The head of Canada’s biggest bank believes it must diversify well beyond financial services to remain directly relevant to customers and survive in a world where big technology groups are encroaching into its markets.
Dave McKay, chief executive of Royal Bank of Canada, will on Wednesday present his strategy to investors for turning the lender into a broader “platform” offering diverse services, from registering a start-up company to helping people rent their house on Airbnb.
Talking to the Financial Times before his strategic update, Mr McKay bemoaned how banks were “still on the toaster giveaway game” of offering free gifts to poach customers from each other.
He said banks needed to rethink their strategies, or risk being sidelined by companies such as Facebook, Amazon, Alibaba and Tencent. “We have to change the game to meet the long-term threat of platforms.”
“The massive fear here is you’re beholden to the platform to sell your customer back to you,” he said, grouping banks together with high street retailers and consumer goods companies. “That is the fear that we all have. That they have these massive, powerful portals that will see consumer intent and initially sell it back to us and take a disproportionate share of the margin in doing so. Or worst case, meet that need themselves.”
RBC aims to offer more end-to-end services — or “ecosystems” — covering wider customer needs than only financial, such as when they want to start their own business, sell their house, or find a new car.
For instance, the bank is offering a service for entrepreneurs to register their start-up company with the government, provide it with cloud-based accounting software, supply a branding service and send it letterheads and business cards, all before it has lent the company a cent.
For people looking to buy or sell a home, it offers to research neighbourhoods, move furniture, remove garbage, paint a house and even decide which bins to take out each week. Many of these services are supplied by partners integrated into RBC’s digital platform.
Mr McKay reckons that these new services will help the bank to nearly triple its growth rate and add 2.5m new customers to the 13m it already has in its Canadian retail and commercial banking over the next five years.
He said customers had historically always signalled to their bank when significant events were happening in their lives, either by walking into a branch, picking up the phone, or visiting their website. But he warned “That game has changed.”
“That signal now is way ahead of us and what you buy on Amazon, what you put into the search bar in Google or Baidu, what your preferences are, how you use your iPhone and what you put on your Facebook page, all searchable by machines,” said Mr McKay.
Banks have to “meet the challenge of not necessarily knowing first-hand what’s going on in customer’s lives and being the first in line to offer those services. So, you have to build your own platform.”
He gave the example of people storing their credit card in Uber rather than using them every time they take a cab. “Your product is now rebundled in someone else’s service offering. And therefore they [have] control,” he said. “This is all about data and knowledge.”
Mr McKay conceded that because of their scale, US banks had an advantage in coping with digital disruption. “What I worry about? I should worry about how much they’re spending on technology and where that’s going to go. I’m the largest technology spender in Canada. That’s over $3bn [a year]. I think JPMorgan is spending $10bn.”
He added: “The question every CEO should ask is, what’s Jamie [Dimon, JPMorgan’s chief] doing with the extra $7bn.”