Commonwealth Bank boosts spending on IT

In FY18 the Commonwealth Bank of Australia’s IT services spend grew 13 per cent compared to the prior year, with CBA revealing today that it spent $1.79 billion in the 12 months to 30 June.

(The figures, released today, are expenses on a continuing operations basis; in total the bank’s IT services spend last year hit $1.94 billion.)

The bank said the $209 million boost to its IT spend was primarily driven by a $65 million increase in capitalised software impairments — a product of CBA’s decision to splash $51 million on a new institutional lending platform — as well as a $58 million increase in software amortisation, higher licensing fees, and a decrease in vendor rebates during FY18.

The bank registered a 13 per cent increase in its investment spend, which hit $1.34 billion during the year.

Part of that investment was focused on giving the bank the ability to make better use of its data.

“Data and analytics” have “been an area of relative strength for us,” the group CEO Matt Comyn told a results briefing.

He gave the example of the customer engagement engine built by CBA’s retail banking business over the last three years. That engine “effectively brings together all of our customers’ information, all of their balances, their activities, everything that their doing across their channels [and] enables us to serve them holistically and intuitively,” Comyn said.

The bank analyses “27 billion data points in real time” and uses it to co-ordinate all of its interactions with retail banking customers across channels.

“That can be as simple as helping a customer complete an application,” or updating a customer’s contact details, the CEO said. The bank recently used it to thank more than 4 million customers for their loyalty.

The bank is continuing its digital investment, the CEO said, noting that currently it’s “on one side of about 50 per cent of all electronic payments in Australia”.

“We’ve never had more engagement with our customers via our digital channels,” he said. “More than 80 per cent of our customers interact with our digital channels regularly.”

CBA has 6.5 million active digital customers and registers 5.1 million mobile app logins every day.

The bank’s investment spend also included a boost to its anti-money laundering and counter-terrorism financing (AML/CTF) compliance efforts, with CBA saying that it had enhanced its AML/CTF technology. In June, CBA announced that it had reached a settlement with AUSTRAC in relation to civil proceedings launched last year by Australia’s anti-money-laundering watchdog.

The bank agreed to pay a civil penalty of $700 million as well as $2.5 million in legal costs incurred by AUSTRAC. AUSTRAC launched legal action over tens of thousands of breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 — many of which were a product of what the bank said was an error in a 2012 software update rolled out to its Intelligent Deposit Machines (IDMs).

The bank was this year also subject to a withering APRA report on CBA’s culture as well as heightened scrutiny courtesy of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The bank faces shareholder class actions in relation to the AUSTRAC legal action, and in January was fined after an ASIC investigation into the bank bill swap rate.

Risk and compliance are an area that “has been highlighted as something the Commonwealth Bank has not done well enough,” Comyn said.

“It’s going to take a lot of focus, top-down leadership, [to] make sure that we’re setting the right standard and make sure we’re not seeing a repeat of the issues in the past. Ultimately that’s going to lead to much better customer and risk outcomes.”

CBA reported a cash profit drop of 4.8 per cent to $9.23 billion; statutory profit was down 6 per cent to $9.33 billion.