AMP share price sinks 11% despite digital bank plans

AMP is betting big on digital small business banking.

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The AMP Ltd (ASX: AMP) share price is sinking on Thursday.

In morning trade, the financial services company's shares are down 11% to 90 cents

Why is the AMP share price sinking?

Investors have been selling the company's shares today after it released a couple of announcements.

The first reveals that AMP is launching a digital bank division built specifically for the transaction needs of sole traders and small businesses.

The solution will be built in FY 2024 and launched in the first quarter of 2025, operating on a separate technology platform.

The company is working with Engine, the SaaS subsidiary of Starling Bank, a leading UK digital bank. AMP will leverage Starling's 'Engine' technology platform in building the new AMP digital bank offer, under a software as a service agreement.

Management advised that it will be targeting sole traders and small businesses with 1-20 employees with digital transaction and savings accounts. This is a lucrative market, with deposit balances from the sole trader and small business segment totalling nearly $220 billion in June 2021.

The new digital bank division requires an investment of approximately $60 million across FY 2024 and FY 2025. However, it will be absorbed within current controllable cost targets as it will repurpose existing bank investment spend.

AMP's chief executive, Alexis George, said:

This new offer builds on AMP Bank's strengths and addresses an under-served and growing segment of the market. Importantly, it will reshape the Bank portfolio in the medium term to better position AMP for the headwinds the industry is facing when it comes to bank funding.

By partnering with one of the most innovative and fastest growing digital banks we will be able to better serve Australia's growing number of small businesses, and individuals, with their banking needs.

What else?

In other news, AMP released an investor update which provided a brief update on current trading conditions.

Unfortunately, management revealed that net interest margin (NIM) pressure is expected to continue into FY 2024 based on current market conditions.

This could be what is weighing on the AMP share price today.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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