Digital Transformation of Banking in Canada

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Episode 17: Digital Transformation of Banking in Canada
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Transcript: Digital Transformation of Banking in Canada


Jon: Hi, welcome to Shift. It’s PwC Canada’s podcast series and we’re digging in to key digital trends and topics that can make your business transformation a reality. I’m your host, Jon Finkelstein and I’m also the creative director of PwC Canada.

Today we have a really exciting topic. We're talking about open banking and I'm here with Neil Parmenter, President and CEO of Canadian Bankers Association. Welcome.

Neil: Thank you. It's great to be here.

Jon: Why don't we start by talking about the Canadian Bankers Association, what you do, and what is open banking.

Neil: The Canadian Bankers Association is an advocacy group representing about 68 banks in Canada.

There's the big six banks that everyone is familiar with. There's smaller domestic banks. Then our biggest group is actually the foreign banks. All of the big foreign banks, you can think of all the American brands, a lot of the European banks, and increasingly more and more Asian banks.

Jon: We need a definition. Tell me the definition.

Neil: In its simplest form, open banking starts with a premise that consumers want their own data, in this case, banking data shared with a third party of their choosing. I use the analogy of a waiter. If you're at a restaurant, and you're given a menu with a whole series of selections that you can pick from, your conduit back to the kitchen to say what I want to eat is the waiter. 

You place your order with the waiter. The waiter goes back to the kitchen. and then that waiter, delivers it back to you. If you think about a world in which that waiter gets to know you more and more. This customer has a gluten allergy, they don’t like spicy foods,  those sorts of things. They can start to apply intelligence to your ordering decisions.

Imagine that waiter is now not representing a single restaurant's menu, but tens of thousands of restaurant menus, and coming to you with ideas about what might work for you.  If you use that analogy in banking, it works very much the same way.

The data that exists on you, as a customer, your saving accounts, your investing habits, the type of debt that you have, an API can apply intelligence to your financial situation and show you different options, or different alternatives, that you might want to consider with your banking. In a nutshell, that's what open banking is.

Jon: If I'm the average consumer, and I hear “Banking data shared with,” the alarm bells go off.

Neil: They do. If you think about the information that you share with the Googles, the Amazons, the Facebooks. At the end of the day, you're well aware that you are consciously sharing that information with those organizations, and they're likely mining that data, and analyzing it. It's one thing if it's photos of your family, or what your favorite movie is, but we know, and consumers tell us, that their banking information is very different.

If you think about a transition to an open banking environment, people want to know who's in charge of the security, who's setting the standards, who owns and who's safeguarding my privacy. And most importantly, if something goes wrong, who's liable for that? Is it the technology company that's providing this information or it, ultimately, my bank?

The number one quality they're looking for, from a service provider, over convenience, customer experience, all these pieces, is safety and security, and privacy.

Jon: What's the big advantage for people to move to more of a open banking system?

Neil: Open banking advocates always push the concept of competition and choice. You can get a weekly, or monthly, digest of how much you've spent eating out. Did you know that you spent $300 this month eating out? At a minimum, that's going to give you some data that you can internalize yourself and say, “Am I comfortable with that or does that seem too much?” But what it can also do is categorize how much you're spending out a month, how are you spending on paying down debt, how much are you investing for your retirement.

So, you can get a quick snapshot, in a very comfortable way.

Jon: You said the technological transformation is here to stay. We need to move to remove the last frictions between the physical and digital environments. What do you mean by that? This notion of removing the last frictions between digital and physical, especially as it pertains to banking? 

Neil: If you think about all of the trends you're seeing in other industries, and what consumers are expecting. They colour and influence what people expect out of banks. I always use the example of Uber. Uber, to me, is as much about the payment mechanism as it is the ride.

I don't have to think about it. I get in the car. When we arrive at the destination I open and I'm gone. You're seeing now with Amazon Go, retail stores where you walk in, you grab the items, you look at them, and you walk out. More, and more, people are going to expect that experience in all aspects of their life.

Jon: If I want to open up a new bank account, or something, I got to go into a branch. And I need to bring my passport, and my blood samples, and I need to fill out 50 pages of ...

Neil: You're touching on one of the key elements, one of the biggest challenges we have as an industry, is that the rules governing banks are under the auspices of the Bank Act. The challenge with the Bank Act is that it only even comes up for a review every five years.

