The Bank of Queensland Growth Study

The Bank of Queensland Growth Study

Here’s the amazing journey of the Bank of Queensland, one of Australia’s largest regional banks, right from the time it was established in 1863 to today…

From a small-scale Queensland-focused, retail branch-based bank to a regional banking powerhouse, Bank of Queensland (BOQ) has come a long due to its impeccable product offerings and personalized service.

Today, BOQ stands as a prominent leader in the Australian banking industry. It provides a wide range of financial services and products that are tailored to the needs of both individuals and SME enterprises through its six divisions, including Retail Banking, BOQ Finance, BOQ Specialist, St Andrew's Insurance, Virgin Money Australia, and ME Bank.

Here are some statistics from FY21 that illustrate BOQ’s position as the leading regional bank in Australia:

  • Share price of $8.1

BOQ has made a name for itself and is recognized in Australia as a success story that has resisted being taken over by bigger banking groups in recent years.

Let’s look at how the Bank of Queensland managed to get where it is today despite the many stumbling blocks and what it needs to do actually bring to life its vision for a prosperous future.

A Small-time Queensland Bank Makes It Big

The Bank of Queensland is one of the oldest financial institutions in Queensland, but it all started out in life as a building society – not as a bank. 

On one fine morning in 1874, a building society called The Brisbane Permanent Benefit Building and Investment Society came into existence. 

For the next four years, it continued as a building society before being remodeled as the Brisbane Building and Banking Company in 1887. That’s when its journey really started, and a hundred years on from that, it went on to become the foremost bank in all of Queensland. 

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Let’s see how this eventful and exciting journey unfolds.

The Rise From The Bottom To The Top In The 20th Century

The initial period of the bank’s journey is characterized by multiple mergers. In 1921, the bank merged with the City and Suburban Building Society. A decade later, it absorbed the Queensland Deposit Bank Ltd in 1931. The same year, the bank merged with Queensland Deposit Bank Limited. Two years later, it acquired a majority stake in the Federal Deposit Bank Ltd. 

The strategic mergers and acquisitions allowed the Brisbane Building and Banking Company to grow at a stable pace and enter new markets. The mergers also enabled the company to offer new services to its clientele when other banks were grappling with the devastating effects of the Great Depression in the 1930s.

In 1942, the bank received its official license to operate as a trading bank following its mergers with other financial institutions in Queensland. From that point onwards, there was no looking back, and the bank was determined to cement its position in Queensland. It successfully managed to counter a takeover bid by London-based Lombard Banking Limited in 1958. The bank was growing steadily, and by the early 1960s, it had managed to launch the Permanent Finance Corporation Ltd, in which the bank held 800,000 ordinary shares or 40% of the business. 

In 1970, the bank renamed itself the Bank of Queensland (BOQ), and it was officially listed on the ASX as a publicly-traded company in 1971. In line with its new image, the company adopted a forward-looking approach right from the start and computerized its operations in the 1970s. 

The move clearly paid off because the 80s is widely considered the golden era of growth and expansion in the bank’s journey because this is the point when the Bank of Queensland established multiple branches in Queensland and in other parts of Australia, such as the first regional branches in Cairns and Townsville. 

The success of the bank during this time period can be gauged from the fact that it was able to withstand a takeover bid by the powerful government-backed Metway Bank. In 1982, the bank took over the Bank of Queensland Savings Bank and launched it as a wholly-owned subsidiary. In 1991, the Bank of Queensland acquired the electric company and rebranded it as the Queensland Electronic Switching Pty Ltd.

The Franchise Model Working Wonders

The success of the 80s and 90s was just a stepping stone for what was to come ahead, and the bank achieved new heights of success in the early 2000s. The Bank of Queensland continued to grow at an incredible rate and established 55 new branches all over Queensland under its accelerated branch opening program. It also opened branches in New South Wales, Victoria, and the Australian Capital Territory. To mark this new turning point in its journey, the bank rebranded itself with a new tagline called “bank different.”

It was able to achieve this level of growth using a simple recipe for success which was the Franchise Model. Originally this method was developed by the bank during the Golden 80s, and it involved opening new branches using an owner-manager system. The managers working at the new branches would often be owners of the same branch. So, the bank essentially created a system in which its employees had an added incentive to work hard and maximize profits.

The owners were usually successful small-scale business owners. The bank converted the small-scale business into a new branch while the owner handled the responsibility of hiring staff and managing operating costs. The owner-manager got to keep a significant part of the profit for every loan deposit that the new branch secured and every product that it successfully pitched to the local client base.

