Australia's second largest bank, Westpac Banking Corp (ASX: WBC), is widely owned by the regular public both in their brokerage accounts, their super funds, and Self-Managed Super Funds (SMSFs). Shareholders love Westpac's business strength and its dividends, which have come to be seen as highly reliable in the decade since the Global Financial Crisis.
Here's a look at how the company makes its billions:
Like with Commonwealth Bank of Australia (ASX: CBA) as we saw here, Westpac's income is heavily weighted to retail banking, with 38% of the total group's cash earnings after tax coming from retail banking. This figure swells to 48% if you include the New Zealand businesses (WBNZ).
Although I'm using a different metric here compared to the Commbank article, Westpac still relies less heavily on retail banking than its competitor does. This is partly due to Westpac's stake in BT Financial Group (BTFG), one of Australia's largest superannuation fund managers and life insurance providers, and its larger focus on business banking.
As with the other major banks, Westpac is benefiting from a growing ability to sell its products online, and cross-sell to customers. Retiring or consolidating IT applications is effectively reducing maintenance costs and lifting efficiency. Westpac also has a new branch format that it is rolling out, with 45% of its branches using the new format already.
Westpac has also taken significant stakes in many up-and-coming 'fintech' businesses like PromisePay that are hoping to revolutionise and disrupt the way the Australian financial services industry operates – i.e., Westpac has been investing in its possible competitors. I wrote in an article last year that while there is plenty of room to disrupt the banks, these mega-corporations well and truly have the firepower and scale to fend off competitors – even if by the simple expedient of buying them out. Sticky customers don't want the hassle of migrating all their accounts over to another bank, so I would be more concerned if another bank made it really easy and efficient to switch.
Whatever happens, Westpac will continue to rely heavily on retail and business banking activity for the foreseeable future.
