Margins, not millennials, drove Commonwealth Bank stocks down
But it seems that his warning has been partially ignored by investors who have valued CBA at a substantial premium over their major competitors. As a result, profits for the market fell short of expectations.
In this respect, the immediate drop in the share price by almost 8 percent was a coincidence.
Increased competition is part of the problem, as is the shift among large customers from floating rate home loans to ultra-low fixed rates.
The costs were mixed now. The overall 1 percent decrease was due to lower renovation costs – enough to offset a 3 percent increase in other expenses, such as staff costs, but a result that fell short of analysts’ expectations.
The bottom line is that the mortgage book, and to a lesser extent the commercial bank, are the main game at CBA.
Investing in attracting younger customers is a long-term project that will take time to bear fruit. They are the tail, but they don’t wag the dog.
However, CBA’s move into the “buy now, pay later” sector and the recent launch of the Cheddar app are initiatives that are leading the bank’s advance into areas previously reserved for fintech.
The move to test an app that allows customers to trade a range of cryptocurrencies is a little more outlandish, but it stays on the topic of attracting millennial customers.
This particular line of products is remarkably similar to Jack Dorsey’s Square – especially after the takeover of Afterpay went through the takeover gate.
Afterpay, for its part, has just as much aspiration to penetrate the traditional, bank-dominated market area. It has already partnered with Westpac to offer white-label transactional banking and savings products and is also keeping an eye on the mortgage price – albeit later.
While there is a lot of copying between CBA and some fintech competitors, there is no significant competitive overlap in either direction – yet. But there is a clear and present threat to traditional banks, and Comyn is creating its own insurance against it.
Currently, Afterpay’s core business is to attract customers while managing responsible spending. Conversely, the CBA must manage its risk in terms of responsible lending.
CBA has the technological infrastructure to keep adding services to its platform business and continuing to test the waters with products that appeal to an emerging generation of customers who are just as comfortable with non-banks meeting their financial needs.
CBA’s Australian banking rivals have not been flat, and they understand the customer shifts and the new landscape. But her response wasn’t that quick or that loud.
That said, CBA has a clear head start.
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