It also lived up to its “bank different” tagline because, with its owner-manager system, the Bank of Queensland was able to deliver banking services that are normally not available to communities living in small towns.

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In the early 2000s, the Bank of Queensland also made some strategic acquisitions that helped the bank to finally establish a presence outside Australia. In 2003, BOQ acquired UFJ Bank in Australia and New Zealand. That same year, the bank also acquired ATM Solutions so that it could offer enhanced ATM services to millions of customers in Queensland.

Key Takeaway 1: Strategic Acquisitions For The Win

After looking at the Bank of Queensland’s initial journey, it is quite clear that the bank went through some turbulent times before making it big throughout the country. Over the course of its early history, the fledgling banking empire was threatened multiple times with takeovers by more powerful and competitive players, but the bank managed to come out on top every single time.

The bank had a simple strategy, and that was to acquire businesses and push for mergers with promising companies so that the bank could grow from a humble building society to one of the biggest banks in all of Queensland.

The Bank of Queensland also managed to expand at a steady pace with its franchise model. Under this model, small-business owners with deep connections in their local communities became the managers of the new suburban branches. The Bank of Queensland managed to successfully build an image of trustworthiness and reliability within small communities by involving community leaders. The franchise model is a great example of a mutually beneficial symbiotic relationship. The local communities got to access premier banking services from people whom they trusted, and the bank managed to build up a loyal consumer base in multiple communities across Australia.

Bank of Queensland In The 21st Century

Now let’s explore the Bank of Queensland’s journey in the new millennium. 

During the initial period of the 21st century, the bank managed to keep the momentum going that it had achieved in the 80s and early 2000s, but it certainly was no joy ride, and the bank experienced multiple ups and downs in recent years. However, BOQ still managed to keep moving even in the face of new challenges.

Into The New Millennium

The Bank of Queensland continued with its winning strategy of mergers and acquisitions. In 2005, the bank took over the finance division of ORIX Australia. The following year, the bank acquired the Pioneer Permanent Building Society. This was an extremely high-profile merger, and final negotiations went on for over a year, so it was only in 2007 that the Pioneer society was fully integrated with the Bank of Queensland. In the same year, the bank was able to merge with the Mackay-based Permanent Building Society Limited through a merger worth $53.2 million. Again, the process involved multiple rounds of back and forth, but the team at BOQ has never shied away from a tough negotiation. 

In 2006, the bank opened up new branches in the Northern Territories and in Western Australia. In a bid to increase its national footprint, the bank once again found itself at the negotiating table in 2007 when it successfully managed to get the Members of Home Building Society in Western Australia to agree to a merger proposal worth $592 million. With another successful merger under its belt, the Bank of Queensland had once more cemented its position as a well-established national banking service in Australia.

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In 2010, the Bank of Queensland joined the rediATM network to streamline the ATM service for millions of customers. Through this network, BOQ customers could easily withdraw funds from any rediATM across Australia without being charged an additional service fee. 

Furthermore, 2010 was also the year in which BOQ entered the insurance market by purchasing St Andrews Insurance which was a leader in consumer insurance products in Australia. In the same year, BOQ also acquired CIT Group Incorporation, which had offices in Australia and New Zealand. Through this strategic acquisition, the bank was able to provide financial services to small and medium enterprises.

Speaking of strategic acquisitions, 2013 was another big year for the Bank of Queensland as it managed to expertly secure Virgin Money Australia (VMA) at $40 million. With Virgin Money Australia as a subsidiary, the Bank of Queensland was able to expand its geographic footprint and use the VMA brand name to improve product distribution and expand its customer base.

 

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BOQ Breaks Into Queensland Hall of Fame

In 2014, the Bank of Queensland acquired Investec Bank (Australia) Limited, including its Professional Finance and Asset Finance & Leasing businesses, at $440 million. The Personal Finance business was re-launched in a separate division called BOQ Specialist, while the Asset Finance business was absorbed under the BOQ Finance division.

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The acquisition was part of a well-executed plan to help BOQ provide more financial services to different industries looking for specialist solutions. The bank was able to establish two new business divisions, which helped BOQ improve its position in niche segments such as Professional Finance.

Indeed, the Bank of Queensland was inducted into the Queensland Business Leaders Hall of Fame for its commendable growth as a leading bank in Australia that had provided customers with impeccable service for more than 150+ years. At this point, almost 40% of the bank’s revenue came from its businesses based outside Queensland, while its market capitalization exceeded $3 billion dollars’ thanks in large part due to its strong profit performance.

But BOQ was just getting started. BOQ managed to keep its head above water and continued expanding with its geographical diversification strategy even as the Covid-19 pandemic wreaked havoc on the banking sector in Australia.

