Few industries have been as thoroughly transformed by technology as the banking sector. But despite all the progress made to date, it seems Australia’s banks still have a long way to go before they approach the peak of what digital transformation can deliver.

Banking today is one of Australia’s biggest buyers of IT, with Gartner reporting that spending would hit $27.3 billion in 2023, up 7.3 percent from 2022.

And enterprise IT spending in banking and investment services globally is estimated to reach US$1 trillion ($1.6 trillion) globally by 2028.

Customers have flocked to digital services, with the Australian Banking Association (ABA)

finding that customers of major banks made $126 billion in payments with their mobile wallets in 2023, up 35 percent from the previous year, and overtaking total ATM cash withdrawals for the first time. The ABA also found that 99 percent of all interactions now took place via digital channels.

Blasting legacy

But when it comes to unlocking future capabilities, banks face a significant challenge in the form of their existing investments, with the scale and complexity of historical technology spending making banking one of the industries to suffer most from ‘technology debt’.

At Westpac, whose history stretches back over 200 years, the burden of that legacy investment has become the target of a specific program called Unite.

According to Westpac’s chief technology officer David Walker, Unite’s goal is to simplify Westpac for customers and employees while also modernising it for growth opportunities.

“One (half) is all about simplifying, and the other is all about modernising to go faster,” Walker said.

“We’ve spent a lot to time focused on getting the organisation model and the risk controls in place - really stabilising ourselves as a platform – and getting the right people in to now jump on to this next phase of work.

“Last year we took over 200 applications out of the environment – we had a goal to get 100 out, and we doubled that goal,” Walker said.

It’s not just applications that are in the firing line, however, with Walker looking to simplify entire workflows. One example is ID verification, where the number of processes has been reduced from 22 to just one.

“That is a huge leap forward, and that is about simplifying the different flows across the bank,” Walker said.

The long-term goal of Unite is to reduce the IT landscape by as much as 20 percent, which Walker says will not only allow Westpac to reach best-in-class performance in terms of unit costs, but deliver additional benefits that are specifically important to the bank.

Threading the needle of change

This last point represents the other half of Westpac’s Unite strategy, which Walker says is represented by the acronym BEAD – Built for change, Evergreen, Automated, and Digital to the core. Walker says the ambition is to create a plug-and-play architecture within which Westpac can easily interchange and transition components to achieve the best results.

These principles are represented in Westpac’s AI Accelerator program. This activity commenced 18 months ago with a survey of the bank’s operations to identify potential use cases for generative, predictive, and agentic AI implementations. These were then categorised into four distinct use patterns.

“Now we are standing up those patterns, underpinned by this technology, which allows us to bring multiple use cases on,” Walker said.

For example, he says that if a part of the bank wants to create a knowledge-based chatbot, there is a pattern in place that everyone can reuse, with the patterns, and the underlying AI models able to be switched out if desired.

“These are all things that are built into the foundational parts of the platform, which means that the guardrails are there from day one,” Walker said.

Westpac’s technology vision extends well beyond AI however, with the bank now running two experiments using quantum technology, in the field of security and cryptography, and in Westpac’s markets business, where it is being assessed in the creation of specialised models.

Walker says the bank is also keeping an eye on the new generation of wearable devices being pioneered by Apple and Meta.

Freedom from legacy

While traditional banks such as Westpac are expected to continue expending significant efforts to modernise their platforms, it is a very different challenge facing Australia’s few remaining neobank competitors. 

Judo Bank for instance was founded in just 2016 and has taken advantage of modern technologies to create a purpose-built, cloud-based, and flexible technology stack.

According to chief operating officer Rosanna Fornarino, this model is cheaper to run, but it doesn't mean that the bank won’t need to continue investing heavily to stay ahead of much larger competitors.

“We started our journey with tactical technology solutions that enabled us to prove our customer value proposition cost effectively,” Fornarino said.

“At our initial public offering in 2021, we indicated that we would spend $100 million of capital expenditure in technology over five years. This included investing in our core systems and building the digital and data capability required for a full-scale bank.

“We have made significant progress with this work. Over the past two years, we have progressively invested in best in-class, strategic solutions that will enable the business to scale rapidly.”

Critical to Judo’s strategy has been a partnership with the global cloud-based core banking provider Thought Machine to develop and implement a flexible core lending platform.

“(We) piloted the new Thought Machine lending platform in just under nine months and

completed the migration of all lending accounts onto Thought Machine in just over a year – a relative short overall timeframe when uplifting a core banking platform,” Fornarino said.

Like most other banks, Fornarino says Judo is keeping a close watch on developments in AI in the financial services sector.

Putting the customer at the centre

Customers also lie at the heart of the technology strategy at Bank Australia, a financial services provider which has evolved significantly since its origins in 1957 as the CSIRO Co-operative Credit Society and subsequent merger with 71 other credit unions and co-operatives to become Australia’s first customer-owned bank.

According to chief transformation officer Scott Wall, this unique heritage means Bank Australia is always looking at ways to enhance its customer experience. 

“We’ve been working hard on our digital transformation program to deliver projects that will enhance both our customer and employee experience,” Wall said.

“This includes our new Loan Origination System that streamlines the onboarding and origination processes for mortgages, personal loans, credit cards, and commercial loans.”

Other projects include the implementation of facial biometric recognition to improve the identity verification for new customer onboarding, and the launch of a new Genesys Cloud system which gives contact centre teams dashboards and reporting capabilities to make decisions based on real time data.

Bank Australia’s future technology investments will be guided by the outcome of the proposed merger with Qudos Bank announced in early 2024, which would create an entity supporting 300,000 customers with total assets exceeding $17 billion and served by almost 900 employees.

Wall says the merged entity would benefit customers through increased scale and greater ability to invest in enhanced products, services, and digital banking technology.

“Over the past few years we’ve seen the ways our customers using our services change quickly,” Wall said.

“Our digital banking strategy is focused on changing the way that we serve and work with our customers by putting them at the centre of what we do.

“Digital excellence is not just focusing on our customer facing digital channels but on the internal tools used by our employees. We understand that customer experience is a mix of technology and people - and we need to continue to support our employees for those times that our customers need to talk to a human.”