 as the 31 December 2017.

“The current focus on trust and fairness for consumers plays to our strengths. To have the high level of trust we hold puts us in really good stead. We have come up with a solid foundation over the last 160 years to take this further and we are better placed than our competitors in this environment which opens up tremendous opportunities,” Baker commented.

Embracing digital

Bakers aims to take the bank into the digital age by modernising the IT and distribution architecture to support customer choice. It promotes omni-channel interaction facilitated through modular and scalable components connected to an API framework as well as a strong position on data.

The bank already has invested in an automated home loan application platform TicToc which allows customers within 22 minutes to complete their application. The platform collected $170 million of loans as of 30 June 2018 since launching in July 2017. Tic Toc will be integrated progressively into Bendigo own retail channels to improve customer experience. In October 2018, it will launch a digital bank 'Up' Running on Google Cloud, "Up" will become the cornerstone of mobile relationships with its customers, targeted at digital natives, students and the millennials.

"We do realise the changing expectations of our customer base means we need to offer a full range of solutions. We have a large base that has a preference for physical interaction; we also have a segment who is seeking more digital means to interact with us. But we also know that when people want to a have deeper conversation about their needs, services or advice they want to talk to us. It's about meeting the needs of all of our customers," she elaborated.

Baker indicated that there is on-going demand from communities to open up more community bank models, and there are plans to open several more branches in 2018.

Bendigo grew its branches by 4% between 2014 and 2017, while the big four reduced their branch network on average by 6%, according to Asian Banker Research.

Baker indicated that she wants to take the branch community model and apply it to the virtual space.

"Community in the broader terms is a community of interest, a community of like-minded people. We have virtual communities now, Deakin University is a good example, while the university itself is in a geographic area, so many students do not even visit the physical location to attend their classes, it is an online community. So, you are starting to see the expansion of the definition of community and what that means to individuals today and what it means to banking," she explained.

"Baker will need to take the bank with its successful community model into the digital age, scale the franchise and modernise its architecture"

Ultimately, Baker wants to grow Bendigo to compete with the big four. In the past, smaller banks in Australia frequently highlighted the Australian Prudential Regulation Authorityš (APRA) macro-prudential policies and capital requirements as a constraint to their ability to increase their market share and compete with their larger peers. With the government's aim to create a more level playing field, regulations may be adjusted, some regional lenders hope.

Changing perception

The other obstacle Baker has to overcome in order to scale Bendigo further is perception. Two-thirds of 'big four bank' customers do not believe that second tier banks have the financial capabilities to compete, which plays to the strength of the major banks.

"The challenge we are up for is to change that perception in peoples' minds. It’s just a perception. In reality, we have all of the products, and services, we are competitive in pricing, we have the best customer service in the industry. So, it really is about changing that perception,” said Baker.

Baker has to prove in the next 24 months that Bendigo can take advantage of its goodwill and brand equity to see a significant uplift of customer acquisition, loan and revenue growth. Results in the second half 2018, overall loan and deposit growth were slightly below system growth. In the same period, total lending grew 4.2% against 4.8% system growth. In mortgages, Bendigo grew 4.7% against 5.1% system growth and on the deposit side the bank grew 0.9% against 2% total deposit growth.

"We need to improve our ability to respond, to drive simplicity and productivity to get to market faster with innovation and continually deliver improvements,” she said in the half-year 2018 result webcast in February 2018 before she became managing director.

As such, the bank’s business model is transitioning. The focus on capital returns, operational efficiencies and productivity will increasingly weigh in management decisions, posing a tightrope balancing act with its community bank principles.

Bendigo acquired and built over the last decades a large number of brands and business models which may force Baker to further simplify to bring those systems and organisations together. The bank currently operates seven different brands and has two joint venture partners.

“We have grown very quickly as an organisation. In my time, over the last 30year, there have been more than 28 mergers and acquisitions. As part of my strategy you will see a bit more of a focus on reducing complexity,” she emphasised.

Baker will need to take the bank with its successful community model into the digital age, scale the franchise and modernize its architecture. While it may be too early to predict success, one thing is certain, she is determined to keep close to her customers.