In 2021, the Bank of Queensland acquired Members Equity Bank Limited (ME Bank) at $1.35 billion dollars. The bank wants to build a multi-brand strategy that delivers the requisite product diversification that will take BOQ into the future and help it stay relevant in the face of stiff competition from digital entrants in the banking world. And the best way to achieve that long-term goal was to acquire ME Bank and establish it as a separate division.

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Key Takeaway 2: Go For Geographical Diversification

Over the last 20 years, the Bank of Queensland has continued to expand and stay relevant in the banking industry through a series of timely and well-planned acquisitions. BOQ has stuck to its guns by relying on a strategy that has always worked out in its favor, and that is to grow and expand its services through mergers and acquisitions.

The goal with recent acquisitions has been to achieve geographical diversification and increase the BOQ footprint in multiple industry sectors by offering diversified products and services that have been fine-tuned to the specific needs of each industry. At the heart of all these acquisitions is BOQ’s determination to provide the very best financial services to its customers and small and medium market companies and organizations. And it has certainly paid off because the Bank of Queensland has been able to successfully increase its customer base, particularly through online customer acquisition.

Sluggish Digitalization Becomes the Biggest Thorn in BOQ’s Side

Although BOQ has enjoyed a prominent position in the banking world up till now, but the situation is changing as the world moves to the digital space. People now prefer banking online and are looking for secure platforms to fulfill their banking needs. Hence, the Bank of Queensland needs to think on its feet and develop an ambitious digital transformation plan and online banking service to meet evolving consumer needs.

BOQ’s management admitted that the bank is lagging behind in the increasing digital space due to its legacy system and outdated IT infrastructure. The bank has consistently underperformed in recent years - its revenue was down 14% in 2019 mainly due to digital uptake delays, complex product offerings, and lengthy processing times. 

Realizing the need to win customers’ hearts through delightful digital experiences, BOQ doubled down on building new capabilities. The bank launched an all-new digital mobile banking app, breathed new life into its online banking, and began offering a host of digital banking services through its Virgin Money brand that was moved to the cloud. As of now, the bank is focused on internal digital transformation by combing its traditional banking with models with modern digital capabilities, investing in cloud migration, and promoting customer-centric digital platforms.

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Cleary, BOQ is late to the party. Are these steps too little too late?

Competition Heats Up in the Digital Banking Arena

The new fintech and digital start-ups identified the pain points that hindered customers on online banking platforms and mobile applications. A few examples of these start-ups include Douugh and archa (founded in 2016), Volt Bank, Up and 86 400 (established in 2017), Hay, Pelikin, and QPay (founded in 2018).

The neo banks and digital banks offer a streamlined, hassle-free banking experience all the while delivering a wide range of banking services to customers, helping them complete basic tasks such as opening an account or transacting money in seconds. The speedy and convenient service has won them millions of customers, so it is high time for BOQ to start getting on board with the latest trends in digital banking.

Here are four main reasons why BOQ stands to lose its leading position in the Australian banking world to up-and-coming neobanks and digital banks.

Safety & Security Remains A Concern

Digital transformation cannot take off if BOQ does not develop a secure cloud-based banking platform. However, digital platforms are at risk from unforeseen cyber-attacks that can result in serious information and security breaches. According to one report, cybercrimes resulted in a loss of $6 trillion globally, with major banks being the worst affected. So, every new digital initiative must have in-built and effective safeguards against the most sophisticated cyber-attacks; otherwise, BOQ stands to lose the hard-won trust of millions of its customers. The most devastating cyber-attacks can wipe thousands of dollars from customer accounts, leaving people frustrated and ready to look elsewhere for better service. Hence, building up digital resilience and a safe and secure online banking platform need to be foremost on BOQ’s agenda.

Fossilized Legacy Systems Threaten Productivity

Legacy systems are traditional systems that banks such as BOQ use to run daily operations such as transaction processing and managing lending and deposits. Over the years, legacy systems have become exceedingly complex and difficult to monitor because new upgrades are added without overhauling the existing system, which in most cases has far outlived its usefulness. As the system becomes more complex, it becomes even more difficult to spot tech glitches and bugs before they spiral out of control. If that was not bad enough, another problem with these aging systems is that they require a lot of time and resources to maintain, which results in skyrocketing operating costs. 

In 2018, the Bank of Queensland lost favor with millions of consumers who were overcharged on their mortgages as a result of administrative and coding errors. This scenario could have been avoided if the bank had scrapped its outdated legacy system and replaced it with the latest technology and digital solutions. BOQ consistently under-invested in digital transformation to the point where the existing system could not deliver on consumer expectations, and cash earnings took a major nose dive in FY18 and FY19. Stakeholders, too, began to voice their discontent with the bank’s antiquated tech set-up. Investors were none too pleased when they discovered the bank had not updated its mobile banking app since 2018. Others were disgruntled that an online fast payment system was still not available on BOQ’s platform.

