TD’s tech plunge

Investment Executive - - FRONT PAGE - BY FIONA COL­LIE

a spate of re­cent an­nounce­ments from Toronto-Do­min­ion Bank ( TD) demon­strates the com­mit­ment of es­tab­lished fi­nan­cial ser­vices in­sti­tu­tions to keep pace with the quickly chang­ing land­scape of fi­nan­cial tech­nol­ogy (fin­tech).

In Oc­to­ber, TD an­nounced a pro­gram to help star­tups patent new tech­nolo­gies; a part­ner­ship with an ar­ti­fi­cial in­tel­li­gence (AI) com­pany; and plans to open a

cy­ber­se­cu­rity of­fice in Is­rael.

“What you’re see­ing here is a lot of very pur­pose­ful ac­tion on the in­no­va­tion agenda,” says Tim Hog­a­rth, vice pres­i­dent, in­no­va­tion frame­work and strate­gies, with TD. “We’re build­ing the bank of the fu­ture, and we’re do­ing sev­eral things that are push­ing that agenda for­ward.”

At the heart of these ac­tions are the part­ner­ships TD is look­ing to build — with both fledg­ling star­tups and es­tab­lished com­pa­nies — to fur­ther its plans to mod­ern­ize its op­er­a­tions.

Part­ner­ships are a key com­po­nent of most fi­nan­cial ser­vices in­sti­tu­tions’ plans to beef up their tech­nol­ogy ca­pa­bil­i­ties, ac­cord­ing to a re­cent study from Nether­lands­based KPMG In­ter­na­tional. That study found that 61% of fi­nan­cial ser­vices in­sti­tu­tions around the world have taken a part­ner­ship ap­proach to tech­nol­ogy, while 81% plan to part­ner with fin­tech firms in the fu­ture.

Build­ing closer part­ner­ships and get­ting a head start in new tech­nolo­gies is one of the driv­ers be­hind TD’s new patent pro­gram. As part of that pro­gram, TD will pro­vide both fund­ing and access to its net­work of patent lawyers to tech star­tups. In ex­change, TD will have a nonex­clu­sive li­cence to the patents de­vel­oped through the pro­gram.

“We have a vested in­ter­est in mak­ing sure that we de­velop the right ta­lent in Canada,” says Hog­a­rth, “and fin­techs are a won­der­ful op­por­tu­nity for us to find and cul­ti­vate [that ta­lent], which also al­lows us to find good fits for our busi­ness.”

To fund this pro­gram, TD has des­ig­nated $3.25 mil­lion from its $30-mil­lion fin­tech in­vest­ment pool. The pool typ­i­cally is used to in­vest in star­tups in ex­change for an equity stake in the startup, but the patent pro­gram pro­vides an al­ter­na­tive form of in­vest­ment.

Ap­ply­ing for a patent can be a drawn-out and ex­pen­sive process and, there­fore, some­times is beyond the ca­pa­bil­i­ties of new com­pa­nies. For ex­am­ple, the ap­pli­ca­tion doc­u­ment can be up to 30 pages in length and dif­fi­cult to com­plete due to the of­ten com­plex tech­nol­ogy de­vel­oped by star­tups as well as the strict rules sur­round­ing the patent process.

“It’s im­por­tant to get [a patent ap­pli­ca­tion] done right up front and that takes a fair bit of ef­fort,” says Paul Hor­bal, as­so­ciate lawyer with Toronto-based law firm Bere­skin & Parr LLP. “And star­tups, which of­ten are cash­strapped, of­ten don’t have the re­sources to pre­pare the ‘Cadil­lac’ of patent ap­pli­ca­tions.”

TD’s pro­gram could prove ben­e­fi­cial to a startup com­pany by help­ing it pro­tect its in­tel­lec­tual prop­erty. The one po­ten­tial draw­back is that fu­ture in­vestors or buy­ers may be less keen about a com­pany whose pri­mary as­set (the patent) is di­rectly con­nected to an­other in­sti­tu­tion, such as TD.

“That [tie to TD] may af­fect the val­u­a­tion — at least, for the Cana­dian busi­ness — of that fin­tech,” says Vic­tor Krichker, a part­ner with Bere­skin & Parr.

The types of com­pa­nies TD may in­vest in through the patent pro­gram are likely to vary widely. For ex­am­ple, Hog­a­rth notes, the bank talks to star­tups that work in sev­eral ar­eas, from client in­ter­faces to cus­tomer pro­tec­tion.

