Westpac is Australia’s first and oldest bank. Formed over 200 years ago, it has become a formidable force in the banking sector. Let’s review its incredible journey!
Westpac Banking Corporation is one of the most prominent banking organizations, serving customers across Australia and New Zealand. It provides multiple banking and financial services from a host of wholly-owned subsidiaries, including BankSA, RAMS, St George Bank, and the Bank of Melbourne.
Westpac provides financial support to all customers ranging from ordinary consumers and small and medium enterprises to large-scale commercial and public organizations and institutions.
Here are a few key statistics from 2021 that highlight Westpac’s dominance in the banking industry:
The corporation certainly went through its fair share of ups and downs, let's take a close look at how Westpac Banking Corporation managed to scale up and reach the heights of today.
Westpac Banking Corporation has a long and illustrious history as the first bank to open its doors to Australians. Let’s explore its inspiring journey that spans more than 200 years to find out how Westpac reached where it is today.
The year was 1816, and Australia was divided into different British colonies. The colonies traded with each other and foreign merchants under a barter system. At that time, Australia did not have its own currency, so a lot of foreign currency was circulating within the colonies that would eventually end up abroad.
To solve this issue, Governor Macquarie created the Australian dollar, otherwise known as the 'holey dollar.' It was named so because the enterprising Governor cut out a hole in the middle of a foreign coin creating a doughnut-shaped coin unique to Australia. The cut-out centerpiece was called the dump and was worth one-quarter of a 'holey dollar.'
However, Australia's monetary problems would not go away so quickly. The country was desperately in need of its own banking system, and so the Bank of New South Wales (BNSW) was established in 1817.
It was the first bank to start operating in the outback under the aegis of Governor Lachlan Macquarie and was the predecessor to today’s Westpac Banking Corporation. It was only in 1850 that the bank of New South Wales was officially recognized by an act of the New South Wales parliament.
After the passage of this historic act, the bank quickly opened multiple branches in different parts of the colony.
The timing could not have been any better. In 1851, one year after the bank was allowed to open more branches, the gold rush struck Australia, and miners needed the bank more than ever to deposit their newfound wealth safely.
But the fledgling banking corporation had embarked on an enterprise that was quite often fraught with danger. Transporting gold and cash from one branch to another was risky as bandits, and highway robbers were constantly on the lookout to steal from their next victim.
So, in a way, the team at the bank of New South Wales were truly pioneers, bringing banking services to the remotest and wildest corners of the colony. In the following years, the bank established branches in other parts of the country and opened offices in all the major Australian cities.
By 1893, the banking sector entered a period of crisis. The world had seen a sharp drop in wool prices, which severely impacted Australian wool farmers. Many people panicked and rushed to withdraw their savings from the banks. Many banks had to freeze their operations and shut down their branches in this challenging time. The bank of New South Wales remained the only bank that was able to weather the storm.
As things came back to normal and the economic condition improved, the bank decided it was high time to venture out to expand their banking empire. By 1914, the bank had opened up new branches in Fiji, Papua New Guinea, and Samurai Island.
However, this happy state of affairs did not last. With the outbreak of WWI, the bank faced a challenge unlike any other. Australia had decided to fight the war as an ally of Britain, and many male employees at the bank volunteered to fight with the Australian Imperial Army.
With a drastic reduction in its workforce, the bank decided to employ women to manage the day-to-day operations so that customers could still avail much needed financial services even during the height of the war.
As if losing more than half of its workforce was not hard enough, the bank also faced another major problem. It needed to find a way to help the government finance the war effort, and it did just that. In 1918, the government awarded the bank's general manager John Russel French a knighthood for his assistance in financing the war.
The state of Australia's economy following WWI was far from stable. The government relied excessively on foreign loans to fund large-scale infrastructure and other developmental work. The economy was also largely dependent on exports of wool and wheat that made up the lion’s share of the country’s earnings.
So when the Great Depression hit, it was terrible news, especially for the export sector. Wool and wheat exports saw a massive reduction, and exporters across the country were scrambling to save their businesses. Alfred Davidson was the bank's general manager at that point in time.
Davidson was a man who believed in bold ideas. Just a year ago, under his leadership, the bank had introduced a travel department which was the largest of its kind in the southern hemisphere. The bank expanded its overseas operations and opened up new offices through this department.
