Credit: <\/span>Louise Kennerley<\/cite><\/p>\nSeeking to expand its banking unit at a time when industry profits are under pressure, the wealth manager said on Thursday that it would team up with UK digital bank Starling to launch a new service aimed at gathering deposits.<\/p>\n
The move is an attempt to provide AMP\u2019s bank with cheaper types of funding, as banks\u2019 funding costs have been pushed up by stiff competition for retail term deposits and higher-interest savings accounts.<\/p>\n
Reflecting these pressures, AMP also warned on Thursday that its net interest margin \u2013 a key measure of banks\u2019 profitability, which compares funding costs with pricing on loans \u2013 would come in at 1.25 per cent for the full year, down sharply from 1.39 per cent in its latest half.<\/p>\n
While new digital banks in Australia have had a mixed record, with several retail-focused neobanks failing, AMP said its strategy was different because the new bank would bolt onto AMP\u2019s existing bank and use its brand, with the deposits used to fund mortgage lending.<\/p>\n
AMP will also use technology from Starling rather than trying to build its own systems from scratch.<\/p>\n
\u201cCompared to a lot of the fintechs, which were struggling to build a technology, build capability, build a revenue model and build presence and build a brand, we\u2019ve got a couple of those really important things already delivered,\u201d said AMP\u2019s group executive in charge of banking, Sean O\u2019Malley.<\/p>\n
AMP said the $60 million cost of the digital bank would be absorbed within its current cost targets.<\/p>\n
Morningstar analyst Shaun Ler said the market had reacted negatively to AMP\u2019s guidance on margins, and the fact the new banking push would not add to its profits until 2027. \u201cThe bank promises to give some benefit, but the payback period is very long,\u201d Ler said.<\/p>\n
The wealth manager\u2019s move comes as AMP\u2019s larger Australian rivals \u2013 the big four banks \u2013 are also pursuing small business owners, given weaker conditions in retail banking.<\/p>\n
O\u2019Malley said research showed that smaller businesses, in particular those with fewer than 20 employees, feel unsatisfied with what banks are offering. He also said major banks tended to focus more on slightly larger firms, while ASX-listed Judo had a different approach that emphasised hiring bankers to deal with clients rather than focus on technology for customer self-service options.<\/p>\n
At its latest financial results, AMP Bank reported underlying profit of $57 million for the first half. It had more than 192,000 customers across lending and deposits.<\/p>\n
O\u2019Malley said the bank\u2019s growth was being held back by higher funding costs as banks compete for savings, while the need for banks to repay low-cost funding borrowed from the Reserve Bank during the COVID-19 pandemic is also sparking competition for deposits.<\/p>\n
AMP is at a particular disadvantage on this front because it has very low balances held in transaction accounts \u2013 a cheap source of funding which typically pays close to zero interest.<\/p>\n
Chief executive Alexis George, who is overseeing a strategy focused on superannuation, banking and wealth management, said this week\u2019s move was an important step to expanding its bank.<\/p>\n
\u201cWe still see the platform business and the bank business being our growth business, albeit it\u2019s a difficult environment for banks at this point,\u201d she said.<\/p>\n
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