The assumption is, of course, that it's going to be modernized every five years. Well, the challenge for the Bank Act is that it literally governs everything, soup to nuts, in banks. It's thousands, and thousands, of pages long. Even when the review is open, governments can't possibly update everything, so they tend to focus on a narrow slice.

The technology exists, the customer expectations exist, the will among members exist to move to new forms, but sometimes what holds us back are the rules.

If you and I had a Skype video chat, and I was your banker, and you said, “I want a mortgage for this amount and on these terms,” and I said, “I agree to that.” It's even all recorded. There's no legal value to that exchange. But, if I mail you an application, you fill it all out, you give me a photocopy of your driver's license, and you sign it with a pen, and mail it back to me. That meets the standard.

Customer expectations are evolving and if we're serious about building an innovation economy, we can't hold onto things like wet signatures with pens, and photocopies of driver's licenses.

Jon: One of my favorite expressions is latency is a killer. I think that applies to everything. We need to move at the speed of innovation.

Neil: Yes. Like many statutes, all well intentioned. Decades ago there was a recognition that the sheer size of the banking industry, relative to the Canadian economy, and their central importance to the economy, we need different sets of rules for banks. One of the biggest ones they set up was to say, “We want banks to be banks.” Meaning, I don't want banks to turn into holding companies. I don't want banks buying airlines, and telecommunication companies, and all those pieces.

It made sense, decades ago, but in all the stories we've been talking about today, what is Uber? Is Uber a transportation company? Is it a broker that finds riders and drivers? Is it a payment company? So the lines are increasingly blurred. And if you think about the role that banks will play in your experience as a consumer, when you're traveling on an airplane, when you're going to see a hockey game, when you're eating out. What we're asking of, and we were really encouraged and, frankly, got in the most recent Bank Act changes, was a recognition that there's a huge distinction between buying a telecommunications company and allowing banks to partner. That word, partner, was, frankly, problematic previously with technology companies. 

But in 2018, to me, where's the line? When the rules do change, we spend a lot of time trying to get government to not be too prescriptive.

Try to make those pieces as flexible and agile, as possible, because you have to allow for innovation to operate within those rules.

Jon: Yeah. That's a tough one, because you need to anticipate what's going to come, even though you don't know what it is.

Neil: Exactly.

Jon: Then we get into things like single sign on.

Neil: Yes.

Jon: Well, it's actually not even single sign on, it's single identity and this notion of it's a block chain. Who owns it? Do you want to talk a little bit about that?

Neil: Absolutely. Canada is in need of a digital identification system. We've, at the CBA, spent a lot of time researching different models.

We think about digital ID as an ecosystem. You don't, ultimately, want any one entity owning every Canadian's digital identification. But what you do want is an ability to have a system, where everyone can plug in, and everyone can help play a role in verifying. I should be able to apply for a mortgage, and be confident, the bank should be confident, that I am who I say I am. I should be confident that I'm dealing with institutions that are participating in an ecosystem that's going to protect my digital ID, and not share information beyond what's necessary for that transaction. That's really the system that we'd like to see.

Jon: I think the big gap is I don't think they know how to do it, and I could be wrong.

Neil: It's a big project, for sure.

Jon: Because it's really complicated-

Neil: It is.

Jon: To think about all the different components to that. Theoretically, or philosophically, it's a grand vision. I love it.

Neil: Yes.

Jon: What do you think is really getting in the way of it?

Neil: Like anything that's big and new, there's risk, so people want to take their time. We can't purport, and we don't, to say, "We have it all figured out. Here's exactly how it should look like," but what we are asking is that industries, like ours, energy, telecommunications firms, different levels of government, do need to sit around some tables and start talking about these issues. We're stifling innovation. And what I would hate to see is Canada become an importer of digital ID systems that get figured out elsewhere in the world.

We've got a great technology community. I would argue, admittedly biased, that we have the strongest banking system in the world. We have a government, today, that's committed to a digital economy and innovation. We have the component parts. We have people. We have technology. We have capability. And we have will. And we've got a great Fintech community that I see playing a huge role in that. Let's bring these people together. Let's get some of these great minds working on these issues. And let's build this.

The issues that we've been talking about today are all centered around cyber security, privacy, customer data, who has rights, what's possible and innovation. To me, a digital ID system is absolutely central to addressing all of these issues. And if we get it right, you're going to see, I believe, incredible innovation in all those areas.

