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RBC CEO warns on Big Tech threat to Canadian banking

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  • Jun 16th, 2018 12:33 am
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RBC CEO warns on Big Tech threat to Canadian banking

Financial Times
By Martin Arnold

The head of Canada’s biggest bank believes it must diversify well beyond financial services to remain directly relevant to customers and survive in a world where big technology groups are encroaching into its markets. 

Dave McKay, chief executive of Royal Bank of Canada, will on Wednesday present his strategy to investors for turning the lender into a broader “platform” offering diverse services, from registering a start-up company to helping people rent their house on Airbnb.

Talking to the Financial Times before his strategic update, Mr McKay bemoaned how banks were “still on the toaster giveaway game” of offering free gifts to poach customers from each other.

He said banks needed to rethink their strategies, or risk being sidelined by companies such as Facebook, Amazon, Alibaba and Tencent. “We have to change the game to meet the long-term threat of platforms.”

“The massive fear here is you’re beholden to the platform to sell your customer back to you,” he said, grouping banks together with high street retailers and consumer goods companies. “That is the fear that we all have. That they have these massive, powerful portals that will see consumer intent and initially sell it back to us and take a disproportionate share of the margin in doing so. Or worst case, meet that need themselves.”

RBC aims to offer more end-to-end services — or “ecosystems” — covering wider customer needs than only financial, such as when they want to start their own business, sell their house, or find a new car. 

For instance, the bank is offering a service for entrepreneurs to register their start-up company with the government, provide it with cloud-based accounting software, supply a branding service and send it letterheads and business cards, all before it has lent the company a cent. 

For people looking to buy or sell a home, it offers to research neighbourhoods, move furniture, remove garbage, paint a house and even decide which bins to take out each week. Many of these services are supplied by partners integrated into RBC’s digital platform.

Fintech threatens to eclipse banks that do not adapt digitally
Mr McKay reckons that these new services will help the bank to nearly triple its growth rate and add 2.5m new customers to the 13m it already has in its Canadian retail and commercial banking over the next five years.

He said customers had historically always signalled to their bank when significant events were happening in their lives, either by walking into a branch, picking up the phone, or visiting their website. But he warned “That game has changed.”

“That signal now is way ahead of us and what you buy on Amazon, what you put into the search bar in Google or Baidu, what your preferences are, how you use your iPhone and what you put on your Facebook page, all searchable by machines,” said Mr McKay.

Banks have to “meet the challenge of not necessarily knowing first-hand what’s going on in customer’s lives and being the first in line to offer those services. So, you have to build your own platform.”

He gave the example of people storing their credit card in Uber rather than using them every time they take a cab. “Your product is now rebundled in someone else’s service offering. And therefore they [have] control,” he said. “This is all about data and knowledge.”

Mr McKay conceded that because of their scale, US banks had an advantage in coping with digital disruption. “What I worry about? I should worry about how much they’re spending on technology and where that’s going to go. I’m the largest technology spender in Canada. That’s over $3bn [a year]. I think JPMorgan Chase is spending $10bn.”

He added: “The question every CEO should ask is, what’s Jamie [Dimon, JPMorgan’s chief] doing with the extra $7bn.”
13 replies
[OP]
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Apr 23, 2017
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Also, from the Globe:

RBC CEO:

...A characteristic of Canadian banking provided extra incentive. Domestic retail clients have long been loath to change banks, and in recent years it’s been even harder for lenders to convince them to do so. Switching rates, or the percentage of clients prepared to change banks, has fallen into the single digits.

Multiple forces are driving this, but Canadian banks partly have themselves to blame. Lately, the largest lenders have adopted the bundling model favoured by telecom companies, providing discounts to clients who have multiple products with a single lender – such as a chequing account, a mortgage and a credit card. And when so much of a user’s financial life is tied to a single institution, changing banks becomes a hassle.

“We were frustrated that we couldn’t get more customers to try [us],” Mr. McKay said. “They were inert.”
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This would be terrible for Canadians. As it is the big banks are already too dominant in the overall Cdn business landscape, just like Bell and Rogers.

It's also why wherever possible I've switched my business to credit unions or financial service providers unaffiliated with the big banks.
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Jan 23, 2009
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don't feel sorry for the bank

lol they start to fight the new legislation for "open banking" that was in Mar 2018 budget
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I'm an RBC customer and looking forward to these new services.
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I didn't get offered any discounts - maybe only for the wealthy!
[OP]
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The outdated "toaster giveaway game" he mentions is the giving of cash and points and signup bonuses to open bank accounts and credit cards...
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Catnippy wrote:
Jun 14th, 2018 10:55 am
I didn't get offered any discounts - maybe only for the wealthy!
Multi-product rebates!
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Never understood why so many people have all their business tied up with the big banks. There's better options out there for almost every service the big banks offer.
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Catnippy wrote:
Jun 14th, 2018 10:55 am
I didn't get offered any discounts - maybe only for the wealthy!
http://www.rbcroyalbank.com/products/de ... ebate.html

Basically, if one has a credit card, mortgage and investment at RBC, one gets discounts on one's banking plan.

No Limit Banking: $0 monthly fee after rebate (save $131/year)
Signature No Limit Banking: $8.95/month after rebate (save $72/year)
VIP Banking: $19.95/month after rebate (save $120/year)

Personally I find this approach inferior to free banking for minimum deposit that is offered by BMO and TD, but it is what it is.
Last edited by HermanH on Jun 14th, 2018 11:46 am, edited 1 time in total.
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Shaner wrote:
Jun 14th, 2018 11:33 am
Never understood why so many people have all their business tied up with the big banks. There's better options out there for almost every service the big banks offer.
Doesn't cost me anything to bank wit RBC, with the multi-product rebate, thus why I still hang around.
All of the products I have, are not tying up my funds and they are services that opened up one by one through the nearly 2+ decades of banking with them.
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vkizzle wrote:
Jun 14th, 2018 11:49 am
Doesn't cost me anything to bank wit RBC, with the multi-product rebate, thus why I still hang around.
All of the products I have, are not tying up my funds and they are services that opened up one by one through the nearly 2+ decades of banking with them.
Maybe not in your case, but typically it does cost something due to lesser returns and/or higher rates (especially on mortgages).
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cartfan123 wrote:
Jun 14th, 2018 7:32 am
This would be terrible for Canadians. As it is the big banks are already too dominant in the overall Cdn business landscape, just like Bell and Rogers.

It's also why wherever possible I've switched my business to credit unions or financial service providers unaffiliated with the big banks.
At least it has been easy to get out of the hold of the big 5, in comparison to the telecom companies that is.
I like credit unions. Proud DUCA member!

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