Foodstuffs, St George to launch banking venture

By KEVIN TAYLOR and SIMON HENDERY

The New Zealand banking scene is to hot up with the entry of St George - Australia's fifth largest bank - into a joint venture with supermarket group Foodstuffs.

Foodstuffs and St George said yesterday that they would offer a range of financial services through the grocery group's stores.

Foodstuffs operates the New World, Pak 'N Save, Four Square and Write Price supermarket chains.

The venture will start with internet and phone banking services in the first quarter of 2003 and extend to checkout transactions by the end of next year.

KPMG banking and finance group chairman Andrew Dinsdale said the move was gutsy in the competitive New Zealand banking scene.

He compared the St George/Foodstuffs proposal to state-owned Kiwibank, which opened its doors in February and now has 250-plus branches and more than 60,000 customers.

He said it was "absolutely true" that there was already a lot of competition in the New Zealand banking market.

But Dinsdale said St George was offering a service proposition different from the big five New Zealand banks - ANZ, BNZ, ASB, Westpac and National.

"It is taking a proposition that has worked very well in the UK, with both Sainsbury and Tescos supermarkets operating banking arrangements through major players.

"You are getting a good retail banker coming into a very competitive environment, so it's a bold move."

Dinsdale said the service proposition would be different from a "High Street" banking operation. Supermarkets operated seven days a week, and some 24 hours a day.

"It's a bit like the Kiwibank proposition in some ways.

"With Kiwibank you had an infrastructure already in place, and all the bank's philosophy is is pumping more product and service down that infrastructure."

St George managing director Gail Kelly said the venture which will involve a 50:50 sharing of costs and profits between the bank and Foodstuffs - was a "low-risk and efficient means of entry to the New Zealand market".

She said the bank was spending "single-digit" millions on set-up and entry costs and expected to break even within two or three years.

It needed only a "relatively modest" customer base to be viable.

Foodstuffs managing director Tony Carter said the company had been working on the idea for about three years. It had initially discussed ventures with New Zealand banks but had not proceeded because of their fears the venture would cannibalise existing business.

He did not see the recent arrival of Kiwibank as a threat to the venture, saying it was working under a different business model.

"[Our] target market is our 3.2 million customers."

Carter said the Wellington-based phone and internet set-up would initially employ about 20 staff.

The venture would be able to offer competitive products and rates because it would use Foodstuffs' existing infrastructure.

Ted van Arkel, the managing director of Progressive Enterprises, the country's other major supermarket group, said Progressive had no similar banking plans.

Progressive rents space within two of its Auckland stores to bank branches.

St George, which has 2.6 million customers and more than 400 branches in Australia, is the 13th largest company by market capitalisation on the Australian Stock Exchange.

It plans to apply to the Reserve Bank for registered bank status. If its application is successful it will become the country's 18th registered bank.

A senior lecturer in banking studies at Massey University, David Tripe, said NZ was already a reasonably crowded market and there was an argument that the competition was squeezing margins here.



In Australia, Woolworths and Commonwealth Bank of Australia had a similar arrangement to what was being proposed by St George.

He did not think the Foodstuffs supermarkets would handle many over-the-counter transactions, as internet and telephone banking channels were now more important.

"Over-the-counter transactions are not very important in banking."

Tripe was not prepared to predict how the venture would go.

St George's general manager of personal customers, Luke Bunbury, accepted that New Zealand's banking scene was already crowded, but said the joint venture was a quite different model.

"We are a unique proposition. Certainly the market place here is competitive and crowded and it is going to become more competitive."

Bunbury said Foodstuffs approached St George a year ago with the banking venture proposal.