David Ellis: Just looking at digital disruption. How is the bank coping with that? And what do you see as the key risks and the key opportunities for Westpac?

Brian Hartzer: Well, I certainly believe that financial services is going through one of the biggest changes that we've seen certainly in Australia in 30 years since deregulation. And the impact that technology is having on how customers want to do their banking and how banks can use technology to run themselves internally is dramatic.

For us we're tackling it in a number of ways. I like to say that we're the original 200-year-old startup. So, we try and build the mindset of the startups into the way the company adapts and I constantly like to reinforce that the reason you survived for 200 years is because you adapt. So, we are trying to really embrace the techniques that the technology community has used like Agile project management and customer centered design and use of cloud computing and these sorts of things role. We're all using those internally to run our business.

We are also engaging with smaller companies both as customers and as business partners. So, we have a business development activity function that is linking up with small companies and we're doing deals where they are helping us build out our offering to customers and put some really exciting things in payments that we've done around that.

We've also got a venture capital arm called Reinventure, where we are taking direct investments in fintech startups. All at a bit of an arm's length, we don’t consider ourselves to be a great venture capitalist. But this does give us an ability to build connections with companies that potentially down the road have a strong link to our business and it gives us a tremendous insight into some of the developments there. So, we are engaged heavily and I think it's certainly part of our future.

Ellis: That leads into my next question to do with competitive advantage. Morningstar allocates a wide economic moat to Westpac and to the other major Australian banks, due to their strong pricing power and cost advantages. Brian, how would you describe as the bank's strongest competitive advantage.

Hartzer: Well if I start with the industry, and I think an important element for people to understand is the structure of the Australian bank industry. Australia is a relatively small country economically, I think we have GDP of about $1 trillion, 25 million people.

And yet the expectations on banks, the cost of running a bank, the regulatory impasse mean that you need to have a reasonable level of scale in order to meet expectations. So, the market has ended up being concentrated with four large retail banks in the market. I think the fact that we've got those scale economies and the ability to meet all the regulatory requirements, both from capital and technology and the like, is very important and that gives us a bit of a sustainable advantage.

For Westpac ourselves I think we have a number of advantages. We have a very strong brand in the market. We have a strong affinity as a result of the sustainability position that we've been talking about.

We are well respected by the government, by the customer bases as being a company with a long-term view. We also have a multiple brand strategy which is something that is different from the other bank. So, we operate the Westpac brand in retail and commercial. We also have a series regional brands, St. George, Bank of Melbourne, The Bank of South Australia and RAMS. Which give us a position in respectively Sydney, Melbourne, Adelaide, Brisbane as well. That gives us some ability to differentiate on price and target slightly different segments for the people who don’t want to bank with a big bank. So that’s something that’s different about the way we go about things.

We also have a wealth management business called BT, and I have run wealth businesses and banks in three different banks. And one of the things that I have learned is that to make the wealth management proposition really work, it helps to have a distinctive brand that has credibility as a wealth manager. So we've got the best of both worlds in that BT has a really strong position as an asset manager, from an asset platform point of view in this market.

But it's also integrated with our online banking. So, a Westpac customer can manage all of their money both their banking and their wealth through one login. And we've just invested in a system called Panorama, which is the best investment management system in the Australian market and we think it's going to give us a great advantage, both with our customers and in providing that platform to financial advisers outside of the bank.

So we have a couple of things like that that we think give us great advantage. Finally, and I know some people will maybe discount this, but I really believe from my experience that the culture and the quality of people you are able to attract is one of the things that allows you to consistently execute over time. We have a very strong culture here at Westpac, with people with a genuine dedication.

Ellis: So, talking about people and culture obviously leadership takes many different roles, but how does Westpac do, and Brian and how do you specifically, do the development and the nurturing of talent, particularly the senior management talent and leadership talent?

Hartzer: Well one of our key agendas within the bank is what we call the workforce revolution which is really adapting the leadership and the way we manage our people to the new reality of what's expected of banks. And within that one of the objectives that I like to talk about internally is that we want Westpac to be a talent factory.

I want this to be a place where we bring in people from a diverse set of backgrounds. We give them an investment in their development. We give them rotation around different aspects of the business and we create an environment where those people can rise and thrive. It’s a work in progress, but I think it starts with the quality of the leadership team I have got and in my executive team are people with decades of experience who have done lots of different things within banking so they bring quite a wide perspective to the challenges that we face.

And we are crystal clear on the values and behavior that we expect in the company and unashamed about our dedication to diversity and inclusion. For example, we're currently 49 per cent of leaders across the bank, at all levels, are female and by the end of this year we have a target of getting to 50 per cent women in leadership.

We'll be the first large company in Australia to achieve that. That’s been a very deliberate strategy it has huge halo effect on the quality of people we're able to bring into the company. And over time I think that plus all the investments we are making in training and the like really are important to company success.

Ellis: Just getting back to disruption and looking at some of the recent political and regulatory changes and developments that have occurred. How do you see that unfolding over the future? Do you see there's been a complete change in the landscape of the major banks in Australia following the Federal Government's budget bank levy?

Hartzer: Well, clearly ever since the global financial crisis the expectations on banks have been rising and to an extent I think rightly so. My own view is that many banks around the world forgot why they exist. They started thinking they were like any other enterprise whose job was just to maximise profits in a short term.

And actually, banks operating under banking license have a responsibility to support economic growth and to make the right tradeoffs between the strength of their balance sheet. Their returns, how they serve their customers, their productivity and their growth. And we haven’t always got that right as an industry.

One of the things we've seen in Australia is that news travels. And an interesting feature which we clearly find a little frustrating is that the regulators here and the governments here are looking around the world at initiatives that have happened in other markets and other circumstances and applying them here. And we certainly are seeing a bit of that of late.

The Australian banking system got through the financial crisis with flying colors, no banks were bailed out. In fact, the banking industry made a positive contribution to the Federal Government budget because we paid a bunch of fees for deposit guarantees which were only brought in because they had happened in other countries. Our banks are very strong. We are well positioned we've taken steps to improve conduct and compliance. We are not perfect, but I think the bank system here is very much on the right path. And we'll just continue to do what we need to do to run our business the way it builds trust with our customers.

Ellis: So perhaps I could summarise some of that by describing it as having a social license and of course Australia's Prime Minister has referred to on a number of occasions about the banks operating under a social license. So, what do you think that means a social license and how do you think Westpac has undertaken or carried out its responsibilities in that regard.

Hartzer: Well, the way I think about it is that a banking license is a privilege and with that privilege comes the responsibility to support the economic development of the country in variety of aspects. We are supporters of people's ability to buy homes. We support millions of businesses. We support tens of thousands of our own staff across the country and we make enormous contributions to the community. The crux of it is this recognition that banks have – banks are not like the other companies. They have a responsibility to support the country and I think from a Westpac point of view we feel that we've absolutely done that. And during the financial crisis we kept lending. We kept the doors open. We supported our customers. And we have a balance sheet that’s strong and we're profitable off that balance sheet in a way that means that whatever stresses may come our way in the global economy or domestically. We can continue to fulfil that role, and I think that's in my mind the crux of what we have to do.

If we don’t make decisions that support the development of long-term relationships with customers. If we run ourselves in ways that are antithetical to customers interest. If we don’t fix things, when we get them wrong and of course in the case we do get them wrong than that’s a problem. But certainly from a Westpac point of view we're entirely clear about why we're here and what we need to do and I am very proud that we do meet those standards.