Strategy and the battle of the bank

Sam Knowles has a job many believe can't succeed. KEVIN TAYLOR spoke to theman who is building a bank founded as much on politics as finance.

At Kiwibank's nerve-centre, Sam Knowles points to a large pile of response forms.

The interim chief executive picks up one of the responses, pointing out that the pile, several phonebooks high, arrived just one day after the last mailout.

The response is from an ANZ customer who had been with that bank 30 years.

He's getting on in age and now wants more information on Kiwibank.

Using these forms, the bank inspired by Alliance leader Jim Anderton is building a demographic profile of its potential customer base.

Aiming to open its first branches in February, the fledgling bank is already in a race with other banks for customers.

Looking younger than his 47 years, Kiwibank's chief has a quietly spoken and laidback air.

Mr Knowles portrays a calm resolve about the task ahead. He is creating a new Government-owned bank, despite a barrage of criticism.

Act's Rodney Hide calls it a "dog". National leader Bill English dismisses it as a bank people don't want.

Yet Mr Knowles reveals that the written expressions of interest from potential customers have passed the 80,000 mark.

Kiwibank appears to be building a constituency, despite National's claim that it is a laughing stock.

Mr Knowles shrugs off the criticism. "I guess I see it as what it is - politics," he says quietly.

He points out that if he's confirmed as chief executive by the bank's board in the next few weeks, he's in it for the long haul.

Describing his outside interests mainly as family - he and his wife, Charlotte, have three children - Mr Knowles has an impressive CV. Perhaps surprisingly for a banker, he has a Bachelor of Science degree from Waikato University and a Masters of Science with First-Class Honours from Canterbury University.

What the science graduate - whose first interest was actually physics - says he brings to Kiwibank is a logical mind.

He works more than 40 hours a week, but doesn't want to say how many.

However, the Wellington-born former Treasury policy analyst tries to retain a balance between work and family life, and encourages his staff to do the same.

His work is on the 11th floor of Radio New Zealand House in Wellington, where Kiwibank's headquarters are located.

Between 40 and 50 staff work there and the floor will also host Kiwibank's call centre.

It will be a small bank, he says, but with a large community presence of 600 staff. By June, Kiwibank will occupy space in about 300 Post Shop outlets and Books & More stores.

This will give it the biggest branch network of any bank in New Zealand. WestpacTrust has the next largest network, with just over 200 branches, and that bank shut 17 branches last year, the most of any bank in the country.

Since 1994, banks combined have closed 639 - or 42 per cent - of the country's branches.

With fewer branches to choose from and higher bank fees, customers have not been impressed.

Kiwibank won't be in the business of closing branches - in fact, its branch network is set to grow, says Mr Knowles.

And it will offer longer opening hours, with 190 urban and rural branches open on Saturdays - and about 30 of those also open on Sundays.

There is already evidence, from the latest survey of customer satisfaction by Auckland University's business school, that other banks are lifting their game in response to the upstart.

How successful they will be in reacting to the threat remains to be seen, but Mr Knowles is confident Kiwibank will succeed. He points out that, internationally, most banks take five to seven years to get into profit - and some have taken much longer.

He expects Kiwibank will hit profit in its third year. The bank wants 5 per cent of bank customers and 2 per cent of the market share of deposits after three years. It is aiming for between 100,000 and 165,000 customers after the third year.

"Clearly we want to build a big bank, but we appreciate that building a big bank takes many years," Mr Knowles says.

He points out that other banks will have difficulty matching some Kiwibank characteristics - namely pedigree (Government ownership) and community presence.

"You will build a successful business if you deliver on the customer experience. It's just the natural thing about business.

"If you do it competently and it's logical, it will be successful."

Kiwibank, he says, is logical, and its success depends on competent delivery.

He believes the bank will contribute to slowing down the brain-drain, saying many of its staff would otherwise have seen no option but to shift to Australia, where career paths in New Zealand banking now lead.

Mr Knowles knows that personally, having worked for National Australia Bank, BNZ's owner.

"What happens in New Zealand is that any up-and-coming individuals are effectively sucked out to Australia around about 30 or 40," he says. "What we have been able to offer is an alternative to going to Australia."

At NAB Mr Knowles worked on strategy and marketing. But he decided to come back to New Zealand for family reasons.

"At some point you have got to make a decision whether you want your children (his are 11, 8 and 4) brought up as New Zealanders or Australians."

Back home Mr Knowles headed the former Government accident insurer @Work, which lasted a year before ACC was renationalised.

Although brief, he describes it as a great learning experience in setting up a company from scratch.

"It was very successful. We set up a company without any competitive advantage.

"We were Government-owned, we had no distribution structures, we had no experience in insurance and we were competing against global insurance giants."

Against the odds, @Work turned an $8 million profit during that year, despite expecting a $20 million loss. Then in mid-2000 he was drawn into NZ Post as a consultant on the bank project, and was appointed interim chief executive last February.

"I've done a lot of strategy work in banking in NAB and the BNZ. I headed up strategic planning for BNZ," he says.

Much of his work at NAB was on retail banking strategy covering both countries.

"That's really what they [NZ Post] were looking for - someone who could evaluate and really understood the detail of retail banking strategy."

He came up with strategy options with a team drawn from @Work, existing bank staff and NZ Post.

A detailed business case was developed, and the winning option was a new operation. The other two options were to offer banking services with an existing bank, or buying one.

"We were talking with the other small regional financial institutions and it's been in the public arena that for lots of different reasons - mainly control - they weren't keen to get involved in us."

He admits to being sceptical about the so-called people's bank when he started work on the project.

It was not until he and his team studied the issues and what NZ Post already had in the way of outlets, systems, and financial transaction experience that they concluded a bank was a viable, low-risk move.

He says people used to stay with their banks for life, despite the way they were treated. Now, customers understand they have choices.

Yet he does not expect a great flood of people to sign up in Kiwibank's first few months of life.

He says people take a long time to decide to switch, because money is important and must be carefully handled - it is generally estimated that about 5 per cent of New Zealanders switch banks every year.

"People just don't wake in the morning and say, 'I'm going to change my bank'," Mr Knowles admits.

But that is the hurdle he and Kiwibank must overcome.

nzherald.co.nz/peoplesbank