So when Davidson saw trouble on the horizon as the Great Depression began to strain the Australian economy, he came up with a radical solution. In 1931, he successfully managed to convince the Australian government to devalue its currency in relation to the sterling. It was an unconventional move, but it managed to tilt the situation in favor of the exporters. It reduced the impact of the economic crisis on Australia and breathed new life into the ailing economy.
The bank also initiated an expansion wave through an acquisition scheme under Davidson. In 1927, BNSW acquired the Western Australian Bank, and in 1931 it acquired the Australian Chamber of Commerce.
If we look at Westpac’s early history, we see a clear pattern of pioneering activity and survival in difficult circumstances. The bank of New South Wales would never have gotten anywhere without taking risks and testing out new ideas.
Establishing a bank in the bush was dangerous, but that never deterred the employees at 'Wales.' When times were good, they were always ready to capitalize on their good fortune and initiated large-scale expansion to other parts of Australia and the wider Pacific region.
The bank was also ready to implement tough policies when the situation called for it. The decision to devalue the Australian currency was quite radical, but it helped exporters get back on their feet. The bank quickly realized that the economic depression would impact its business, and customers would scramble to withdraw their savings, so it initiated the devaluation process.
Thanks to Davidson's quick thinking, the Australian economy was well on the road to recovery. By the mid-1930s, the situation was almost back to normal, but in 1939 fighting broke out once again as Nazi Germany declared war on the rest of Europe. Imperial Japan backed Germany, and the Japanese invasions in the Pacific region meant trouble for Australia.
WWII once again brought to the forefront the problems that the bank of New South Wales had faced in the Great War but with the additional problem of air raids. An air raid in the town of Darwin by enemy forces demolished the local ‘Wales’ branch causing extensive damage to banking services in the area.
On the other hand, the Japanese continued their invasive march across the South Pacific region, eventually taking over Papua New Guinea. As a result, many of the 'Wales' branches operating there had to be closed down.
To further complicate matters, the bank had lost 65% of its male workforce as a large number of men had enlisted with the army. So, BNSW met the challenge head-on and hired more women to fill up positions and ensure that the bank kept operating.
The bank’s problems did not come to an end as WWII came to a close. Fresh trouble was already brewing as the government wanted to nationalize all private banks. The BNSW knew that nationalization would pose problems for free trade, so the bank lobbied against the new government law. The lobbying campaign was a success, and in 1947 the Australian High Court passed a landmark judgment in favor of private banks.
That was the start of a new chapter in private banking in Australia. The BNSW finally managed to enter the savings deposit field. Previously the government-owned central bank had a sole monopoly in the savings deposit field.
For the first time in Australian history, private banks were also allowed to enter this market. The BNSW successfully secured many customers who opened their savings bank accounts at 'Wales' branches all over Australia.
A construction boom followed the post-war era, and there was high demand for affordable housing in the 50s and 60s. So, the BNSW started giving out house construction loans to eligible applicants.
In 1957, the bank of New South Wales entered the investment and merchant banking field. That same year, the BNSW acquired a 40% share in the Australian Guarantee Corporation Ltd. (AGC). At the time, the AGC was the largest financial company in the country. Through the AGC, the bank made loans to commercial entities for business ventures and investment schemes.
In 1968, the BNSW joined Databanks Systems Limited to revamp its data processing services. The bank started using a computer to process and store its records for the first time. Previously, all records were hand-written, but BNSW was among the first banks to transition towards online data processing.
In the 1970s, the Bank of New South Wales expanded further and opened multiple new branches abroad. The bank also concentrated on acquiring more financial companies to diversify its services. It also increased its share in the AGC to 54% by the early 1970s. The bank also expanded its reach in the merchant banking sector. In the early 1970s, BNSW held shares in Partnership Pacific Ltd., Schroder Darling & Company, and Australian United Corporation. In 1974, Australian banks entered the credit card market, and BNSW launched the Bankcard.
During the 1970s, the bank started consolidating its overseas ventures. In 1970 it established a branch in Tarawa, which became the central savings bank in the area. In 1974, the bank established the Bank of Tonga in a joint venture, and the following year BNSW incorporated its local ventures in Papua New Guinea under the Bank of New South Wales (PNG). In 1977, the BNSW established the Pacific Commercial Bank in Samoa after buying shares in the Pacific Savings and Loan Company.
