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Digital wallets at 'tipping point', says ME Bank

Digital wallets at 'tipping point', says ME Bank

Originally posted by Clancy Yeates @ smh.com.au

The use of digital wallets is at a "tipping point" and customers will soon expect all banks to provide such services, says Members Equity Bank, as its decision to develop the smart phone technology dented first-half profits.

As the lender delivered results that showed it was winning market share but facing skinnier profit margins, chief executive Jamie McPhee also said he thought the housing downturn had further to run, tipping house price falls of another 5 to 10 per cent.

The industry-fund owned bank, known as ME, booked a $5 million impairment in its first-half result as it stopped work on its credit card platform to divert funds to work on a digital wallet product.

Its statutory profit fell 11 per cent to $41.2 million, due mainly to the credit card platform impairment and the costs of decommissioning an information technology system. On a underlying basis, which removes one-offs, profits were up 8 per cent to $55 million.

Mr McPhee said a key reason for the impairment of its new credit card platform was the rise of digital wallets, which allow customers to use their smart phones to make tap-and-go purchases.

ME, which is owned by 26 industry super funds, does not currently offer a digital wallet. But after Commonwealth Bank in January started offering customers Apple Pay, Mr McPhee said digital wallets had hit “critical mass”.

“We believe we’ve got to re-sequence what we bring to the market for our customers, so we are halting the work that we were doing on the credit card program and using those resources to build out that digital capability,” Mr McPhee said, referring to digital wallets.

“We’d call that as the tipping point now, and we just feel that it’s very important that we give our customers that access, and so that’s exactly why we’ve made the decision to divert our resources onto that, to bring that to our customer base as quickly as practical.”

He said all banks would need to offer digital wallets within about the next year, because customers would expect it, and in the longer term, there would be a decline in the use of plastic cards.

ANZ Bank and CBA now offer Apple Pay, as do a host of smaller banks. Westpac and National Australia Bank offer other digital wallets but not the Apple product, after a fight with the technology giant over access to the iPhone's hardware.

On the housing market, Mr McPhee predicted further falls, but did not foresee a “doomsday” scenario of much deeper declines in values.

“I would tend to think that you might see house prices continue to come off a little bit, and then I think you’re going to see them probably stabilise rather than move back up for a period of time, because I just think it’s all about affordability,” he said. “I would say maybe another 5 to 10 per cent to come off over say the next 12 to 18 months.”

Mr McPhee said the previous boom was not sustainable and the correction in prices so far had been “quite healthy”.

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