A report of the debate on (Canadian digital banking as it happens) will run in the December issue of RBI but meantime, some quick comments.
The recent report from McKinsey on the future of retail banking keeps cropping up on the banking events circuit and Toronto was no exception.
It states, inter alia, that retail banks have digitised only about 20% to 40% of the customer experience.
Banks are investing too little on digital; it goes on to forecast that up to 40% of retail banking revenue and up to 60% of profits are at risk over the next decade.
Some digital evangelists go so far as to suggest that digital start-ups, challenger banks and fintech firms will kill of established banks. Uber is held up as an example of a successful digital disruptor; some even argue that established banks will go the way of Tower Records or Blockbuster.
Anthony Thomson, late of Metro and now co-founder of Atom Bank has been especially apocalyptic in his forecasts about the prospects for the established banks.
I would respectfully beg to differ with this line.
It was a joy to be in Canada – a banking market from whom much of the rest of the world could learn a thing or two by the by – and hear a rather more sober and I would suggest realistic forecast of how things will pan out.
Yes, fintechs will disrupt and beating them will cost the banks a lot of money.
The message from Canada however is that banks are not pushovers and are not going to take the fintech challenge lying down.
The Toronto Globe and Mail made the excellent point that Canadian banks have been challenged by a digital start up before.
What happened: ING Direct was snapped up by Scotiabank, albeit it cost C$3bn to do so.
Any new start-up that causes a material challenge -in Canada or elsewhere – may well be snapped up or become a JV partner. Witness BBVA, a genuinely world class leading digital bank acquiring a one-third stake in Atom Bank, at a cost to BBVA of the equivalent of loose change found behind the settee.
The lesson from the Canada debate was that the leading banks there are not complacent and have the funds to fight a protracted battle.
There is also a strong sense that collaboration between financial institutions and the fintech community is feasible.
Dave McKay, CEO of Royal Bank of Canada, opening the debate, highlighted the scope for fintech firms as potential allies to established banks, rather than threats.
"It is incredibly motivating and engaging for our own employees to partner and work with fintech companies.
"We’ve had enormous success sharing ideas and building on ideas," said McKay.
It was also gratifying to hear a constrictive debate about the future of bank branches.
Digital growth is not going to spell the death of the branch. A significant segment of the market will continue to value the branch, despite some of the forecasts of the start-up brigade.
Digital will herald the transformation of the branch- yes. We are witnessing a digital revolution and it is not hype to call it a digital age of banking.
Digital-only players will thrive and lessons are being learned from less than successful digital start-ups such as Egg.
And established world class players such as Royal Bank of Canada will continue to thrive and post record earnings. It is not Canada’s most profitable firm by accident.