The ride was bumpy and fraught with obstacles, but the Bank of New South Wales powered through. It first fought off the shackles of nationalization, and in doing so, it was able to enter the savings deposits field. Since the nationalization act was declared unconstitutional, BNSW managed to create a level playing field so that private banks could compete with the central government bank for savings accounts.
Furthermore, the winning strategy that the BNSW employed to expand steadily and diversify its services was to buy shares in multiple financial companies. The most significant acquisition was the Australian Guarantee Company Ltd.
Through these strategic acquisitions, the bank was able to enter into new markets such as commercial and merchant banking. It also allowed the bank to enter the investment and insurance market. The BNSW also quickly noticed that the world was shifting towards a cashless model, so it entered the credit card market with the BankCard.
As the 1980s rolled in, the Bank of New South Wales was about to undergo a massive change with the largest merger in the history of Australian banking.
This was an incredible time in the bank's history and saw it achieve many milestones, such as becoming the first bank in Australia to introduce the ATM and internet banking.
In the early 1980s, the Australian government announced that it would soon deregulate financial markets. For the first time, foreign banks would be allowed to establish themselves in Australia. Faced with increased competition by foreign banks on its home turf, BNSW knew that drastic times called for drastic measures.
Hence, the Bank of New South Wales and the Commercial Bank of Australia merged to form Westpac in 1982. The merger would protect their position at home and help them expand overseas to a greater extent. The very first thing on Westpac’s agenda was to become a leader in the world of banking.
To achieve this goal, the bank focused on innovative technological solutions. Westpac became the first bank to successfully implement an ATM network that gave its customers easy access to their accounts.
Today, Westpac is a member of the Global ATM Alliance that allows its customers to use their ATM cards at another bank in the alliance with no extra fee. It is an extremely convenient service, especially for customers who travel abroad quite frequently.
By 1984, Westpac had partnered with Canadian firm Netron to develop the CS90 computerized banking system, the most advanced banking system in the whole world at that time.
Westpac Banking Corporation (WBC) used another strategy, diversification, to consolidate its footing both at home and abroad. The bank entered the euro-currency markets and opened up offices in Los Angeles, Seoul, and Taipei. This was a brilliant move, and by 1986 the bank's assets had more than doubled.
Westpac also capitalized on increasingly deregulated financial markets to break into new markets. In 1986, the bank purchased London-based Johnson Matthey Bankers Ltd, which gave Westpac a stake in the gold bullion market. In the following year, the bank acquired the William E. Pollock Government Securities, a U.S bond dealer.
Westpac also acquired the European Pacific Banking Corporation in the Cook Islands and the Solomon Islands Banking Corporation in 1988.
In 1988, Westpac purchased the remaining shares in the Australian Guarantee Company Ltd, making it a wholly-owned subsidiary. The bank's diversification strategy and a focus on technological innovation had proved so successful that it controlled almost 25% of all banking deposits in Australia by 1990.
However, profits declined significantly in the early 1990s. So the bank launched another expansion scheme to regain its dominant position as the leading bank in Australia. In 1995, it purchased Challenge Bank at A$684 million, and the following year, it merged with Trust Bank New Zealand Limited. The acquisitions helped the bank bump up its profits to A$1.5 billion, which was an increase of 32% compared to the previous year. In 1997, the bank acquired the Bank of Melbourne at A$1.4 billion.
In 2002, Westpac Banking Corporation acquired BT and Rothschild Australia Asset Management. In 2008, the bank announced its merger with St George Bank, Australia's fifth-largest bank, at A$19 billion.
Today, Westpac serves almost 14 million customers in Australia and New Zealand through five core business platforms: Consumer Bank, Commercial and Business Bank, BT Financial Group, Westpac Institutional Bank, and Westpac New Zealand.
The Consumer Bank handles the everyday banking needs of millions of Australians through its country-wide network of branches, ATMs, and internet banking services. Westpac's Commercial and Business Bank supports SMEs and agribusiness through its subsidiaries St George Bank and Bank of Melbourne.
