RBC’s Dave McKay opens SIBOS 2017

Advances in technology have to led to the most disruptive – and creative – period ever in the financial services industry

While 2007 is arguably remembered as a period in which the fundamentals underpinning the financial system were dramatically called into question, it was also a year that saw irrefutable technological progress, including the launch of the first iPhone prototype, the emergence of cloud computing, and the unveiling of Google Maps for mobile devices.

Key insights

  • Big data, AI, and blockchain will have a huge impact on the financial services industry and banks need to embrace the technology in order to remain competitive
  • Fintech providers should not be viewed with hostility by banks, but embraced as both sectors can learn from each other

It is clear that the subsequent imposition of post-crisis regulations such as Basel III and Dodd-Frank had a significant impact on banks. However, it was the technological innovations during 2007 which will have the most lasting effects on financial institutions, according to David McKay, president and chief executive officer at RBC, speaking at the SIBOS Opening Plenary in Toronto.1

“Technological advances have completely altered consumers' daily lives, and they have been responsible for a dramatic transformation in the goods and services economy. Consumers, who were used to storing and sharing photos, videos, and music on their phones, expected to be able to do the same with their money," said McKay.

Financial institutions have taken note, as evidenced by the major transition from branch-based banking to online mobile banking and applications over the last decade. “Despite the advancements being made on the consumer side of the business, progress on the commercial side has been slower, but that is changing rapidly," said McKay. The evolution in commercial banking is being driven by a combination of innovations.

Learning to love and manage Big Data

With data comes knowledge and understanding, which can ultimately be transformed into value. Banks have always had a wealth of data about their clients but today, both the tools and the computing power exist to put that data to good use. Data analytics can help banks understand their clients' needs and build services around them.

Data analytics can help banks understand their clients' needs and build services around them

“The battleground for banks moving forward will be data. In the past, banks required economic scale to succeed, but in the future, they will also require data scale. The ability to maximize data success will be gained though leveraging strategic partnerships and embracing Application Programming Interfaces," commented McKay.

However, the approach to managing data from a regulatory perspective has not yet been standardized across markets. Regulators in the European Union (EU) are leading the way with the introduction of the General Data Protection Regulation (GDPR) which imposes tough provisions regarding the use and safeguarding of consumer data. Harsh penalties for misuse of customer data, or failing to protect sensitive information can be levied by the EU authorities under GDPR.

When it comes to treating client data appropriately, trust and security is absolutely fundamental

“When it comes to treating client data appropriately, trust and security is absolutely fundamental and I believe that banks hold an important advantage over some of the technology platform providers. However, we need to recognize that players in other industries do not face the same amount of regulatory supervision as banks, and we need to ensure that there is a level playing field in terms of the rules," said McKay.

Artificial intelligence moves beyond the realm of science-fiction

The aggregation of huge volumes of data at banks is not a new phenomenon, but the sophisticated tools which financial institutions currently have at their disposal is novel. Such cutting-edge analytics will be enabled through the institutionalization of machine and deep learning algorithms and artificial intelligence (AI), which can normalize and digest huge data pools.

Use cases for AI technology are diverse. In asset management, AI analysis can help complement the investment decisions made by portfolio managers. “AI's ability to look for patterns in large data sets means that it does not possess the bias that even most experienced investment manager may unwittingly have," explained McKay.

Pattern or predictive analysis, biometrics and robotic process automation (RPA) can help to prevent fraud, by alerting compliance teams to inconsistencies or suspect transactions in real-time. Predictive analysis is being trialed at RBC, most notably for helping customers manage their savings. The initiative came as RBC partnered with Israeli-based company Personetics Cognitive Banking to create NOMI Find & Save, an automated service that helps clients boost their savings by utilizing predictive analysis of individual behaviour and saving patterns.2

Banks like RBC are adopting a forward-thinking approach towards cultivating a better academic understanding of AI

Banks like RBC are adopting a forward-thinking approach towards cultivating a better academic understanding of AI, having established the RBC Research Institute which provides top AI researchers and PhD students with support to examine the technology’s applicability in diverse fields beyond financial services including healthcare and global warming, added McKay. However, the marketplace for recruiting AI talent is highly competitive with banks up against technology giants like Google, Microsoft, and Facebook.

Blockchain marches forward

Storing huge volumes of data in an orderly fashion could be abetted through blockchain. Blockchain, which is a decentralized, immutable distributed ledger, has the potential to overhaul record-keeping and transactional processes, as well as totally reform many operational activities within financial services, from making a cross-border payment to undertaking client KYC.

At SIBOS 2015 in Singapore, banks expressed reservations about blockchain potentially disintermediating them in due course. Blockchain is still some years from maturity, and McKay acknowledged that pilots around the technology were being monitored attentively. “We are fully aware of the need to clarify legal, regulatory and security questions. These are some of the most prominent issues surrounding the enforceability and reversibility of transactions in a blockchain environment," he said.

McKay recognized that the days of banks viewing fintech with suspicion were broadly over, as they seek to collaborate rather than compete. A reciprocal relationship has emerged whereby banks are exposed to fintechs' unconventional ways of thinking and agility, while the latter is increasingly benefiting from the scalability and abundant resources found at large, regulated financial institutions.


You may also like

September 01, 2017

Forging links with Distributed Ledger Technology

August 31, 2017

Fintech and regulators II: Assessing the implications

July 28, 2017

Fintech and stability

May 09, 2017

Fintech and regulators


Sources

  1. SIBOS (October 16, 2017) Dave McKay, President and CEO, RBC, SIBOS Opening Plenary
  2. Cision PR Newswire – September 14, 2017 Personetics Enables Canadian Bank to Deliver AI-powered Financial Guidance and Automated Savings