Is the Bendigo/Up tie-up an industry benchmark?

  • By Christine St Anne

Bendigo Adelaide Bank have been winning on the customer acquisition front through its digital bank Up, but its success is also testament to the viability of its business model.

It has been almost two years since Bendigo Adelaide Bank launched its digital bank Up in partnership with technology firm Ferocia.

It’s a strategy that has paid off for the incumbent. Since its first half results, momentum in customer acquisition continues with the bank garnering a 57 percent in growth to more than 165,000 customers for the bank app that Ferocia built.

In March 2020 Up reached a total of 200,000 customers. 

Since the tie-up was announced in 2018, a number neobanks have come into the market. The announcement of Virgin Money launching its digital bank further highlights a trend towards traditional banks building “their own greenfield digital banks”.

National Australia Bank of course has a similar proposition in UBank

The recent announcement by Xinja to pause further inflows into its deposit book amid the challenges of a low rate environment and high costs highlights that banking is not an easy proposition.

Just last week, RFi Group hosted a Melbourne event with Bendigo Adelaide Bank CEO Marnie Baker and Ferocia founder Dom Pym who spoke about the sucess and challenges of driving an effective partnership - a joint venture that underpinned the success of Up.

Shifting the mindset

The discussion explored how the partnership was forged and what factors were key in drving a sustainable business.  

The partnership actually began around eight years ago. From then on there were discussions around the idea of building a mobile banking platform.

“What we were trying to do from an organisational perspective was actually to shift the mindset within our organisation around some of the thinking around legacy technology to thinking more  about the user experience,” Baker said.

Fast forward to October 2018 and since the first five weeks of the launch, Up garnered 150,000 customers and within five months it was 250,000 customers.

Today there are 700,000 to 800, 000 monthly active users on its mobile platform.  

Pym describes it as “overnight success that took eight years”. The partnership was not easy and both Pym and Baker acknowledged that there were challenges.

“We needed to get to know each other and like any relationship it had its ups and downs.”

The pair spoke about how the different approaches to working – Ferocia’s was very much around “weekly sprints” while the bank’s team were more project led.

Having that solid foundation to start with meant that we stayed to course and also allowed us to have those respectful disagreements, Marnie Baker, Bendigo and Adelaide Bank

There were also cultural differences and challenges that came with working with a 160 year old bank and a young fintech.

And of course there was the legacy system to contend with along with the newer technologies introduced by Ferocia which Baker describes as “trying to mix oil and water together”.

Trust was also key and it took five years to develop between the incumbent and start-up.

Key too was the alignment of values.

“You have to actually start a common set of values. That gives you your North Star. That is the compass that actually keeps you aligned,” Baker said.

“Having that solid foundation to start with meant that we stayed to course and also allowed us to have those respectful disagreements.”

It was also about the fit for Pym who was attracted to Bendigo because of its “ethical and moral alignment”.

“Bendigo care about people, they care about the community. They do a lot of good. And it wasn't so much whether or not their organisation had the right people in it or the right systems or technology or the right products. It was more about the fit.”

But for Pym, the culmination of Up was also a reflection of Bendigo's “bravery and eye for success” and its ability to “trust a bunch of hipsters from South Melbourne to build a digital bank”.

“There is a lot of bravery and confidence in innovation to be able to say, right, our organisation has been slow moving and we want to go faster. We have got to empower this group of people to go faster.

“Today we have built a digital bank with the fifth largest banking platform in the country with only 53 people. The only way you can do that is with the support of an organisation like Bendigo.”

For Baker, it was also about driving a different thinking that went beyond banking.

“I didn’t want the Ferocia team to be bankers.  They are fantastic software developers and user experience designers. That's what they actually bring to the mix here.

“We have got enough bankers within Bendigo” Baker said.

And while she acknowledged that the current batch of neobanks are indeed founded and led by former bankers, the bank “purposely did not partner with bankers” as then it would have been a case of “just getting more of the same”.

It was also about partnering with people who were looking at it from a customer perspective by “asking the really really simply questions” instead of “bank talk”.

 …new ideas should create the revenue which will create a bank in perpetuity that will be around is another hundred and sixty years, Dom Pym, Ferocia

It also meant for Baker to step back and let the Ferocia team take control – challenging she acknowledged for someone with almost 30 years in banking where you have  “ingrained in you the operations of a bank”.

 “The best thing you can do is actually not be involved And that is hard.

“Senior people tend to have control issues sometimes and want to be able to control everything and manage everything.

“If we did that, we wouldn't be sitting here today actually talking about this,” she said.

“My job at the time was just to get everyone out of the way.

“And it actually can be as simple as that, because once you do that, then it's actually giving the oxygen to actually do something different and a fly.”

The service proposition of Up was underpinned by a focus on the customer outcome.

“It doesn't mean that you ask the customer what they want. It means that think about what was the best outcome for the customer,” Pym said.

“Therefore, we couldn't just come to market with the same financial products and the same apps as everybody else. We had to do something different.”

A long term goal

For Pym this approach meant that it was not about building a bank.

“We wanted to help people spend their money wisely and save effortlessly. It was about helping with financial literacy. We realised that there's no banking app or no banking product in Australia that does that all.”

It launched with a debit card as the team wanted to help “people understand their own money better”.

It was also important to launch a savings account, which was similar to what ING was offering 20 years ago with a higher savings rate – although Pym [laughingly] added that in today’s low rate environment it is more a case of interest bearing.

It was also quick to market with mobile wallets signing up to Apple Pay and Google Pay and Samsung Pay.

There are other products in the pipeline but what is key is that the business needs to be stable and a measured approach to product rollout is key.

Up’s tie-up with Transferwise is also key. For Pym it signalled to the market that both Up and Bendigo were “open for business and willing to support other financial institutions”.

Its public roadmap has a planned product rollout  - which provides a hint of what’s to come  and  assesses revenue viability of each product .

The long-term strategy is to make Up the number one bank for under-35.

“That’s a big, hairy, audacious goal,” Pym said.

“That's a five, to 10 year to 20 year to 50-year plan. That's not you know, let's quickly get in and out. The reason that's important is that we have to have a sustainable business model.”

Pym understands that the sector confronts a tough credit cycle with margins under pressure – Baker quipped that here he was sounding like a banker.

But importantly, rather than garnering revenue through fees, “new ideas should create the revenue which will create a bank in perpetuity that will be around is another hundred and sixty years”.

For Baker, the entry of fintechs and neobanks in the industry has lifted the bar for both banking and customers.

“These businesses are doing things very differently. And some customer experiences that have been created have just been fantastic.

“It lifts the bar for the industry and it is a great outcome for everyone including our customers.”