If cloud computing is the future of banking then Westpac Banking Corp is well positioned to lead the way among the big four banks thanks to a $500 million investment in a new customer service hub.
Westpac’s latest full year results show the bank has reached a turning point in its implementation of private cloud computing systems supplied by IBM and public cloud computing services supplied by Microsoft and Amazon Web Services.
The bank has moved more than 100 software applications onto its cloud platforms, has 120 APIs in production and another 180 APIs in development. APIs are used to make digital connections between customers and Westpac’s products and services.
These changes to Westpac’s systems point to significant productivity improvements in the years ahead because cloud services function 10 times faster than legacy systems and cost about two thirds less.
Westpac in 2018 spent $1.4 billion investing in its business including $800 million on system upgrades, digital transformation and innovation.
Chief executive Brian Hartzer revealed more detail about the bank’s technology transformation on Monday with the release of a flat profit result which included payment of a steady final dividend of 94¢ a share.
Hartzer published a chart showing the bank’s progress on its three-year technology transformation program. The centrepiece of this program is the customer service hub which relies on cloud computing.
It is moving from the pilot stage to the implementation stage over the next two years. The banks started with mortgages because this is the most important product in the relationship between a customer and a bank.
Hartzer says Westpac is the only bank in Australia to have implemented private cloud resources internally and externally. Traditionally banks have utilised public cloud services to implement new products and services.
But Westpac wants to ensure that it can shift to external private cloud services if the Australian Prudential Regulation Authority implements tougher rules on cloud services.
The idea that Westpac would be a market leader in technology was inconceivable a few years ago. It chose not to make multi-billion dollar investments in rebuilding its core systems as happened at Commonwealth Bank of Australia and National Australia Bank.
Also, there was a widespread belief that Westpac had under invested in technology under Hartzer’s predecessor, Gail Kelly, and this had hampered its ability to get a single view of each customer.
Its silo approach to products and technology may have contributed to the problems at the Hayne royal commission in relation to the misinterpretation of mortgage lending data.
Hartzer responded to the technology challenges facing Westpac by poaching Dave Curran from CBA. As head of technology at Westpac over the past four and a half years, Curran has been able to utilise the advances in cloud computing to ensure each Westpac banker has a single view of the customer.
He was the brains behind the customer service hub, which achieves the same outcomes as the core system changes at CBA and NAB but at a lower cost.
In essence, Curran did not rebuild Westpac’s systems from the ground up. Instead, he rebuilt the middle piece which interfaces with the customer. Curran is leaving this year and being replaced by Craig Bright.
One advantage of cloud computing is that all of the development of new software applications at Westpac can be done using agile software techniques which have faster implementation schedules.
Chanticleer understands that about half of all product development at Westpac is now done using the agile software approach.
The customer service hub will be rolled out to the Westpac brand early next year and to the St George brand in late 2019. It will be rolled out to brokers in 2020 and then extended across all products and services.
The use of cloud computing will result in a subtle change in the way in which software and computer costs are recorded at Westpac and other banks.
Under the current system, software is installed and capitalised. Once implemented it is then amortised.
The use of cloud computing is an external charge because it is, in effect, outsourcing. This means the cost is straight through the profit and loss through the operating expenses.