Westpac Builds Digital Banking's High-Speed Rails

Geolocation of international travelers. Alerts about where to find the free ATMs. Other cutting-edge mobile services.

You need top-notch information technology behind the scenes to offer them to consumers, and Westpac New Zealand is overhauling its IT infrastructure as it tries to become the No. 1 digital bank in that southwestern Pacific nation.

"If you want a digital capability that's like a 200-ton locomotive going at 150 miles per hour, you don't want that running on bamboo railroad tracks," said Jason Millett, the chief information officer of the bank, which is a unit of Australia-based Westpac Group. "The digital train has to run at 400 miles an hour — otherwise you'll miss a lot of opportunities."

It's a challenge many U.S. banks share — the need to offer new, high-performance mobile banking features when the underlying core system and IT infrastructure are, in some cases, decades old.

"Most banks are caught up in a mess of legacy systems, [and] this can make it challenging and expensive to lay over new functionality and a sexy front end," said Jacob Jegher, research director at the research and consulting firm Celent. "Many banks have invested and are continuing to invest in upgrades and enhancements that can make it easier to plug in new components."

Such investments are critical for banks that want to modernize customers' digital banking experience, he said.

"Many banks have a big plan for digital transformation for the coming three years," Pierre-yves Glever, the head of the global financial services practice at IT services company Capgemini, said in an interview earlier this year. "It's difficult for a bank to create new IT offerings that serve the future while still serving existing customers. It puts a lot of pressure on the work force, on the business side and the IT side."

Westpac has been working aggressively on a digital transformation, including the development of smartwatch, iBeacon and Google Glass apps. It has also developed software that integrates customer data and transactions with branch automation software. And it signed an agreement this week with the digital money management service Moven to use its financial management tools in its mobile and online banking offerings.

New Zealanders are by nature technically savvy and early adopters of digital technologies, Millett said. "You need to feed that appetite, and to do that, you need a robust and capable development environment to allow new features and functions to be provided at regular releases," he said.

To ensure such consumer innovations work reliably, Westpac New Zealand recently added five years to an agreement with IBM in which it will use more of the tech giant's security, data center and cloud computing technology.

THE CLOUD

The bank is turning to cloud computing for the first time to handle development and testing of new apps.

"Complex tech organizations like banks have perennial problems around being able to get production-like test environments," Millett said. IBM's "private modular cloud," hosted in its Auckland data center, will be available to Westpac application development teams across the country and, it is hoped, will let them quickly set up and shut down test environments.

The new cloud-based development and testing environment will let the bank test new apps on all platforms, including different flavors of iOS and Android as well as HTML5.

"You've got to be able to promote the digital experience on whatever platform the customer determines they want to use," Millett said. "Although we don't have a big population — New Zealand has a population the size of Los Angeles, with 4.9 million people — you've still got a diverse range of preferences and customer demands that you've got to meet."

Westpac has 1.27 million New Zealand customers.

Because of concerns about security and reliability, many U.S. banks have limited their use of cloud computing to development and testing. Westpac has taken the same conservative stance.

"This is a crawl before you walk or run, and also we're very conscious of the regulation we operate under within the New Zealand jurisdiction, which is very much about data sovereignty," Millett noted.

DATA CENTERS AND SECURITY

The bank is moving its secondary data center to one of IBM's data centers, so that if disaster strikes, everything should continue as normal.

But as it cedes more control of its data centers to IBM, the bank still manages the applications. The strategy is to lower the cost of the deeper layers of IT "so that I can do more, closer to the customer, rather than worrying about whether my servers are up," Millett said.

In fact, the bank is bringing its helpdesk back in-house to seek a better understanding of what goes on at the application level. "In this day and age, it's all about the application," Millett said.

Stronger security is also critical for expanded digital banking services, he said.

The bank, which today uses a homegrown access-management platform, plans to implement IBM technology for identity, access and security-event management.

"We're in good shape now, but we need to be in better shape to support the digital agenda," he said.