The situation jolted the bank into action, and it has announced plans for a deep-rooted digital transformation plan that will help BOQ transition to digital banking. If it manages to make the switch, BOQ will be able to use cloud and AI technologies to sidestep the delays that currently hamper it in executing the most basic tasks such as opening accounts, something which neo banks can do in seconds. However, with the digitally-savvy neobanks and digital banks being miles ahead, it is difficult to say if BOQ can make up for the lost time.

Absence of Digital Culture Holding BOQ Back

The missing element at the Bank of Queensland is a forward-looking digital culture. Senior management and employees lack the capabilities and experience required to transition to a digital platform as a result of chronic under-investment in emerging technologies and skillsets. Unfortunately, for a long time, BOQ stubbornly stuck to its conservative stance on the issue of digital transformation until newer entrants began to chip away at its dominant position by luring away customers in their thousands.

However, BOQ has now started to sit up and take notice. In 2018, the bank partnered with local fintech start-ups to help its employees develop the digital skills they need to take the bank forward, but in some ways, that is taking the easy way out. BOQ will have to develop its own digital platform and mobile app if it really wants to survive and thrive in the banking world.

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Lack Of In-demand Digital Offerings

According to a report by Gartner, 80% of financial firms that rely on outdated technology will go out of business by 2030. Another report published by the Financial Times notes that 58% of banks that fail to embrace digital solutions will be forced to close their doors in the next five to ten years as neo banks and digital banks attract more customers away from bigger establishments. 

Bank of Queensland might just prove to be one of these banks if it does not start to take concrete measures in real-time instead of planning gradual digitalization over the next few years because it might be too late by then. BOQ continues to trail behind digital banks and neo banks in providing digital services such as buy now, pay later solutions, and digital home loans and payment services.

Key Takeaway 4: Digitalization For Future Growth Is Key

Digitalization was never an option; it is a necessity, so BOQ needs to launch new innovative digital products and services as soon as possible. The Bank of Queensland has more than 150 years of experience in the banking world, and if it manages to combine that experience with emerging technologies, then it will be in a position to deliver the best digital banking experience to consumers across Australia.

By focusing on making robust digital platforms that are resilient to cyber-attacks and tech glitches, and adding new services to pre-existing mobile banking applications, the Bank of Queensland will be all set to surpass its growing competition. But there is a lot to be done before the bank can claim to become a leader in the digital banking arena.

The BOQ Way of Doing Business

The Bank of Queensland has a massive presence in Australia, with more than 160 branches across the country that serve the financial needs of more than 1.5 million Australians. 

BOQ has indeed come a long way from a small retail bank in Queensland to a national player that provides highly diversified financial and lending services to industries and small to medium scale enterprises in Australia. 

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The Bank of Queensland aims to create prosperity for customers, businesses, and shareholders through excellent service delivery and specialized financial products all the while doing business with empathy and integrity.

Let’s now take a look at what makes BOQ so successful and drives its growth.

BOQ’s 5-Tiered Strategy

BOQ understands that continuous growth is only possible through a rock-solid strategy and that’s precisely why it follows a five-tiered approach to improve business resiliency, enhance efficiency, and continue to deliver positive outcomes for consumers regardless of the external environment.

1. Create An Empathetic Culture

Bank of Queensland strives to create a culture that is focused on providing the best for its people and community. It is driven to become one of the Top 3 banks based on Net Promoter Score for individuals and SME consumers because nothing trumps customer satisfaction at BOQ. In fact, BOQ Retail was ranked 3rd in FY21 on the NPS scale, while BOQ Mortgage came in 4th on the NPS. So, the bank is actually moving towards realizing this strategic goal by actually walking the talk when it comes to creating better services for customers.

2. Build A Portfolio of Distinctive Brands

In line with its goal to deliver tangible outcomes for customers, the Bank of Queensland is also working towards building distinctive brands that will help it exceed its current customer base of 1.5 million people. BOQ is actively looking to increase revenue and expand in niche areas such as Business Lending and Asset Finance Growth. The bank plans to revamp its owner-manager system to strengthen ties with local communities and help local businesses realize their true potential.