The BT Financial Group handles the Westpac Group's investment platforms and insurance solutions. At the same time, the Institutional Bank works with government agencies and provides them financial services and specialist guidance in transaction banking and investment solutions.
Westpac New Zealand is the second-largest bank in New Zealand and serves 1.5 million customers. In 2014, Westpac NZ launched a host card emulation (HCE) program, which is essentially a kind of digital wallet. The bank was among a few banks in the world to introduce this technology to its customers.
Under the new scheme, customers could use their smartphones as digital wallets and securely access credit and debit card information. The digital wallet was further upgraded so that customers could quickly pay bills, check account balance, and locate their nearest bank branch or ATM.
At Westpac, the existential threat posed by climate change is taken very seriously. The corporation is committed to providing solutions to this global problem. In 2021, Westpac planned to lend $15 billion to climate change solutions, out of which $1.9 billion has already been allotted. The corporation has been the largest lender to renewable energy projects in Australia for the last five years.
Moreover, Westpac Banking Corporation has always believed in being a community leader. To date, the corporation has invested almost $144 million in community projects and initiatives.
Westpac supports small enterprises and charity organizations that empower people with disabilities, minorities, and marginalized youth. In 2021, the company awarded $31 million in scholarships to disadvantaged youth so that they could access educational and vocational training to become job-ready in Australia’s competitive environment.
Ever since its formation, Westpac has focused on better service provision for its customers. A good example is the Global ATM Alliance. Westpac joined the alliance so that its customers could use their ATM cards anywhere in the world.
WBC has also divided its services into five main platforms: Consumer Bank, Commercial and Business Bank, BT Financial Group, Westpac Institutional Bank, and Westpac New Zealand. Each bank addresses the specific needs of different customers, from ordinary citizens to commercial entities and government agencies.
Westpac also believes in being a community leader and helping citizens and organizations combat global issues such as climate change. The corporation believes in empowering disadvantaged and vulnerable citizens in Australia and New Zealand through its numerous Westpac Foundation grants and scholarships. It also makes it economically feasible for green enterprises to grow by providing enhanced lending and financial services.
Westpac is among Australia’s most renowned banks and it serves almost 14 million customers in both Australia and New Zealand. But the company may not be able to sustain its dominant position for long. Why? Well, because times are changing fast and the customer needs as well as preferences along with the market dynamics are evolving.
Like many well-established financial firms, Westpac has been slow to digitize, and this lack of pace might just cost it its customers. In these circumstances, an innovative and forward-looking digitalization plan is the need of the hour.
In keeping with changing trends, Westpac has tried to initiate certain changes. The company has decided to simplify its products and streamline the number of services that are currently offered. The plan is to create a single platform through which customers can easily access financial services in a secure manner.
The focus is on automation, and modular technology to create a platform that will provide customers instant service. The new technology has been designed to evolve so that it can be continuously upgraded to keep up with customer expectations.
In 2021, Westpac launched a new Mobile Banking App to provide customers with services in real-time. It has also created a digital platform that is run using the latest cloud-based banking system and will provide customers with mortgages, business lending, and transaction services. The company also offered customers an online identity verification service through its smartphone-based app.
The new service will make it easier for people to complete the verification process online without having to visit their nearest branch in person. Plus, Westpac is strategically partnering up with start-ups to drive innovation.
Digital transformation in the banking sector has created a host of new competitors for older, well-established banks such as Westpac.
Over the years, new financial companies that provide services as diverse as home loans, business lending, buy now pay later, personal finance, and transaction services have popped up and lured customers away from traditional banking set-ups. A few examples of these new digital and neo banks include Revolut (founded in 2015 and launched in Australia in 2019), Douugh and archa (founded in 2016), Volt Bank, Up, and 86 400 (all three founded in 2017), Hay, Pelikin, and QPay (all 3 founded in 2018).
The delightful digital experience, ease, convenience, and vast choice that these neobanks and digital banks offer make them a go-to choice for customers who are not even thinking twice before switching from traditional banks such as Westpac to digital and neobanks.
With the rise of digital start-ups and neo banks, the bigger banks have begun to sit up and take notice. Recently, the National Australia Bank Limited acquired 86 400 to utilize the new technology and skills shared by the start-up with its own large-scale operation to transform the banking experience for millions of customers.
