Bank bosses talk up tech spending amid sector’s ‘arms race’
RBC, Scotiabank, TD and CIBC step up investments in evolving innovation
The leaders of the biggest banks in Canada said Tuesday that they are still spending billions on transformative technologies as the financial sector’s digital “arms race” shows no signs of abating.
“Quite often I say that we’re in the technology business, and our product happens to be financial services,” Brian Porter, Bank of Nova Scotia president and chief executive, told the audience at the RBC Capital Markets Canadian Bank CEO Conference in Toronto.
Porter said his bank increased its spending on technology last year by 14 per cent — to $3.1 billion. Of that, he said, 60 per cent was to help run the bank, and the other 40 per cent was tapped for “changethe-bank” and “aspirational”-type projects, including those involving blockchain, the digital ledger that supports bitcoin and other cryptocurrencies.
Royal Bank of Canada president and chief executive Dave McKay, meanwhile, said RBC is spending about $3 billion a year on technology, and has increased the share devoted to transformative projects to about 30 per cent from 20 per cent.
“I think we’re still in the early stages of seeing the benefit from that, and deploying these technologies, but they’re coming and they are making a difference,” McKay told the conference, which saw chief executives from the country’s top lenders each take a turn discussing their businesses.
The spending on the development of new technologies comes as the banks are still enjoying strong earnings, but are also dealing with the rise of decentralized and digital currencies, fintech upstarts trying to cut into their businesses, and the migration of customers towards mobile and online banking platforms. There is also the onceunthinkable prospect of direct competition from a tech giant, such as Amazon.com Inc. or Apple Inc.
“The arms race is definitely heating up,” Darko Mihelic, research analyst at RBC Capital Markets, said to open the conference.
Hours earlier, TD Bank Group had announced its purchase of Toronto-based Layer 6 Inc., a “worldrenowned” artificial intelligence company, for an undisclosed price.
“We think it can accelerate our journey using artificial intelligence, which we feel is critical in delivering evolving customer expectations as we go forward,” said TD president and chief executive Bharat Masrani.
Masrani said that, a few years ago, only around 25 per cent of the bank’s spending on technology was on changing-the-bank-type investments, while the rest was earmarked for ensuring systems were up to date and other operational aspects.
“We’ve been able to shift that, to now where 40 per cent of our spend is geared towards changing the bank through innovation, new functionalities using various new technologies such as artificial intelligence, to connect with our customers,” Masrani said.
The RBC conference also came a day after Canadian Imperial Bank of Commerce unveiled a new innovation banking business that aims to serve North American technology clients “from start up to IPO and beyond.”
To that end, CIBC also announced it had bought Torontobased Wellington Financial, a privately held venture fund that targets early and mid-stage tech companies in Canada and the United States.
“CIBC wants to be seen as a relevant bank in the technology and innovation sector broadly speaking,” Victor Dodig, CIBC president and chief executive, told the conference.
Dodig also said that CIBC has been consistently spending around $1 billion a year on tech, but is not spending blindly.
“What really matters? What really moves the dial forward on earnings, client satisfaction, client growth, and what is simply another shiny object?” Dodig said. “We’ve become disciplined about where those shiny objects are and really disciplined on where we invest in that regard.”