Coronavirus accelerates Canada's shift to electronic banking
Canada's biggest banks have spent more than C$100 billion ($71 billion) on technology since the financial crisis in a bet that clients would eventually become more digitally savvy. The coronavirus pandemic is accelerating that shift faster than they could've expected.
The spending was meant to improve efficiencies and help adjust to customers using mobile devices instead of branches to do their banking. But during the virus-spurred lockdowns, side benefits are emerging: The banks have a greater ability to keep operating amid the havoc that's crippled business across myriad industries.
"The pandemic has highlighted the emphasis on blocking and tackling — the ability to migrate a large proportion of the workforce to remote access, working with clients impacted by the crisis and ensuring risk levels are adhered to," Scotia Capital analyst Sumit Malhotra said in an interview. "By and large, the systems of Canada's banking industry are operating very well."
Technology is the second-largest and fastest-growing expense item for Canadian banks, with the country's six largest lenders spending more than C$13 billion annually, according to estimates by Bloomberg Intelligence analyst Paul Gulberg. That accounts for an average 9% of revenue and about 15% of operating expenses.
The Big Six banks spent about C$90 billion on technology between 2009 and 2018, according to the Canadian Bankers Association, whose head Neil Parmenter sees the COVID-19 crisis as the "ultimate test" for how such investments built resiliency into banking. E-transfers, check-image capture and deep integration with Canada's digital-payments system are helping banks cope with the pandemic, he said.
"When we're trying to discourage people from going anywhere physically and doing as little as possible face to face, the digital options are not only resilient, but they're providing customers flexibility to do whatever they need to do from home," Parmenter said in an interview.
After years of urging customers to try their latest innovations, banks are finally seeing record shifts into digital banking. Mortgage renewals are being handled online. Electronic deposits are increasingly used to disburse government benefits with the help of lenders. And, in mere weeks, banks built systems to connect customers with federal relief programs using automation instead of advisers.
"Speed, flexibility and capacity are the three biggies that really have been tested through the pandemic," said Dave Revell, Canadian Imperial Bank of Commerce's chief information officer. "With the investment we've done in agile processes and systems, we've been able to move much faster and implement new things like the government programs that would have been really challenging in our traditional world of where we were five to 10 years ago."
Bank of Montreal's self-serve transactions surged to about 95% of overall retail transactions from 89% to 90% before the crisis, and its weekly rate of customers signing up for digital banking jumped as much as 300% in the past four weeks — a "dramatic shift" in consumer behavior that's expected to stick, Chief Digital Officer Brett Pitts said.
"Now we're going to make sure that all of the changes we've made are industrial-strength and that we have the ability to scale those into the future beyond the circumstances that we're in," he said in an interview.
Banks have redeployed tens of thousands of workers to home offices, something that would have been unthinkable a decade ago. Even capital-markets employees are home. Royal Bank of Canada, for example, has about 95% of its traders who normally work on trading floors doing so at home instead, a possibility enabled by tech investments and business-continuity plans. Currency trades are getting executed at firms including Toronto-Dominion Bank through home setups.
"We didn't think two months ago that it was possible, but it is," said Sharon Kim, TD Securities' global head of foreign-exchange sales. "It's not without its hiccups; however ,it has not been as monumentally challenging as we thought it would have been."
Even the banks' annual general meetings went virtual for the first time. In their webcast speeches, CEOs credited technology for helping overcome obstacles of the pandemic.
"We've spent more than C$22 billion in the last five years on technology that has really helped us build programs for customers, get our employees working from home in a safe way or building our contact centers," Royal Bank CEO David McKay told reporters after his bank's April 8 meeting. "Thank god the technology evolution has allowed us to do this."
Bank of Nova Scotia spent C$15 billion on technology in the past five years. That helped Canada's third-largest lender become "operationally robust" in the outbreak, CEO Brian Porter said during the company's annual meeting on April 7.
That's paid off for Scotiabank's financial services analyst.
"One month into work from home, we have been able to publish reports, have regular contact with clients and even host virtual fireside chats with CEOs," Malhotra said. "So the adjustment has been pretty good. I just make sure that I change out of the pajamas and robe before noon. You've gotta draw the line somewhere."