Bendigo and Adelaide Bank is also looking to acquire fintech Feroicia in a bid to gain full control over the digital bank, Up. Westpac has also shown interest in working with tech-savvy start-ups to leverage their technical know-how with its own resources, experience, and risk-management skills. It recently partnered with PayKey and Amazon Web Services to collect, store and analyze data faster than ever before and provide new solutions to its customers.
Partnerships with start-ups are a good strategy, but Westpac needs to develop its own software and technology to match the current trends and customer expectations. Taking the easy way out by acquiring the neobanks and digital banks or collaborating with them won't work in the long term.
So far, Westpac is behind the innovative neobanks and digital banks, which have not only had a headstart of at least 2-3 years over Westpac but are also more adaptive and innovative.
Here are four key factors that seem to be holding Westpac behind and threatening its dominant position in the banking industry:
The biggest risk for Westpac currently is an information and data breach in the event of a cyber-attack. Cybercrimes costed up to $6 trillion globally in 2021 and banks have borne the brunt of it. What’s even more alarming is that cybercrimes are becoming more sophisticated and difficult to detect, monitor, and mitigate.
Westpac has multiple systems to guard against security breaches but these have not been effective on multiple occasions. In 2021, the worst came to pass when Westpac was charged with a case of gross negligence in a money-laundering scandal.
The bank admitted that an astounding 23 million breaches had occurred largely due to the bank’s inadequate customer diligence mechanisms and a tech glitch that allowed these breaches to go unreported. In 2021, the bank had to pay a record $1.3 billion in fines to Australia’s regulatory body AUSTRAC - the highest fine in Australian corporate history. Hence, the first priority for the corporation must be to develop a system that is adept at preventing cyber-attacks.
The bank needs technology that can not only prevent an attack but can also minimize the damage if such an event does occur. Hence, developing systems that are cyber-resilient is extremely important. Investing in digital transformation and enhancing capabilities is the only way to survive and thrive.
Legacy systems are traditional systems that banks use for core operations such as opening new accounts, processing transactions, managing lending processes, and more. The problem with aging technology is that it cannot keep up with the needs of customers, especially in the face of faster service provided by technologically-efficient digital banks and neobanks. Plus, the operation and maintenance of these legacy systems are costly in terms of time and resources needed.
Banks such as Westpac have continued to rely on systems that were put in place as far back as 2000 - 20 years ago! Over the years, these systems have become more and more complex as banks have upgraded them to cater to growing customer expectations. However, in a legacy system that is too complex, it is easy to miss bugs that could have been easily fixed. Hence, it is not surprising that tech breaches have become the new norm within the banking industry.
In 2021, the bank faced a prolonged 12-hour network outage that left customers disgruntled in multiple Australian cities. Millions of customers could not log in to their accounts and expressed their displeasure on social media platforms damaging the company’s image.
What’s more is that legacy systems have bogged down Westpac. For example, a task as simple as opening a bank account can be done within minutes by neo banks, and digital banks take traditional banks such as Westpac a whole drawn out process.
This is primarily because neo banks and digital banks have automated processes and systems by harnessing the power of emerging technologies such as cloud, artificial intelligence, robotics, and data analytics, Westpac is relying on its decades-old legacy system to run the bank.
The key missing piece at Westpac is the digital culture. Not only has Westpac been slow to digitalize, but senior management has also been slow to identify tech malfunctions and deal with them before they become a major problem. In addition to technological glitches, the overall company culture was also one reason why the tech glitch spiraled into a regulatory battle with AUSTRAC.
The senior management had been unable to take notice of red flags raised by junior staff, and even when the junior staff identified software that needed upgrades, management was too slow to take action. This resulted in an uncoordinated mess that made headlines globally.
By 2030, almost 80% of heritage financial firms will be driven out of business by neo banks and digital banks, according to Gartner. A Financial Times and Mambu report pinpoints that 58% of the banks that fail to digitally transform will cease to exist in five to ten years.
Westpac might just be one of them. While Westpac is indeed aware of the changing banking landscape and the need for digital evolution for long-term success, it isn't doing enough to transform digitally.
