​Westpac hits AU$1.9b technology spend as profit slips 7 percent

Westpac has reported AU$7.4 billion in net profit after tax amid a 12-month focus on transforming its business into a digital one.

Westpac has released its 2016 financial results, posting AU$7.4 billion in net profit after tax, a 7 percent drop year-on-year.

For the 12 months to September 30, 2016, Westpac spent AU$1.9 billion on technology-related expenses as part of its ongoing digital transformation.

The bank's chief executive officer Brian Hartzer said Westpac has delivered a solid result in a "challenging environment", with Westpac reporting cash earnings of AU$7.8 billion for the 12-month period.

The main focus for the bank in the last 12 months has been its "digital transformation", with the company telling shareholders Monday it has been heavily investing in technology in a bid to improve customer experience as well as improving productivity and risk management within the organisation.

During this time, Westpac has continued with ongoing investment programs that saw the delivery of a number of technology developments, such as the ability for customers to connect directly with the bank's call centres via the mobile banking app. Westpac said the system automatically identifies customers and reduces average call times by up to 60 seconds.

Westpac expanded the functionality of its online lending platform (LOLA) for small businesses, and invested part of its AU$171 million "other technology" spend on programs to strengthen the bank's cybersecurity capabilities.

During the first half of the year, Westpac spent AU$914 million on technology, representing a 12 percent lift year-on-year in technology expenses.

Technology expenses increased 10 percent to AU$94 million compared to 1H16, which Westpac said was due to the impact of completed investments resulting in higher amortisation of software assets, which came in at AU$$29 million.

At the same time, Westpac said the AU$16 million depreciation of IT equipment also increased during the second quarter.

The bank said technology services costs were also higher in the half, coming in at AU$56 million, thanks to an increased investment spend, partly offset by lower telecommunication costs.

During the year, Westpac said it commercialised its data analytics capability and delivered "keystroke automation", which resulted in the reduction of the end-to-end transaction account opening process.

It also kicked off its LanternPay pilot to facilitate payments through the National Disability Insurance Scheme (NDIS), which is currently being investigated by the federal government.

Additionally, around 10,200 employees now work in "agile" workplaces supported by the bank's Worksmart app, which has resulted in an 87 percent decline in paper and storage and a faster response time to changing business needs, saving around AU$800,000 annually in relocation expenses, the bank said.

Similarly, over an eight-year period, Westpac said it saved AU$1.8 billion by moving manual-based tasks to a digital format.

During the year, the bank launched NBBO, a new online banking system for St George business customers, which was modelled on Westpac Live.

St George experienced a 77 percent increase in customers migrating to NBBO during the financial year.

Westpac launched its tap-and-pay functionality last year, making it initially available via the Westpac banking app to the Samsung Galaxy S4, Galaxy S5, S5 Mini, Galaxy Alpha, Note 3, Note 4, and Note Edge handsets. The bank continued to roll it out to make the feature available for the Samsung Galaxy S6 and S6 Edge in April.

St.George's retail deposit and transaction platform was also migrated to the latest Celeriti version in FY16.

Westpac had now has 736,000 digital customers in New Zealand, with around 32 percent of all applications performed online.

During the financial year, Westpac also launched CashNav, the first integrated app in New Zealand to track finances and deliver spending insights to customers. Since its launch on September 1, the bank has had over 50,000 registrations.

Pointing to Westpac's involvement in local innovation hubs such as The Hive and The Cave -- both located at the organisation's GroupTech campus in Kogarah, Sydney -- the bank said the operation allows it to gain insights into emerging fintech business models, adjacent business opportunities, and entrepreneurial ways to "execute at speed".

At the time, Westpac Group said the launch of innovation hubs were a consequence of the company needing to change with customer demands.

"There is no doubt the world is going through amazing change, and there is no doubt too that our customer has already changed," Westpac's former chief operating officer John Arthur said at the time of launch.

"There is a consequence of that we need, as an organisation, to equip our people with the tools so they can not only respond to that customer change, but create a new customer experience consistent with what our customers are expecting of us."

Similarly, the bank said it has committed AU$100 million to Reinventure, an independently run venture capital fund.

Westpac has also invested in not-for-profit fintech accelerator Stone & Chalk, which opened early last year to support startups looking to disrupt the Asia-Pacific financial services industry.

Local successes Canberra's quantum computer-based security firm Quintessence Labs and Sydney's big data startup Data Republic have also been backed by the bank.

As a result of Arthur's departure in August, Hartzer announced that the bank would undergo a role shakeup, with Gary Thursby's role as group executive, strategy, transformation and business services expanded to include the organisation's strategy and transformation portfolios; while consumer bank chief executive George Frazis will take responsibility for the group's contact centres.

Looking forward, Westpac told shareholders it holds a consistent focus on customer service, digitisation, and innovation, telling shareholders its expectations for the banking group's operating environment in Australian is positive, expecting the transition to a more services-based economy to continue.

"Westpac's foundation is built on a strong and prudently managed balance sheet, strict performance disciplines, and a service-led strategy that is embracing technology to deliver great service and deeper customer relationships," Hartzer said.

"With top-quartile capital, healthy liquidity, and sector-leading asset quality, we remain in a strong position to respond to the volatile global environment.

"As we approach the group's 200th anniversary in April of 2017, we are well placed to continue to deliver solid returns for our shareholders."

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