ANZ Bank, Australia’s third-largest
bank, has reported interim first-half profits of A$2.1 billion
($1.74 billion), beating analyst forecasts. Personal banking’s
profit growth was 21.6 percent on revenue growth of 14.4

ANZ has always been a contender for pole position in the
Australian issuing market, and it has certainly been the most
innovative among its Big Four peers (Westpac, National Bank of
Australia and Commonwealth Bank of Australia). The Australian
retail banking and card market has seen intense competition in the
last year, not only from foreign banks, but also non-banks joining
the issuing foray. While the initial price wars saw a flurry of
competition issuing low-rate cards, the market has moved on to
cards innovations.

ANZ has led the race in this area with market innovations such
as personalised cards, prepaid foreign currency travel cards, Visa
debit cards targeted at the young adult market, gift cards and a
three-party card scheme.

In VRL’s recent Cards & Payments Asia Pacific conference in
Hong Kong, ANZ’s general manager of consumer cards, Nick Reade,
highlighted that “people were worried about data security”. ANZ
uses the Falcon neural network to identify credit card transactions
which are out of the norm. Falcon, together with its other
merchant-oriented systems – Eagle and Hunter – has helped the bank
cut credit card fraud by 60 percent in the past five years.

The bank’s marketing took a personal approach to addressing
security issues. In an extensive campaign, the bank reached out to
its customers through advertisements which personalised the Falcon
security system to its customers. The bank’s marketing campaign
highlighted the service and security factors in ANZ’s card
offerings but in a “positive, simple, human and light-hearted

The focus on customer-level communication has paid off for the
bank, which now reports the highest level of customer satisfaction
among the majors in personal banking and cards divisions.

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Competition in low-rate cards

The recent proliferation of low-rate cards with interest rates
of between eight to 12 percent saw shrinking margins and declining
credit quality among issuers. However, analysts are confident of
ANZ’s risk management capabilities.

According to Brett Le Mesurier of Wilson HTM Investment Group,
“The growth in the consumer cards portfolio is largely coming from
higher-risk, low-rate products (for example, the 2.9 percent
interest rate on balance transfers from other banks for the first
six months), resulting in the composition of the cards portfolio
shifting away from lower risk loyalty products. The strategy is to
increase income growth by building up a higher base of revolving

“Notwithstanding the higher risk, the bank believes that the
risk-adjusted ROE is greater than the bank’s average. While the
increasing risk profile means that the credit quality of the
portfolio is increasingly sensitive to an increase in the rate of
unemployment, ANZ does appear to have a good understanding of the
risks in its cards portfolio. It does take some care in determining
which risks to accept.

“One of its major credit assessment tools is behavioural
scoring, and this approach results in over 40 percent of credit
card applications being rejected.”

Asian strategy in play

At 66 percent, Australia’s high penetration of consumer debt as
a percentage of total loans is the highest in the Asia Pacific
region. This makes for intense competition on home ground for
market share, and pushes players to foreign markets.

ANZ has been the most active among its peers in venturing
overseas to its Asian neighbours. In its priority markets of China,
India, Indonesia, Malaysia, Vietnam, Philippines and Thailand, the
bank has taken a partnership approach to penetrate the local cards
market. The bank usually operates through the cards division in
these markets, such as its cards partnership with Metrobank in the
Philippines and Sacombank in Vietnam.

Its most recent strategic partnership is in Malaysia with
AmBank, valued at A$833 million for a 24.9 percent share; the
Malaysian bank welcomed the deal, as it has been waiting in vain
for a significant merger or acquisition among the local banks.
AmBank is the third-largest card issuer in Malaysia in a market
that has been largely dominated by Citibank.

With 1 million credit cards in issue in Asia and 26 percent
annual revenue growth in the region, Asia will be key for ANZ’s
future progress.