CUA keeps focus on innovation amid cost and market pressures

  • By Christine St Anne

Australia’s largest credit union remains committed to driving innovation in its business as it confronts a challenging external environment.

On Tuesday, CUA announced its half year results, posting a net profit of $21.3 million, down 7.9 per cent from the previous corresponding period. 

The result reflected the low interest rate environment, a challenging external market and costs relating to CUA’s investment in its member services. 

CUA will spend nearly $40 million this year on projects that will improve member services and help it build scale. 

Its ongoing commitment to developing its digital capability, including the iM CUA messaging app, has meant expenses have increased. Another key investment initiative is a streamlined lending origination system.  

“In partnership with Sandstone Technology we are building out a cloud-based loan origination platform,” CUA CEO Paul Lewis said.

“What that will do is reduce the cost of originating a home loan. But more importantly, it will make the process much more effective and streamlined for our members .”

CUA is about 60 per cent through building out that platform.

The third initiative is developing its contact centre technology, with CUA now going live with a new cloud-based phone system  which allows its agents the flexibility to work from home – key in the current environment where coronavirus is prompting organisations to look at how to socially distance workforces.  

In addition, CUA has also initiated a program to implement a new customer relationship management system.  

“Essentially, it is about being more efficient with our members and providing more digital services. It is an investment in being able to know more about them through a CRM.” 

In addition to higher operating costs associated with strategic investment, CUA’s regulation and compliance costs were up 13.9 per cent on the prior corresponding period.

Lewis noted that the costs were driven by legislative reforms such as open banking and comprehensive credit reporting. 

Managing the profitability of the business in a low rate environment will also be key, particularly as CUA has some of the “tightest margins in the market”. 

A total of $1.47 billion in new loans were issued for the period, down from a solid first half 2019 result of $2.29 billion.

Lewis said the lower lending volumes reflected a conscious business decision to maintain lending volumes at more steady levels across the full year, rather than concentrating lending growth in the first half as CUA did in fiscal 2019. 

“In the first half of last year we saw record lending volumes, growing our home loan portfolio at three times the system rate. 

“While this approach helped build our loan book in FY19, the rapid growth flowed through to our operating costs at a time when funding costs were high, requiring us to aggressively expand our deposit portfolio at the same time,” he said.

“We know the challenging external environment will persist, so targeting growth more in line with system growth will help us better manage our net interest margin in FY20 and continue to maintain sustainable profit.”

To manage this challenge, CUA will be focused on growing its transaction account business.

Retail deposits were up 1.7 per cent for the six months to $10.76 billion, with strong growth in transaction account balances.

We await the Reserve Bank’s decision and are preparing for a number of scenarios at the moment. It will be challenging, given we have some of the tightest margins in the industry

This growth was also underpinned by the introduction of its Snap Account – offering refunds  of overseas ATM fees and international transaction fees - which has resonated with millennials.

“Around 63 per cent of our new transaction account members are millennials. That is a deliberate strategy for us.” 

It also strengthened its focus on growing main banking relationships, particularly with younger members and reported overall member growth of 11,534 across banking and health insurance. 

“Furthermore, we’ve seen an increase in brand awareness, consideration and our Net Promoter Score, particularly amongst young adults. It’s exciting to see our member-centric values resonating in new markets.”

With the Reserve Bank of Australia touted to cut rates further this Thursday, Lewis acknowledges that it will be harder to pass on the full rate cut this time, compared with the sector’s approach last month. 

Here he said that a balance needed to be achieved between borrowers [who want low interest rates] and savers [who want higher rates]. 

“We’ve been conscious to balance the needs of both borrowers and depositors in our pricing decisions, while ensuring key products on both sides of the book remain within the top quarter of the market on price. This is at the heart of what we do as a member-owned organisation.

“We await the Reserve Bank’s decision and are preparing for a number of scenarios at the moment. It will be challenging, given we have some of the tightest margins in the industry.” 

CUA has also moved on preparing its business as the coronavirus pandemic intensifies. 

“We are strong, both from a capital and funding perspective but the challenges are more operational. We are making sure that the technology can support our team to work from home.” 

CUA has offered ‘pandemic leave’ of up to two weeks for any staff required to self-isolate and has also activated its business continuity plan. 

“We will also continue to follow the advice of the federal and state governments. The challenges are fast-moving but as an organisation we are in a strong position.”