3. Digital Bank Is The Future

BOQ has outlined plans to transition towards digital banking. It plans to evolve past its outdated systems towards a more efficient cloud-based banking platform. BOQ realizes that going digital will help it simplify its product offerings and streamline service for its customers across the country. To this end, the Bank of Queensland has launched a digital wallet service as well as new self-service platforms. BOQ ultimately wants to create an intelligent digital platform that will meet and exceed changing stakeholder and consumer expectations. 

4. Keep It Simple & Intuitive

Over the years, BOQ’s operations have become more complex as it expands and diversifies its business, but the bank is now striving towards simplifying its product offerings to boost productivity. As of 2021, the bank has halved its products for sale and, as a result, has already seen productivity benefits of $30 million dollars. BOQ is moving towards better service delivery by simplifying its product offerings. It is also working on increasing the speed at which it approves loans, especially for housing. For BOQ, better service delivery is the key to long-term customer acquisition.

5. Strong Financial & Risk Position

Finally, the Bank of Queensland is prioritizing financial security and compliance through improvements in risk-based pricing and margin management. The bank has already seen some results as the deposit to loan ratio now stands at 75%. BOQ aims to deliver a sustainable return on investment for its stakeholders, and to meet that goal, the bank is beefing up measures for financial security and improving its risk management capabilities.

Key Takeaway 4: Have A Solid Strategy In Place

BOQ stands for empathy, integrity, and prosperity for its consumers and stakeholders. The bank has set up five strategic goals to take BOQ forward and to make sure that it can actually deliver meaningful results and stand by its core principles. 

The five-pronged strategy involves building distinctive brands, diversified product offerings combined with a simplified service to improve productivity and improve risk management and compliance. BOQ is also committed to helping communal businesses prosper with its upgraded owner-manager system that helps suburban communities access the best financial services in Australia.

Growth By Numbers & Key Strategic Takeaways

Against all odds, the Bank of Queensland has managed to become a leading regional player that has established a significant presence in all parts of Australia. At this point in time, the bank has successfully provided Australian citizens and businesses with gross loans and advances to the tune of $75.7 billion dollars and is also responsible for customer deposits worth $56.5 billion dollars.

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However, the slow pace of digitalization is holding BOQ back in terms of growth and the bank risks losing its hard-won customers to neo banks and digital banks that are providing hassle-free banking services without the delays that have become synonymous with traditional banks. Hence, it is high time that BOQ converts its plans on paper into an actual reality by implementing bold digital initiatives that will bring about a truly transformative change in the way traditional banks do business, and there is no time like the present, so BOQ must act now.

Growth By Numbers

 

2021

2011

Net Income

$574 million

$477 million

Profit

$369 million

$159 million

Total Assets

$91.4 billion

$39.9 billion

Share Price

$8.1

$7.48

Key Takeaways

Strategic Acquisitions Fuel Growth

BOQ has truly cracked the art of negotiating successful mergers and strategic acquisitions. Right from the start, BOQ has used this strategy to expand and grow its business through well-executed mergers that have allowed the bank to enter new markets and offer a wider, more holistic range of financial products and banking services to its clientele. With its latest acquisition ME Bank, the Bank of Queensland has successfully doubled its retail banking service and secured attractive financial outcomes while maintaining a strong balance sheet. In the process, it has also managed to secure 580,000 new customers.

Involve Community Leaders To Build Loyal Consumer Base

People like doing business with familiar faces with whom they share deep cultural and personal ties. Undoubtedly, trust-building is a key part of the process of acquiring customers and making them stay, and the Bank of Queensland has always been cognizant of this fact because it is a business that continually strives to understand the unique needs of its customers. Hence, the bank has a strategy of partnering with local community leaders to run branches in small suburban areas so that locals receive banking services from people who they know they can trust to have their best interests in mind. BOQ has demonstrated time and time again that it can look beyond profit generation and create a banking service that caters to the financial literacy and well-being of the wider community.

Better Service Provision Through Diversification 

Nothing is more important than good service, and if a business cannot deliver on its promises, it might as well pack up and leave. At BOQ, the focus has always been on better service delivery through geographical and industry sector diversification. BOQ provides multiple services such as Retail and SME lending, deposits, credit cards, and insurance, as well as digital home loans. The bank also provides commercial lending services and asset finance and leasing plus banking solutions to niche market segments such as medical, dental, and veterinary professionals.

Digitalize Now

Digitally robust banking solutions are the need of the hour. Although late to the digitalization arena, BOQ has started to roll out a five-year digitalization plan that will culminate in the establishment of BOQ Digital. It has already upgraded its digital strategy at Virgin Money Australia to provide consumers with digital loans and deposits, and with its ME Bank acquisition, it aims to help all customers transition to cloud banking so that customers can get the best banking experience right from their homes.

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