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The Banking Evolution

Banking on the consumer


In every business sector, managing change, juggling options and strategizing for growth are crucially important.

Specifically for the Canadian banking industry, times have never been more challenging – dealing with the impact of everything from business technology and the roller-coaster of the economy to a new universe of competition from fintech (financial technology), widening generation gaps and constantly changing consumer trends demanding a broad range of financial services.

The industry is focused on embracing warp-speed change, but some financial experts suggest that, although Canada’s banking system is solid and successful, entrenched traditions are limiting banks to talking the talk versus walking the walk.

According to PwC’s Retail Banking 2020 report about the future of the retail banking industry, 61 per cent of bankers say a customer-centric business model is very important, while only 17 per cent say they are prepared for it. The report also notes that innovation within the banking industry is considered to be important by 87 per cent of industry respondents, while only 11 per cent said their organization was adequately prepared.

Banks will need to be on the cutting edge of technology to ensure emerging customer needs and lifestyle demands are part of the banking new normal.

Contemporary banking’s three unofficial defined categories are comprised of: retail (online and branch) banking, private banking and wealth management. Each has its basics, quirks and unique features.

“From the consumer’s perspective, there is less and less of a difference,” says Kendra Thompson, partner, financial services transformation with Deloitte Canada. “Traditionally, the private banking model had been more like regular retail banking with extra service and extra access to preferential pricing and preferential product. The wealth management experience has been largely about financial planning and access to investment products. Of course there are different regulators and different employee models but there is increasing collaboration between private bankers and wealth managers.”

She underscores that digital technology and consumer trends are combining to transform Canada’s financial services sector. “In Canada, we are watching as many institutions are reinventing their client experience both at the branch level and through digital channels. We expect that change to continue and look forward to helping our clients as they transform to be market leading in the context of digitally-delivered financial advice.”

Industry insiders acknowledge the role of branch banking is constantly changing and online transactions are customer basics. “Personal banking is about helping clients pay bills, deposit cheques, manage their day-to-day finances or buying a home or investing,” explains Shela Shapiro, RBC spokesperson for Alberta and Territories. “It’s important the customer has the option to bank as they want – in person, online, from a mobile device or at an ATM.

“The private banking team leverages the full resources of RBC to design an individually-tailored private banking experience that’s customized for each unique client. It starts with building a relationship and getting to know the client, their family and their financial goals.”

Thompson adds, “Private banking differs from retail banking in that there is usually a minimum account threshold and a more tailored personalized servicing that includes access to preferential rates and products that aren’t typically scaled to retail banking clients. Extra hand-holding, VIP servicing and coordination of access to services across the bank are all features of private banking that are harder to deliver to the average retail banking customer.”

In many ways, some more subtle than others, private banking is the VIP level of retail banking. “It is designed to address the unique needs of high-net-worth clients in their day-to-day banking,” says Todd Peterson, vice president and market manager of TD Wealth. “Private banking provides a dedicated relationship manager as the single point of contact, providing private banking clients with customized borrowing strategies, premium deposit accounts, elevated cross-border banking services and most importantly, a high-touch, proactive client experience.”

He points out that, with the many changes transforming today’s banking industry, the concept of private banking is not so new. “It has been available to affluent Canadian families for decades. Historically, it wasn’t something that was advertised or discussed in the marketplace and, therefore, maybe not as popular.

“TD Wealth has recognized early on that high-net-worth families lead busy lives and have complex banking needs that require a specialized set of solutions.”

Some speculation about the tsunami of change that is transforming retail banking – from talk about a cashless society, debit card popularity to e-Transfers and applying for and getting mortgage approvals online – occasionally goes to the extremes, warning branch banking may be phased out.

The practical reality shows a shift to embracing technology as a powerful tool to reshape retail and private banking and wealth management services. “We are moving to completely redefine the financial services industry towards more digital-first models and an industry transformation led by new technologies and vendors,” Thompson adds. “It’s important not to underestimate how much change is taking place and how key digital and data are to that change.”

RBC’s Shapiro agrees that today’s banking is all about change. “As our clients’ needs change, so must we. We continue to transform our services in response to the changing habits of our clients and communities. Personal banking is really the evolution of conventional branch services banking, as we re-imagine the role we play in our client’s life. This evolution has helped us become a digitally-enabled bank, and be on our client’s path, wherever they are.”

Many have predicted the fall of the traditional bank, as disruptive new entrants win share by offering a better customer experience through new products and channels.

But TD’s Peterson is positive and enthusiastic about the future. “The future of branch banking is strong. Our branches are key to delivering personalized, connected experiences we know our customers are looking for, particularly for providing face-to-face advice in moments that matter, like buying a home or saving for retirement.

“There is no doubt that technology has changed how clients choose to do day-to-day banking. In the past, a private banking client may have called their relationship manager when they wanted to move money from one account to another – something that can now easily be done with the click of a button on your phone or computer.

“However,” he notes, “clients prefer to address more complex needs directly with their relationship manager. Things like wire payments, foreign currency requirements, short-term investments and unique credit needs are all areas where our team of professionals add value by tailoring solutions that are specific to a client’s circumstances and goals.

“While technology certainly plays a role, it doesn’t replace the desire our clients have to be deeply understood and supported in their efforts to achieve their hopes and dreams by a trusted professional.”

The PwC report underscores that, despite the emergence of new competitors and models, the traditional bank has a bright future as a trusted institution acting as a store of value, a source of finance and a facilitator of transactions – and that is not about to change.

However, the report emphasizes the banking landscape will evolve significantly in response to customer expectations, regulatory requirements, technology, demographics, new competitors and shifting economics – and banks need to choose what posture to adopt against the changes.

Whether to be a shaper of the future, a fast follower or to manage defensively, staying the same is not an option, PwC warns. “The winners in 2020 will not only execute relentlessly against today’s imperatives, but will also innovate and transform themselves to prepare for the future.”