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Edge of tomorrow

By Chris Atchison | March 30, 2015

Compare your banking experience with the one your parents or grandparents knew in their earlier years, and a contrast quickly emerges. Theirs was a full-service relationship that relied on human interaction in a brick-and-mortar environment.

Today many Canadians, particularly younger ones, seldom deal with a bank teller. In fact, a growing number manage their finances using mobile devices, sometimes from far-flung locales around the world. The digital era has forever changed the relationship between banks and their customers.

“The bank of the future has been transformed across a number of fundamental fronts,” explains David McKay, President and Chief Executive Officer of Royal Bank of Canada, the nation’s biggest bank by market capitalization and revenue. “I think we have to innovate continually to see how we create value between storing, moving and lending money,” he says of RBC, which boosted its revenue 11 per cent for the fiscal year ended last October 31, to $34.1 billion. “And it’s going to require us to do different things and create different value propositions. So I think that is a fundamental challenge to our very traditional model.” 

McKay has seen that model evolve constantly since launching his career at RBC in 1988. The Toronto-based firm, which now serves some 16 million clients in 40 countries, has since grown its assets to $940.6 billion. Along the way, the pace at which the banking industry has transformed is staggering, says McKay, who oversees roughly 78,000 full- and part-time employees. And it shows no signs of slowing down. 

Where his predecessors from decades past surveyed the competitive landscape and focused on snatching market share from rival banks, McKay, who was appointed President and CEO last year after holding other senior roles at RBC including Group Head of Personal and Commercial Banking, must analyze threats posed by the likes of Apple Inc., Google and PayPal. Those digital powerhouses, not to mention scores of smaller players, are seeking greater opportunities to provide the products and services that today’s banking customers want and need, from digital payment options to lending services. 

It doesn’t end there. McKay is well aware that banks’ traditional function as deposit takers and lenders is being challenged by a range of disruptors such as hedge funds and private equity firms, many of which are taking deposits and lending directly to bank customers. “Our role as an intermediary in providing that function is being challenged through technology, through risk appetite, through other liquidity factors,” he notes. 

As part of that seismic shift in bank-customer interactions, McKay envisions a wholesale transformation in the way that full-service products such as mortgages or commercial loans are delivered. “You can’t just put them online and have customers buy them in a full self-service world,” he says. Instead, he sees the day when customers can manage even the most complex transactions from the convenience of a mobile phone. “We have to simplify our product suite, and we have to simplify our roles,” McKay says. “We have to build services and products for the simplicity and ease of use of a mobile environment. That requires a major philosophical change.” 

McKay looks to Inc. for inspiration. The online retail giant has created an ecosystem of partial service relationships where customers can use multiple products or services on a transactional basis themselves, but it also delivers full-service interactions, he observes. “Amazon builds digital relationships that wow the customer,” McKay says. “We are going to have to build a digital relationship that wows the customer, and that’s something we’ve not really done before. We’ve wowed the customer with person-to-person relationships, but how do we morph that and do both? It’s one of our biggest challenges.”

RBC’s customers of tomorrow – Canadians born between the early 1980s and 2000s, also known as Generation Y or Millennials – interact with potential competitors such as Google and Apple daily through their mobile devices. McKay points to the potentially disruptive mobile taxi booking and payment service Uber as yet another example. Uber registers clients and bills them directly each time they use the service. That eliminates the tactile ritual of handing over a credit card for payment, a process that reinforces a customer’s loyalty to their financial institution. E-commerce has now embedded the payment function, all but removing banks from the brand equation. 

To counter that threat, McKay and his team are developing innovative ways to re-integrate RBC into the middle of the e-commerce transaction chain. Doing so means tapping reams of underutilized data to understand how customers want to spend and save their money, then creating opportunities to engage and inspire brand loyalty. “We have to demonstrate to the customer that we know them very well, and then we can create relative value through that journey,” McKay says. For that reason, RBC has devoted extensive time and resources in recent years to developing targeted sponsorships and partnerships to entrench its brand with an increasingly fickle customer base. 

“This is a battle for relevancy at the end of the day,” McKay stresses. “Whoever is the most relevant to the customer and can create a value equation that wows the customer is going to win. I see it as an exciting new world.”

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