ANZ bets the bank on AI transformation to edge out rivals

ANZ chief executive Shayne Elliott is betting the bank’s AI transformation will give it a competitive advantage over rivals, in announcing a weaker-than-expected annual profit.

The number three bank by scale after incorporating Queensland-based Suncorp, ANZ is radically shaping its tech offering, going big on generative AI to juice returns by bringing more customers into its ecosystem, offering them more services and reducing costs.

“AI will fundamentally change the way we operate, serve customers and compete,” Mr Elliott told investors.

The bank chief acknowledged that all companies were using the basic AI tools, such as Microsoft Copilot, but “those benefits will be table stakes” that will be competed away to the degree they are “no different to how we use Microsoft Office today.”

He believes the company’s investment in a new tech stack, fronted by the ANZ Plus app, will allow it to take a leading position in the banking sector.

“In our view, the impact will be more profound.,” he said.

“It’ll drive a step change in productivity, but more importantly, it can drive competitive advantage. You can’t build a skyscraper on sand and you can’t build it overnight. We have built that stack. The foundations are complete, and we are ready to leverage them.”

ANZ has hired 7000 developers and is already leveraging AI to help write code. Using generative AI tools, Mr Elliot said 7 per cent of the code written in the past six months was written by AI and he expected that to grow. Recently, Google announced that AI was writing 25 per cent of its code.

ANZ spent $2 billion on technology in the past year on top of $1.7b spent in 2023. Mr Elliot believes that by biting the bullet early and hard, he will come out in front.

“Unlike peers who continue struggling with multiple legacy, high cost and ponderous platforms, our ambition is to have the simplest, contemporary platforms powered by the best partners,” Mr Elliott said.

“Getting that right allows us to better serve customers, help them for longer, at substantially lower cost, with faster deployment, unlocking the real benefits of simplification.”

The announcement came as ANZ delivered its annual profit confirming the trend of weaker earnings across the sector. The company announced an 8 per cent drop in statutory profit to $6.54b.

Profits were hit by continued intense competition for home loans, driving down margins, while Mr Elliott acknowledged that home loan stress was continuing to have an impact in the community. That was an issue also acknowledged by National Australia Bank on Thursday.

“Higher interest rates are impacting customers and we saw an increase in those requiring hardship support,” he said.

Loans that are 90 days overdue leapt by 47 per cent to $4.2b dollars over the year. Loans in 90 days arrears grew 20 per cent in the half.

Across the entire business non-performing loans increased by 65 per cent, or $2.3b over the year. The bank cited “credit deterioration across all portfolios.”

Despite the jump in arrears, Mr Elliott said, “our data shows customers, in general, are holding up better than expected,” he said.

The company pointed to the incorporation of Suncorp Bank and the growth in its ANZ Plus app as particular bright spots for the year.

“Suncorp Bank’s solid customer acquisition along with growth in home loans and deposits have been particular highlights,” Mr Elliot said. “Our investment in Suncorp Bank was to build scale and provide a platform for growth in Queensland, Australia’s fastest growing state and youngest demographic.”

But it is technology behind the ANZ Plus app that the firm is betting the bank on. So far it is delivering.

Deposits grew by 70 per cent to $16b to make up nearly 10 per cent of the bank’s deposit base.

“ANZ Plus had a milestone year growing customers by 84 per cent. (It) now accounts for nearly 1 in 5 of our active retail customers in Australia,” he said.

By 2028, the bank wants to migrate all customers to the new app and will be offering the service to small business customers also.

“Small businesses will able to join Plus and fulfill their needs in a rich and engaging way, using AI and advanced analytic tools to help them run their businesses better,” Mr Elliott said.

The app is the first to allow customers a complete view of their accounts both at ANZ and other banks and Mr Elliott was hopeful it would encourage customers to switch. 50 per cent of the almost 850,000 users were new to the bank.

The Plus app was designed to increasingly personalise the customer experience, with 300 million targeted messages — a seven-fold increase. Mr Elliott said that had resulted in a 20 per cent uplift in digital sales and a two-year high in brand consideration.

Ultimately, the goal is to both reduce the cost to serve customers, and to keep them sticky on the platform. All of the major banks are trying to push back against a mortgage price war which hurts margins and profitability.

There are two ways to avoid that — build loyalty with customers, and move them away from brokers where margins are generally higher, or build up a bigger deposit base, allowing for a cheaper cost of capital. ANZ’s tech investment is intended to drive that.

“When you think about the whole the economic profit pool operational cost is one of those ones that we really do have the ability to manage. We think that that is actually going to be much harder for others, particularly if you’re starting from scratch,” Mr Elliot said.

ANZ will pay a final dividend of 83¢ a share, down from 94¢ last year.