Banking

Bharat Masrani, TD’s CEO, warned in May that banking “is changing in fundamental ways and at breakneck speed, as new technologies lower the barriers to entry and innovative competitors emerge.”

Once the strongest connection with customers, bank branches are under siege. A fresh wave of technological innovation is changing the game, creating new competitors and a wider array of options for customers.

She’s a mobile adviser with Canadian Imperial Bank of Commerce

It’s a good service. But it also signifies an astonishing shift in the way banks are interacting with their customers as technology, consumer behaviour and tech-savvy new competitors drive what many observers believe are the biggest changes ever seen in the financial services industry.

Just as disruptive new technologies sank firms such as Blockbuster and Tower Records, some observers believe similar forces are lining up against the financial sector.

The threat is most noticeable at bank branches. Once the strongest connection with customers, branches are now trying to find their way in a world where most of us bank online. Yet banks are investing in them: Old edificies that appear hopelessly out-of-touch with our digital world are slowly being replaced by revamped formats that are borrowing concepts from Apple’s retail stores.

U.S. banks appear to have done this math, and have been cutting branches even as the economy improves and the once-rattled banking sector stabilizes. According to the Federal Deposit Insurance Corp., U.S. banks closed 1,400 more branches than they opened in 2014, five years after the depths of the financial crisis. JPMorgan Chase & Co. has announced plans to shut 300 branches, or 6 per cent of its footprint, in 2016.

However, Canadian banks have been moving in the other direction, expanding their networks under the belief that branches remain integral to their operations. They operated a total of 6,348 branches in 2014, up 127 from the previous year and more than 400 since 2006, according to the CBA.

Rob Galaski, the national bank and securities leader at Deloitte Canada, barely pauses when asked to describe the changes in the banking sector. “I would say it is unprecedented, in terms of the impact we’re about to see on the industry,” he says.

But this is different. Now, technology is not only making banking more convenient for consumers; it is also encouraging established tech behemoths and tiny upstarts to look at what the banks do, and try to do it better. Bharat Masrani, TD’s chief executive officer, warned in May that banking “is changing in fundamental ways and at breakneck speed, as new technologies lower the barriers to entry and innovative competitors emerge.”

Peer-to-peer lenders, allowing people and businesses to get loans online, are gaining traction because they circumvent typical red tape at the banks. San Francisco-based Lending Club has made more than $11-billion (U.S.) in loans since 2007, and says its annual loan volume is doubling each year.

Thousands of so-called fintech startups – some led by university students, others by seasoned bank veterans – are busily looking at other ways to take a piece of the banking industry or fill gaps. Venture capital firms are providing billions of dollars in assistance.

Brett King, chief executive officer of Moven, a mobile banking app that partners with existing banks, told a New York conference recently that technology companies will become the world’s biggest banks in five years.

Aayaz Pira, vice-president of digital channels, retail and business banking at CIBC, notes that digital banking used to be handled by IT departments, and chief information officers decided what would be made available.

“That model is completely different now,” Mr. Pira says. “We are bringing innovation to market because our clients want it and they expect it.”

Just as disruptive new technologies sank firms such as Blockbuster and Tower Records, some observers believe similar forces are lining up against the financial sector.