Kiwibank turns to tech partners to fend off Aussies

Kiwibank, New Zealand’s largest homegrown consumer bank, is renovating its technology stack in a renewed bid to beat back Australian competitors.

It has partnered with longstanding vendor ACI Worldwide to move domestic payments to real-time for its retail and small-business customers.

“The partnership with ACI is part of a five-year plan to move, build and scale a cloud-based operating model,” said Elliot Smith, chief product and strategy officer at Kiwibank in Auckland.

“Kiwibank means business,” said Leslie Choo, managing director for Asia Pacific at ACI, in Singapore. “They’re out to capture New Zealand market share. This combination shows how a strong national player can challenge international competitors.”

For Kiwibank, digital transformation represents a second or third chance to make a dent against Australia’s big-four consumer banks and give New Zealanders a leading domestic player – and a more competitive offering.

Sam Stubbs, CEO of KiwiSaver, a local fund management business, wrote last week in local website Stuff that Kiwibank has been too weak to provide a meaningful alternative.

“Twenty-one years after KiwiBank’s founding, the Aussie banks in New Zealand are still making 20 percent more profit from the average Kiwi customer than the equivalent Australian customer,” he said.

KiwiBank was established as an arm of New Zealand Post. The idea was to leverage the post office’s physical network to serve as branches, and embed the bank throughout local communities. The strategy gave KiwiBank instant distribution.

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But times have changed. It turns out it’s not easy to convert a parcel customer into a banking customer. And the internet has undermined traditional postal business – turning KiwiBank’s owner from a deep-pocketed institution into one that now relies on the bank’s revenues for its own survival.

In 2016, the government tried to rescue the situation by selling big chunks of KiwiBank to NZ Super Fund (the country’s sovereign wealth fund) and ACC, a state-led insurance group. Their backing was meant to give KiwiBank the firepower to compete more effectively.

This was followed in 2019 by the bank’s decision to broaden its options beyond post offices and go digital.

Digital defence

Digital transformation will be even more important now, if reports are true (per Stubbs) that one of the big investors is now looking to exit. If that happens it will deny KiwiBank important funding.

Smith says the separation from post office is freeing the bank. “We’re no longer tied to our legacy infrastructure,” he told DigFin. “It’s given us a clean, blank page to rethink our capabilities and our partners.”

The bank has doubled down on a relationship with ACI, which is helping it move payments to a real-time, cloud-based system. New Zealand does not yet have a faster-payments system as in Australia or other countries, so ACI’s build will allow KiwiBank customers to send low-value payments among one another instantly via mobile.

ACI’s money-in, money-out processing is also supporting the bank’s debit cards. The vendor has developed these capabilities in the form of software-as-a-service that KiwiBank can access via cloud computing, rather than housed on proprietary servers. This is intended to make processing more scalable and flexible, says Choo.

What’s next

A second phase will underpin credit cards and a more sophisticated offering for small businesses. ACI is enabling KiwiBank to adopt modern payment protocols such as ISO20022, a messaging standard that is used for real-time gross settlements.

KiwiBank has also tapped Thought Machine to rebuild its core banking system on the cloud, Microsoft’s CRM Dynamics for managing customer databases, and a fintech, nCino, for digital loans and origination.

Smith says the bank has two big challenges as it integrates these new systems. First is to ensure it continues to look after its existing customers. Second is to embed the technology and processes culturally into the bank’s teams.

“We’re building a new operating platform,” Smith said. “It’s like we have a nice house on a good street. We will continue to live in this house, but we’re extending it so we can try new things. We’re putting in the plumbing and doing new things that matter to our customers. Ultimately we will move into the extension.”