Jon: Cyber security, fraud, all these things, are top of mind I think it's really important to be risk averse.

But I really think that it needs to be balanced with the opportunity, the vision, the benefit.

Neil: Ultimately I'd argue an enormous risk that doesn't get talked about, which is ... latency. If we sit on the sidelines and wait for someone to solve this issue, we're going to be left behind. 

There’s all this discussion all the time about technology is disruptors and are they coming in to eat the bank's lunch, and what's going to ... Honestly, I can tell you, those are things I don't worry about and, certainly, my board doesn't worry about. I think the key to this whole issue is that in decades past we always looked for others to solve these big issues.

I would love it  if Fintech got to know banks better. If banks got to know Fintech better, if we collaborated.  There's a place for all these groups to play. And if we get it right, it's, I think, a huge opportunity for Canada.

Jon: Who in the world is doing it well?

Neil: It's very early, so it's hard to say. I'd say in Australia and the UK, you've had more of a government setting the rules, and here's how this is going to work. June 2018 was the start of the banks and Fintech playing this space. They’ve had, some stumbles, which they would admit. Because some of these bigger issues about privacy, liability, and cyber weren't as clear as, perhaps, they should be. In China and the United States, you have very limited, but more market driven open banking experiments.

What I believe, for Canada, I think that the work's already started in terms of how finance is going to start their consultation process. I think that they're going to learn from these other jurisdictions in a very Canadian way and take the best from all.

You do want to get it right. If you had a cyber issue, a privacy issue, that would ultimately kill the innovation. At the end of the day, what banking really is, and what consumers tell us they want is confidence.

Jon: Yeah.

Neil: If anything erodes that confidence, you've got a big problem because consumers are losing faith in the system. That's a risk we can't afford.

Jon: It's pretty interesting. When Facebook allowed you to transfer money between people and it's like, "Wow." What if Facebook became a bank? There's no certainly at how any of this is going to go down.

Neil: The only certainty is that change is going to continue, and the pace of change is going to intensify. For all the reasons we're talking about, you have two options. You talk about sitting on the sidelines and not making investments and not having the tough conversations. That's one option. Or you embrace the disruption as a positive constructive disruption. And who wins? Ultimately, consumers win, because they get greater choice. 

Banks and industry win, because they continue to have a seat at the table and  they're serving customers well. And, ultimately, Canada wins, because I believe those are capabilities, technologies, and business models that can be exported around the world.

Jon: I love that. I mean, especially, when we think about the holistic experience, the consumer experience. Banks are consumers too, and end users are consumers too, and we're trying to create this frictionless thing, which I think makes a lot of sense. There's a push and a pull between our desire for technology enabled interactions and the personal touch.

Neil: There is. "Do you want mobile banking or do you want in branch banking?" The answer is, "Yes." The truth is, new channels are additive. They don't replace. They want an ability to talk to a person.

Bank branches are evolving. They look more, and more, sometimes like cafés. There's a kiosk which is just a few iPads and some chairs. At the end of the day, that is a branch.

Jon: Sure.

Neil: And I think you're going to see that continue to evolve. I think you'll see the physical footprint of banks continue to change and evolve to be more conducive to the enabling conversations. And trying to get people, frankly, more comfortable.

Important to that, in the customer experience, is creating an environment that doesn't feel confrontational. Some of that is technology enabled. And some of it is person-to-person.

All these pieces, are aimed at providing greater certainty and assurance. That's what people are looking for. What they often look for, in a physical location, is I want to be able to go somewhere in the event that something goes wrong. Sometimes it's easier to do that face-to-face.

Jon: You think about Canada, it's a very big country. It's sparsely populated. I mean, you get past whatever the latitude is and suddenly it's just rocks and trees. Then you go farther and there's people. 

Talk to me a little bit about how open banking can be more inclusive and really allow people across the country to enjoy the same banking possibilities.

Neil: What digital ID, in particular, offers and affords people, both from a government services perspective, but just as much from a banking services perspective. It eliminates that need to go to a physical center somewhere and bring in identification, apply for loans. You can deliver services. You can update things like driver's licenses, or other government ID remotely, and you can use that to apply for banking products, and allow people to both, apply for products and pay for goods and services remotely.

Again, if you think about the geographic challenges we have, particularly in remote communities, particularly in the far north. From a learning perspective, from a digital commerce perspective, I think there's huge opportunity and banking, obviously, is central to much of that.

