Bendigo Bank has made impressive headway in its push to consolidate its numerous core banking systems – a legacy of its vigorous M&A activity over the last two decades, including the still-to-be-concluded integration and phasing out of the Adelaide Bank brand 15 years after acquisition – within the last five years, slashing its core systems count from eight to the current four.
Managing director Marnie Baker has vowed that by FY2026, these four systems will be migrated into a single core – housed on Bendigo’s proprietary core platform.
As reported by the bank in 2022 financial results, Bendigo had originally mooted the completion of its core banking consolidation for this, the 2024, financial year. However, the recent pace of decommissioning is still laudable, with the bank having cut just one core banking system in the FY2022 period.
More than 2.5 million Bendigo Group customers across three brands (down from the current seven) will sit on this single core.
“Because we’ve become so good at it, we’re rolling through this [core banking system consolidation] now – albeit, the last two [core banking] systems will house the majority of customers,” said Baker during the bank’s half-year results presentation on Monday.
She added: “It made sense to be [the] target system that we’re moving to because the majority of our customers are [or] were on that core banking system.”
Baker confirmed that while the “years-old” Bendigo Bank core will be the system of choice for the group, the platform is currently undergoing progressive modularisation.
“We are pulling apart that system in the sense of modularising… building on new technologies at the front-end around CRMs [customer relationship management] and CISs [customer information systems] and collateral management systems etcetera.
“The core banking system is really just the recorder of the transaction and the reconciliation to the general ledger. Most of the other things – our pricing modules and product modules and so forth – are sitting in very new technology.
Strong demand for digital (partly) offsets disappointing profit result
Cash earnings for the Bendigo Group were down 9.9 per cent, or $27.5 million, on the previous half-year, with the bank blaming the drop on increased competition for lending and deposits, which have chipped away at benefits gained from cash rate rises.
However, digital lending has proved a bright spot for the group, with residential loans originated through customer-facing digital platforms, including the proprietary Up and Bendigo Express brands, up 16.3 per cent since 1H’19, with a 4.3 per cent on the previous (H2’23) half year.
Digital mortgage settlements were up 27 per cent in the half, Bendigo reported. However, settlements through broker were down 14 per cent over the same period, with the bank currently undergoing a major digitisation of its broker channel.
“In the past, we have originated loans through various channels, using multiple systems and processes resulting in an experience that over time has fallen short of our customers’ expectations, inhibited efficient growth and challenged our employees,” Baker said. This, she stressed, is changing fast.
This notable uptick in digital originations was no doubt also accelerated through new third-party partnership arrangements, including with NRMA Insurance secured in October 2023, opening Bendigo’s digital home loan product to NRMA’s three million customers, alongside existing partnerships with Qantas Money and Tiimely (formerly Tic:Toc).
Driven by the popularity of Bendigo’s spinoff ‘neobank’ Up, digital deposit growth has also surged by 16 per cent over the previous half year, increasing $200 million to a total deposit pool of $1.8 billion.
Up today boasts more than 800,000 customers, or ‘Upsiders’, growing 11 per cent on the previous half year.
Bendigo’s Connect app also drove a 28 per cent increase in digital deposits for the home brand, leading another $200 million deposit surge for Bendigo Bank, now totalling $910.9 million.
“These factors strengthen our ability to fund the bank’s lending activities at competitive rates and it shows up in our household deposit to loan ratio, which at 73 per cent is nine percentage points higher than system,” said Bendigo chief financial officer, Andrew Morgan.
Digitisation of Bendigo’s broker channel is also a key priority for the bank, with brokers remaining, by far, the bank’s most important residential loan originator.
Last November, Bendigo piloted its digital lending channel with 3,000 broker partners, with feedback showing “significant improvements in credit decisioning”, it said.
The bank expects a full rollout of the platform to all brokers by April this year, replacing the current Adelaide Bank front book (which supports all broker originations at present).
By June, the rollout will commence to Bendigo Bank Mobile lenders.
Morgan noted “a number of [business] benefits” for the bank in the deployment of its new broker channel, not only in “reducing the average cost of manufacturing a mortgage… but also a deepening of relationships with broker-originated customers from 1.7 products per customers today to between two to three over time”.
This increased “speed and certainty of decision”, should lead to higher volumes, he said.
It should also, he added, “further simplify our technology stack”.
Baker added: “The new platform will provide a simple, streamlined process for lending, delivering automated credit decisioning within minutes and will enable us to deepen our relationship with our customers.
“Bendigo Bank Broker is the first stage in building a consistent experience that provides our broker-originated customers with access to Bendigo’s digital banking platforms, but more importantly, a competitive and seamless home loan experience.”
Agri & SME business boost
Bendigo’s growing agri- and SME portfolio will be a key growth target for the bank, as the group moves to expand its still nascent lending capability (both broker and direct) in these divisions.
The bank is currently part way through a wholesale rebuild of its technology stack for its agri and SME arms, rolling out a new underwriting engine, a new CRM, and migration to a new core banking platform (its proprietary Bendigo system), alongside a “refreshed business model”.
The changes promise to “reinvigorate” Bendigo’s sales force through the deployment of “faster-to-decision technology”, as well as provide greater opportunities to value-add.
“Today, we gather deposits but we do very little lending with these customers reflected in products per customer of just over one,” Morgan said.
“These opportunities give us confidence we can grow above system and generate attractive returns in this division.”
Business and agribusiness collectively represent around 21 per cent of Bendigo’s total loan portfolio, and around 17 per cent of customer deposits.
Already, despite work still to do, the division collectively delivered a 16.7 per cent cash earnings jump, partially offsetting the bank’s overall profit decline.
Despite the frenetic pace of digitisation, current tech spend for the Bendigo Group averages a relatively modest $210 million per year – substantially below the billions invested by the big four.
Indeed, despite the ambitious transformation of its SME and agri functions, operational expenses incurred by this division increased by just 1.3 per cent on the previous half-year.
Baker offered her reasoning: “Being smaller than the majors means that you can actually be a little more nimble in relation to how you go about these large investment projects.
“There’s also, dare I say, less wastage in the medium to smaller banks, because you’re really conscious about every dollar that you’re spending.
“We’re really smart about how we go about it and we’ve got a great team in our organisation who are working really hard to get the benefits and the outcomes for our customers and our shareholders.”
*Clarification: Adelaide Bank was acquired by Bendigo Bank in 2008. Bendigo is set to phase out the Adelaide Bank brand and thus complete the full integration of the brand. A previous version of this article incorrectly suggested the acquisition was incomplete, rather than Adelaide’s brand integration.
