By: Jake MacDonnell
The Canadian banking industry has historically been dominated by the Big 5: RBC, TD, Scotiabank, BMO, and CIBC (highest to lowest total assets from most recent quarterly results). The explosion of FinTech start-ups have forced these banks to develop digital strategies that focus on streamlining the customer experience through technological innovation. In general, these start-ups are well-funded, nimble, and don’t abide by the same regulations as the Big 5. Conversely, they lack the economies of scale and brands of banking incumbents, who have deeper pockets and greater infrastructure. In order to adapt, Canadian banks must find ways to disrupt themselves, either by investing in innovation labs or by partnering with FinTech start-ups. If they are incapable of adapting to meet consumers changing demands, they will lose customers, market share, and profits to competitors. This article will evaluate Canada’s Big 5 on their digital strategies to date, benchmarking RBC, TD, Scotiabank, BMO and CIBC in five areas: Incubators, Retail Banking, Wealth Management, Lending, and Payments.
The Big 5 are focused on developing new digital ideas, investing in innovation labs and incubators that aim to apply an entrepreneurial problem-solving focus to existing operations. In this category, Scotiabank is ranked first overall with their Digital Factory and partnerships with MaRS and Ryerson University. The newly completed Digital Factory brings 350 technology specialists under one roof, with teams working on projects like improving mortgage applications and developing facial recognition authentication. Tangerine, an online bank owned by Scotia, has partnerships with MaRS and Ryerson University, providing resources to help start-ups develop. TD is a close second, but their innovation center in Waterloo has a third of Digital Factory’s headcount. Additionally, TD is the only Canadian bank to partner with Plug and Play, a Silicon Valley FinTech accelerator that aims to connect start-ups with companies and investors. RBC and CIBC are tied for third. Both have innovation labs in Toronto, although CIBC’s partnership with MaRS allows it to tap into a greater network. RBC is investing in an innovation lab in Silicon Valley, with capital set aside to invest in promising start-ups. Both CIBC and RBC have partnered with C100, which connects Canadian start-ups to Silicon Valley funding and mentorship. Finally, BMO partnered with Ryerson to launch a small contest that provides FinTech start-ups with seed money and a four-month placement at the DMZ, Ryerson’s incubator. Overall, all banks seek innovative ideas, but the size of Scotiabank’s Digital Factory and the scope of their partnerships have high potential for future success.
Within retail banking the Big 5 are testing and implementing new concepts that improve and expand customer offerings. All banks offer a mobile app, but Scotiabank and CIBC received the highest ratings in a recent Forrester report. This section will explore offerings beyond the conventional mobile experience within retail banking. Building on the relative success of their mobile app, Scotiabank and CIBC are tied for first. Scotiabank, although experimenting with facial-recognition technology, has successfully implemented voice-activated banking through Tangerine. In addition, new versions of Scotiabank branches, called Express and Solutions, are being trialled in Guelph and Montreal. These branches offer a quicker, digitally focused experience to consumers, who prefer to visit branches for financial advice and perform most of their banking online. CIBC’s global money transfer program allows mobile users to send money to recipients around the world, reducing the cost and effort associated with international remittances. BMO comes third, with a scheduled rollout of a biometric authentication system in early 2017. BMO currently offers MobileCash, a method of withdrawing cash from ATM’s using a smartphone instead of a card. Fourth, TD partnered with Moven to offer a money-management services associated with customer’s TD accounts. Although RBC’s Wallet technology differentiates itself from other banks, this will be discussed in the payments section.
Passively managed investment funds, or robo-advisors, represent one of the areas where banking incumbents can utilize their economies of scale to offer low cost solutions that are competitive with start-ups like WealthSimple. BMO ranks first by being the first Canadian bank to offer passively managed, low-fee ETF portfolios to investors. Although fees are higher than WealthSImple, BMO offers a wide-variety of investment services beyond SmartFolio and has higher brand equity association. Scotiabank comes second with HollisWealth’s digital advice platform, although a divestiture is possible as Scotiabank restructures it’s wealth management practice. TD also offers passively-managed ETF portfolios in Canada, but their current robo-advisor Essential Portfolios is only offered in the US for the time being. RBC partnered with Blackrock’s Future Advisor to offer digital advice, but the program is limited to the US. As ETF offerings increase, TD and RBC could easily expand into the Canadian wealth management market with their own robo-advisors. CIBC ranks last in this sector.
Within the lending space, CIBC remains the clear favourite as their partnerships with Borrowell and Thinking Capital allow them to streamline loan applications for personal users and small businesses, respectively. Second is Scotiabank, whose partnership with Kabbage aims to target small business as well, providing an easier and quicker way to apply for loans up to $100,000. Third, RBC partnered with D+H to launch Barometer, a lending simulation package that helps manage risk and regulatory compliance. Barometer can be used to monitor lending operations and as an instructional tool for employees. To compete within this space, BMO and TD must pursue similar partnerships, as developing the same solutions internally will require time the banks don’t necessarily have.
Within the payments space, all banks are compatible with Apple Pay, the mobile technology that allows consumers to pay with their iphone at participating retailers. However, RBC’s Wallet technology provides a legitimate threat to Apple Pay. Although it works in a similar way, RBC’s platform lacks the scale of Apple Pay in terms of total users. If RBC can apply this secure technology to other areas, similar to BMO’s MobileCash initiative, it can differentiate itself from other banks. RBC, by partnering with Nymi, has also experimented with payments using wearable tech, including heartbeat as an authentication factor. Across all banks, integration with Android Pay presents the latest opportunity and it’s unclear how popular wearable tech will become if customers can pay for transactions using smartphones they already own. RBC is the leader in this category, but most of the Big 5 offerings are relatively similar.
The chart below summarizes the rankings, explained above, of the Big 5 within the five evaluation criteria. A "T" represents a relative tie (Ex: T3 means tied for third place).
These rankings, although based on the best available information, contain a degree of subjectivity since internal metrics are not publicly available to evaluate, say HollisWealth’s robo-advisor against BMO’s SmartFolio on annual yield or AUM. Nevertheless, the scorecard allows banks to see relative strengths and weaknesses. Overall, Scotiabank and CIBC’s digital adoption strategies are ahead of RBC, TD, and BMO. These two leaders also have direct, online banks widely used by Canadians. Scotia’s Tangerine and CIBC’s PC Financial represent online platforms that provide a competitive advantage, acting as disruptor brands within the traditional brick-and-mortar banking infrastructure. RBC gets a special mention for their innovation within the insurance sector, partnering with League to offer flexible insurance plans to small businesses. Furthermore, RBC YourTerm offers flexible life insurance, giving customers greater control over the term of their policy.
Canada’s Big 5 have responded to the FinTech threat with varying degrees of urgency and focus. There is a significant first-mover advantage associated with the introduction of new digital technologies. That advantage can be obtained through internal investment in innovation incubators or through external partnership with FinTech startups. In general, banks should analyze their internal operations and identify customer pain points or unmet needs. By prioritizing these opportunities based on current or future revenue-generation potential, banks can invest appropriately in developing innovative solutions that will help consumers and increase or protect revenue streams. In the future, the speed and scale with which these banks can adjust to changing consumer preferences and implement new digital offerings will be the differentiating factor in determining long-term success.