Opportunities 2015

Opportunities 2015: Help banks think more like Apple

Financial institutions face new threats from digital players. They’re starting to fight back

Illustration of a robot selling tickets

(Illustration by Dale Edwin Murray)

Of all the activities soon to be possible with virtual reality, visiting your local bank is probably not among the most in demand. That hasn’t stopped some banks from exploring the concept, however. Wells Fargo in the U.S. has batted around the idea of developing an app for the Oculus Rift headset that would allow customers to virtually walk into a branch and talk to a teller. Fidelity Investments, meanwhile, actually made one that allows customers to view their investment portfolios in 3D. Just what are they thinking?

The reality is financial institutions have reason to be worried these days—not only in the U.S. but here, too. Companies as diverse as Square, Snapchat and Apple are trying to disrupt financial services in their own way, and the banks, accustomed to enjoying an oligopoly in Canada, can’t risk getting caught off guard by technological change. With 2015 expected to bring fresh challenges as the boom times of the past few years finally wind down, the need to experiment with new technologies becomes even greater. Indeed, for the banks, the solution to slower growth is to invest in the future.

Instead of annual double-digit growth in mortgage lending every year, analysts are now expecting it to be in the 2% to 5% range, according to Meny Grauman, an analyst with Cormark Securities. “If the Canadian economy can avoid a recession, then we shouldn’t see a further slowdown from here,” he says.

But the banks will be directing some of their profits toward exploring new technologies. Countless companies are developing products and services that could change the way we spend and save money. Apple introduced a mobile payment service in 2014, PayPal stepped up the marketing of its own payment service, and Snapchat developed a way to send money to friends. “Non-bank challengers are operationally built for continuous innovation,” warned an August report from McKinsey & Co. “They are thus often more agile and efficient.”

It’s with this competitive threat in mind that the Bank of Nova Scotia developed an app for the Samsung smartwatch last fall, giving users the ability to check their accounts from their wrists. Royal Bank tapped Waterloo, Ont., startup Nymi to let customers use the firm’s wristband, which measures the wearer’s heartbeat, as an identification tool. And Tangerine announced plans to bring fingerprint recognition and voice control to its banking apps. “Technology is much more important for their business than it ever was,” Grauman says.

Expect more of such announcements this year. The banks aren’t exactly betting that these particular services represent the future of the industry, however. They’re more about seeing what sticks. And for younger consumers, these types of ventures show the banks can remain relevant and adapt to their needs.

Of course, when a customer can check her account on her wrist, there is less need for physical bank branches. Banks in the U.S. have been more aggressive at downsizing ever since online banking became the norm. Canadian institutions have been slow to follow suit. “They’ve been kind of dipping their feet in and trying to figure out the best way forward,” says Dan Werner, an equity analyst at Morningstar. With profits harder to eke out this year, the trend could accelerate. But if you can strap on your VR headset and visit one, chances are they won’t be missed.