One area of par­tic­u­lar in­ter­est at TD is AI. To that end, TD re­cently an­nounced a part­ner­ship with New York-based Ka­sisto Inc., an AI com­pany spun off from Menlo Park, Calif.-based SRI In­ter­na­tional, the lat­ter of which de­vel­oped Siri, Ap­ple Inc.’s vir­tual as­sis­tant.

Through this part­ner­ship, TD plans to in­te­grate Ka­sisto’s white­la­bel “chat­bot” plat­form, called KAI, with the TD mobile bank­ing app in the first half of 2018. Once the in­te­gra­tion is com­plete, TD’s cus­tomers will be able to talk to the KAI chat­bot via text or voice about ba­sic bank­ing tasks, such as cal­cu­lat­ing ex­penses, pay­ing bills or trans­fer­ring money be­tween ac­counts.

Ini­tially, the chat plat­form will ap­ply only to TD’s core bank­ing chan­nel. How­ever, the bank in­tends to ex­tend this AI ca­pa­bil­ity to the en­tire or­ga­ni­za­tion.

TD also is a sup­porter of the Vec­tor In­sti­tute for Ar­ti­fi­cial In­tel­li­gence, a Toronto-based in­de­pen­dent re­search fa­cil­ity fo­cused on AI.

“We re­ally think this is a gamechanger,” says Ruby Walia, head of mobile and on­line bank­ing with TD. “And, be­gin­ning at the most se­nior lev­els of the or­ga­ni­za­tion, there’s an un­der­stand­ing that ar­ti­fi­cial in­tel­li­gence is one of those ca­pa­bil­i­ties that come along ev­ery so of­ten that ac­tu­ally do change both the ser­vices we pro­vide and how we pro­vide them to our cus­tomers.”

In­deed, TD is not the only ma­jor Cana­dian bank con­nected to the Vec­tor In­sti­tute. Bank of Nova Sco­tia, Bank of Mon­treal, Royal Bank of Canada and Cana­dian Im­pe­rial Bank of Com­merce, all based in Toronto, also are as­so­ci­ated with the in­sti­tute.

TD, in ad­di­tion to look­ing at tech­nolo­gies that may change the ser­vices avail­able to clients, also is fo­cused on part­ner­ships that will help pro­tect the bank’s on­line ca­pa­bil­i­ties.

Specif­i­cally, TD plans to open an of­fice in Tel Aviv that will fo­cus on beef­ing up TD’s cy­ber­se­cu­rity ef­forts. The bank will in­vest $3 mil­lion-$5 mil­lion in the new of­fice in Is­rael and plans to hire 12 staff mem­bers within the year.

“As you would ex­pect, cy­ber­se­cu­rity is a key area of fo­cus for us to pro­tect the as­sets of the bank and the in­for­ma­tion of our cus­tomers,” says Jeff Hen­der­son, ex­ec­u­tive vice pres­i­dent and chief in­for­ma­tion of­fi­cer at TD.

Sig­nif­i­cant cy­ber­at­tacks, such as the re­cently re­vealed at­tack on Atlanta-based Equifax Inc., have raised con­cerns about the se­cu­rity of digital in­for­ma­tion among both the pub­lic and fi­nan­cial ser­vices firms. A sur­vey by the Cana­dian Se­cu­ri­ties Ad­min­is­tra­tors of 649 reg­is­tered firms found that 51% had ex­pe­ri­ence a “cy­ber­se­cu­rity in­ci­dent” in 2016.

TD chose to lo­cate its new of­fice in Is­rael be­cause that coun­try is known as a mar­ket leader in cy­ber­se­cu­rity — ex­per­tise that’s in high de­mand.

“[The lo­ca­tion of the cy­ber­se­cu­rity-de­vel­op­ment of­fice] is largely a ta­lent play,” Hen­der­son says. “It’s not to sug­gest that there is not good ta­lent in North Amer­ica; there is good ta­lent in North Amer­ica. The prob­lem is that there isn’t enough.”

TD’s move makes sense, given the com­pli­cated na­ture of cy­ber­se­cu­rity, says Henry Kim, as­so­ciate pro­fes­sor of op­er­a­tions man­age­ment and in­for­ma­tion sys­tems with York Uni­ver­sity’s Schulich School of Busi­ness in Toronto.

“It’s re­ally hard to do cy­ber­se­cu­rity well,” Kim says. “So, why not go to the places where you think the best ex­perts are?”

“We’re build­ing the bank of the fu­ture, and we’re do­ing sev­eral things that are push­ing that agenda for­ward”

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