Jon: As the nature of banking changes, becomes more innovative, or technology enabled, what does that mean for employees? How do we upskill them? How do we train them?

Neil: I think employees are one of the most critical issues in banking that don't get talked about enough. The reason is our industry employs almost 300,000 Canadians in a variety of roles, but, generally, well-paying great jobs. The truth is there's always going to be a need for people in a variety of roles. The specific demands and skillsets required are going to change.

If you think about potentials for artificial intelligence to change the way risk is calculated and adjudicated. You fill out an application for a loan, whether it's small business or personal, you could envision a place where a lot of that does get actually automated. But what kinds of other advice does a small business owner need? How can you help guide that small business or the entrepreneur to grow their business, provide them with a range of alternatives to finance that, to continue to export? Those are potentials on the business side for where I think you're going to see some new skillsets emerge.

The industry will always remain one of Canada's largest employers, just the composition and the nature of that work is going to evolve.

Jon: I love the idea of taking a workforce that's, basically, doing what's tantamount to manual labor. It's very service oriented. This for that, deposit this, stamp that, and really turning that into a much more valuable advice-driven consumer experience that's worth something. 

Neil: Exactly.

Jon: Because, I mean, I love the fact that I don't have to go to the branch anymore, or to an ATM to deposit a check.

Neil: Right. I think the pessimists among us view all these big macro trends, as well. You're moving to a cashierless society, a tellerless ... It's all bad for employment. It's all bad for Canadians. And I just don't subscribe to any of that.

Jon: That's the negativity bias.

Neil: What it does do is evolve the nature of work and, I think, will, for many people, remove some of the more tedious elements of that work, and provide them with opportunities with retraining. And I think the banks are already doing it.

Jon: Let's talk about this notion of retraining. When we think about digital ID, when we think about open banking, and the nature of work is going to change. The nature of skills need to change also.

Neil: Absolutely. I think we do have a tendency, when we're talking about a digital economy and innovation, we have a tendency to go to the technology folks, naturally. But the truth is, and something that doesn't get talked about nearly enough, there's huge opportunity for arts, social science, and creative arts, as well.

Core to this, functionality matters, security matters, undeniably, but customer experience matters, at least as much, if not more, and design is a big piece of that. User experience is a big piece of that. Again, if you think about some of the colleges and universities we have, Canada is a leader in that space. That's a story that doesn't get told enough. Certainly, when we talk to government and they're looking for digital innovation, they often tend to go to the coders and programmers. They're surprised to see just how many graphic artists places like banks, employ.

If you think about all the issues we're talking about, retraining, customer experience, providing career pathing for people. Those are important critical roles that banks need. If you think about a big six bank in Canada is employing fifty to sixty thousand Canadians. That's a lot of retraining. That's a lot of org design that's required.

I view all of the change, all of the disruption, that we're experiencing as positive and creative disruption. I think it's good for the industry and, certainly, good for the country.

Jon: Difficult is worth doing. I love that phrase, because you can't shy away from the important work that's hard to do, just because it's hard.

Neil: Agreed.

Jon: Or just because you don't know how to do it. I think that's, probably, a lesson for everybody. It doesn't matter what sector you're in, or what industry you're in, if you can see the vision, and you don't know how to get there, that's okay.

Neil: Yes. I am certainly incredibly confident and incredibly positive about what Canada is going to do. I think we have all the pieces and the will is there. You can see that the ball started rolling down. I think it's a great thing for Canada. I also believe that success breeds success. If we can build a bit of a track record of delivering these things, you're going to open people's minds as to what's possible. 

Jon: This has been an absolutely eye opening, ear opening, brain opening, open banking conversation. Neil, thank you so much for spending the time with us. It's such an exciting topic and area, because it impacts every part of our lives. The innovation around it, I can't wait to see what happens next, honestly.

Neil: Well, thank you. Thanks for having me. I know I've enjoyed it thoroughly.

Jon: Thanks for listening to this episode of Shift. You can get more details at If you enjoyed this episode and want to hear more, subscribe to our podcast series. You can find us on iTunes, GooglePlay, or your preferred podcast platform. Just so you know, this podcast has been prepared by PriceWaterhouseCoopers LLP an Ontario limited liability partnership for general guidance on matters of interest only and does not constitute professional advice. Until next time.

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