Silicon Valley is coming for the Big 4 banks: NAB to invest in automation

Australia’s big four banks of National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have long held a strong monopoly of Australia’s banking.

But, some of the world’s biggest tech companies have got eyes on the bank’s margins. According to an article in the AFR, CEO Andrew Thorburn recently visited the headquarters of Amazon and Microsoft, and he is worried.

He is very certain that the banks face huge impending technological disruption, so NAB needs to go full-steam ahead with investing in workforce automation.

Indeed, NAB has already announced plans that it will reduce its workforce by getting rid of 6,000 jobs over the next three years whilst adding 2,000 new staff for digital roles. A 4,000 reduction in the NAB workforce should mean bigger profit margins in time.

One of the ideas NAB could do to be more efficient is using Amazon’s Web Services which could accelerate lending decision. NAB is also going to invest in and deploy computer ‘microservices’ which allows pieces of code to be reused which will automate requests for information across multiple banking channels.

NAB is also investing in ‘robotic process automation’ which are computer programs that will mean someone doesn’t re-enter the same information a bunch of times.

Foolish takeaway

Investors shouldn’t assume just because Amazon is working on something means the end of the big banks. Paypal has been around for many years and Apple Pay has been around for a long time, neither have put an end to the banks. But, those tech companies are chipping around the edges of the banks’ profitability. They are not as profitable as they could have been in the past.

Either way, I’m avoiding the big banks. I’d much rather invest in this top stock for income and growth.

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But the real action, in my opinion, is what companies are doing with dividends.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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