From point-of-sale financing and buy now, pay later solutions to advanced analytics and personalized lending and payment services, Westpac is lagging in providing quality digital offerings that people demand nowadays. Hence, customers have no option but to look elsewhere.
Online banking has been a rising trend for many years now as has been evidenced by the increase in digital transactions. In 2020, the number of digitally active Westpac customers rose by 3% and digital transactions increased by 14% while in-person branch transactions fell by 7 percent. Digital banking is becoming the norm - there’s no doubt about it. Hence, it is crucial for Westpac to develop a seamless digital transaction platform that is user-friendly and caters to the financial needs of various consumer groups.
Westpac needs to make up for the lost time by implementing a holistic digital transformation plan that enables it to meet the demands of the consumers today and sets it up for success. The time clock is ticking and Westpac needs to act before it gets too late.
Digitalization is not an option; it is the need of the hour. Customers want banks to provide financial services online that are fast, efficient, and cost-effective. Westpac is uniquely positioned to harness digital transformation to provide customers with exactly what they are looking for in terms of financial services.
The corporation has over 200+ years of experience in the banking sector. Combine this with the latest cutting-edge technology and you have a recipe for success. But cybersecurity issues, outdated legacy systems, lack of digital culture, and difficulty in providing digital solutions are all bogging Westpac down.
Although late to the digitalization game, the company has still rolled out a number of timely initiatives for digital transformation. But there’s a lot more to be done to provide customers with a seamless digital experience and access to key financial services online.
Westpac Banking Corporation has come a long way from a fledgling bank to becoming a well-established banking empire serving millions of customers. Over the course of two centuries, the bank has undergone numerous transformations and has continued to grow even in the face of new and unprecedented challenges.
This is a story of survival, of taking bold initiatives and venturing out into uncharted territory. From starting a bank in the bush to pushing for a devaluation of the currency, the company is no stranger to making tough decisions.
When Westpac was officially constituted in 1982, the company made waves through its innovative approach to banking. In 1995, it was the first bank to introduce internet banking to its customers by installing the first banking computer. It was also the first bank in the world to allow customers to log in to their mobile bank accounts using their fingerprints.
However, the corporation seems to have strayed from its digitally-forward approach and has been slow to digitize in recent years. Hence, it is time for the company to do what it has always done, and that is to take tough decisions and breathe new life into its operations by creating a digitally robust transformation plan.
Operating Net Income
Westpac has a solid history of steady expansion and growth. The company has always focused on strategic acquisitions and mergers to expand its banking empire and provide customers with a broader range of services.
Through its mergers with various financial companies, Westpac was able to enter into new markets such as merchant banking and investment and insurance. It was able to expand its portfolio of services and meet the needs of ordinary customers and large-scale institutions. The mergers have also helped the corporation expand its market share in different areas.
Today, the company holds a 21% market share in the mortgage sector in Australia and a 15% share in the business credit market. It also holds a 21% share in household deposits in Australia and an 18% market share in deposits in New Zealand.
The hallmark of a successful corporation is its ability to evolve. Although the company has been slow to digitalize, it is willing to take stock of things and develop a new strategy. In 2021, the company outlined a new strategy that revolved around three key goals: fix, simplify and perform. Westpac has decided to fix its strategy by exiting non-core business and will now focus on banking services in Australia and New Zealand. It will also simplify its products and streamline the number of services it offers customers.
These streamlined services will be available on a revamped digital platform for online banking. The company is committed to improving its performance by introducing more safeguards against financial crime to provide customers with secure and reliable services.
Customer satisfaction has always been a top priority for the bank. To keep up with changing consumer needs and expectations, the bank has continued to grow and change how it does banking. It has launched new digital services such as a mobile app, cloud-based banking, remote identity verification, and other measures so that customers can make digital transactions and access other financial services in a secure manner.
The bank also plans to upgrade its protective mechanisms to safeguard customers against cyber-attacks and network outages so that customers can access banking services 24/7 without any interruptions.
Westpac is not just a bank; it is a community leader dedicated to helping people find solutions to the most pressing global issues. The corporation helps local communities through the Westpac Foundation. It empowers disadvantaged youth through grants and scholarships so that they can learn skills that will help them secure better employment opportunities.
Westpac is also the biggest lender to renewable and clean energy organizations. It also provides financial services to green initiatives to combat climate change.