Westpac Bank has gone live with the first stages of a significant technology shift to move its core processes off its own premises and into the cloud, a plan that could save millions each year and give it greater flexibility than any of its rival institutions.
The move to push its key tech systems off its own infrastructure on to a so-called private cloud built and run by IBM is a major change for the bank, and a bold move in an industry that has been slower than most to fully embrace the trend due to regulatory, operational and security concerns.
The Australian Financial Review understands it has already moved two core banking processes to the cloud since the end of March, and intends to have moved around 20 more within the next eight months. In addition it estimates internally that 70 per cent of its business applications will move to these cloud environments over the next 10 years.
Banks have been using cloud computing for years in areas such as web content management and customer relationship management software, but Westpac chief information officer Dave Curran told The Australian Financial Review it is going all in with the core systems that run the bank’s operations as it will offer much greater flexibility, efficiency and value for money.
While the systems are initially being moved into a private cloud that will house only Westpac systems, Mr Curran said this would form the early stages of a decade-long plan to eventually run a large part of its operations in the public clouds of giants like Amazon Web Services.
In late March it went live with two applications in production on its offsite private cloud, its business bank “Deal Tracker” application and its risk decision-making engine. Mr Curran said he was targeting 40 per cent of Westpac’s business applications to be on offsite private cloud by 2020, with the intention to move material workloads such as online banking and a payments platform to the cloud.
“What took months to provision now takes days and most importantly helps bring customer solutions to market quicker. With increased automation and process improvement we will see significant cost savings and efficiency gains,” Mr Curran said.
“It’s much more cost effective to build and to run – 50 per cent and 25 per cent respectively – and our solutions have greater resilience and won’t break as often as traditional systems. The other added benefit is that they will be ‘evergreen’ with a continuous refresh as opposed to large periodic refresh projects.”
Westpac is following a strategy known as hybrid platform as a service, whereby it uses its private cloud for some systems and the public cloud for others. Public clouds have huge capacity and processing power, but the bank would need to demonstrate that it was more secure and resilient than private clouds in order to convince regulators and the broader public that it should move its core systems across.
Internally the bank will continue to increase its use of cloud solutions from the major tech giants, such as consumer services like Office 365, Exchange and SharePoint from Microsoft Azure, numerous AWS platforms, software as a service product from Oracle and platform services like IBM’s BlueMix and SoftLayer.
It is Mr Curran’s view that the process to prove the virtues of the public cloud will take about 10 years to come to fruition.
“[The existing work] is a substantial move for any organisation, because not only is it a large-scale technology transformation, it’s also a cultural transformation and our people have been key to its success,” Mr Curran said.
“I believe we’ll be on the public cloud in less than 10 years, I’m pretty happy where we are in relation to that and moving our core business across.”
IBRS analyst Alan Hansell said any bank moving its core banking systems to a public cloud would only be able to do it after conducting comprehensive due diligence and getting approval from its governance group.
He said security concerns that could be raised about the move would be unlikely to be damaging if the bank was careful and suggested it could give a number of competitive advantages to the first to do it.
“As banks encrypt their data the risk of disclosure of private information or illegally transferring funds is low, but shareholders would be entitled to ask the question, if it is not broke why fix it?” he said.
“Probable answers are that it will reduce operating costs and enable the bank to focus on its core business, and hopefully that will persuade shareholders to keep their shares and rest easy tonight.”