Don­ner Prize-win­ning book a must-read for big banks

Au­thors says info tech trans­for­ma­tion ig­nored by fi­nan­cial estab­lish­ment

Edmonton Journal - - FINANCIAL POST - GE­OFF ZO­CHODNE

This year’s win­ner of the award for Canada’s best pub­lic pol­icy book could be a must-read for ex­ec­u­tives at the coun­try’s big banks.

Some of those se­nior ex­ec­u­tives “barely know how to get their email off their phone,” ac­cord­ing to Pa­tri­cia Mered­ith, co-au­thor with James Dar­roch of Stum­bling Gi­ants: Trans­form­ing Canada’s Banks for the In­for­ma­tion Age.

The au­thors of the book, which claimed the 20th an­nual Don­ner Prize on Tues­day, see Cana­dian banks and the rules that gov­ern them as be­ing ripe for an in­no­va­tion-friendly shakeup.

“In this timely and orig­i­nal book, Mered­ith and Dar­roch ar­gue that Cana­dian banks are ig­nor­ing the dra­matic and dis­rup­tive ef­fects of info-tech changes that are threat­en­ing their very ex­is­tence,” said the jury for the $50,000 prize, ac­cord­ing to a re­lease.

“The book is a pol­icy man­i­festo, de­vel­op­ing a com­pelling case for the need for fun­da­men­tal change from the branch-fo­cused busi­ness model of cur­rent Cana­dian bank­ing, to a model that con­forms to the habits of the mo­bile-app era.”

The Cana­dian fi­nan­cial sys­tem has opted for more sta­bil­ity and not enough in­no­va­tion, Dar­roch said in an in­ter­view. This is some­thing, he ac­knowl­edged, that could be con­tro­ver­sial, as dur­ing the fi­nan­cial cri­sis, choos­ing sta­bil­ity ap­peared to be the right call.

“But the is­sue is, sta­bil­ity comes at a price,” said Dar­roch, a pro­fes­sor at York Uni­ver­sity’s Schulich School of Busi­ness in Toronto. “And I think that’s in­no­va­tion.”

It could be a tough act to try to get the mes­sage of the book — pub­lished by Rot­man-UTP Pub­lish­ing, an im­print of Uni­ver­sity of Toronto Press — to res­onate with Canada’s big banks, which re­main some of the most prof­itable com­pa­nies in the coun­try. “If you’re a CEO of any of the Cana­dian banks, there’s noth­ing telling you that you’re do­ing a bad job,” Dar­roch noted.

But those short-term in­cen­tives could be af­fect­ing longer-term think­ing. Mered­ith pointed to the in­fa­mous quote of for­mer Cit­i­group Inc. CEO Chuck Prince: “As long as the mu­sic is play­ing, you’ve got to get up and dance.”

“So as long as we can pro­duce th­ese short-term earn­ings, as long we’re keep­ing the stock mar­ket happy, our in­vestors are happy, things are great,” Mered­ith said in an in­ter­view. “When new tech­nol­ogy is able to per­form the same func­tions that the old in­sti­tu­tions per­form cheaper, better, faster, then the mu­sic stops and all hell breaks loose.”

And while the big banks in Canada have been pour­ing bil­lions into tech­nol­ogy to in­no­vate and man­age their busi­nesses, 75 to 80 per cent of the money be­ing spent on tech­nol­ogy is go­ing to main­tain the older sys­tems, ac­cord­ing to Mered­ith, who is also a con­sul­tant and fel­low at the Uni­ver­sity of Toronto’s Rot­man School of Man­age­ment.

“They’ve got this old busi­ness model, which sim­ply makes it al­most im­pos­si­ble for them to de­liver modern fi­nan­cial ser­vices as fast, as cheap and as well as th­ese new tech­nol­ogy play­ers,” she said. “The amount that they’re spend­ing on ... what I would con­sider to be the future of fi­nan­cial ser­vices is pretty small.”

In the mean­time, the banks’ tra­di­tional busi­nesses are al­ready be­ing chal­lenged on a num­ber of fronts, in­clud­ing by high con­sumer debt in Canada that has left cus­tomers with less room to bor­row from tra­di­tional lenders. Dar­roch fore­sees a slow-but-sure chip­ping away at parts of the bank­ing busi­ness by the forces of dis­rup­tion.

“Un­til you ba­si­cally find your model be­ing com­pro­mised by a thou­sand cuts rather than a di­rect com­peti­tor,” he said.

The banks are also a big part of the broader Cana­dian econ­omy, and the coun­try as a whole was re­cently called out as lag­ging when it comes to in­no­va­tion.

The Con­fer­ence Board of Canada said this week that the coun­try had slid in the think-tank’s an­nual in­no­va­tion re­port card, rank­ing 12th among 16 peer coun­tries, some of which had stepped up their game.

It’s younger bankers who see the future, Mered­ith said.

“And re­ally what we’re try­ing to do is en­cour­age them to speak out, be­cause they’re the ones who can re­ally change this,” she said.

The Cana­dian fi­nan­cial sys­tem has opted for more sta­bil­ity and not enough in­no­va­tion, James Dar­roch, co-au­thor of Stum­bling Gi­ants, said in a re­cent in­ter­view.

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