Canada’s banks are becoming digital transformation leaders by collaborating with their fintech counterparts, according to a new report by consulting firm PricewaterhouseCoopers (PwC).

Financially speaking, what the organization calls “the big six” (Bank of Montreal, ScotiaBank, CIBC, National Bank of Canada, RBC, and TD Bank) are still performing very well: their consolidated revenue reached $133.6 billion in 2016, a 8.6 per cent increase from their $123.1 billion revenues in 2015.

During the same period their average return on equity declined, however, from 14.5 per cent to 13.7 per cent, largely thanks an increase in regulatory capital.

“Industry changes, shifting customer expectations, rising costs and a rapidly shifting technological landscape continue to challenge the traditional banking model,” the PwC report’s authors write. “Canada’s banks are responding to these challenges with urgency, confidence and significant investment. And they’re doing so by embracing the disruptors themselves.”

“[Banks] don’t see fintech firms as unwelcome invaders but as partners and collaborators—as sources of fresh thinking and creative technologies that can help elevate the customer experience and improve efficiency,” the report continues. “It’s a shift in attitude that’s changing how banks tackle many challenges.”

Fortunately, the report indicates that banking executives are more than aware of the disruptive impact technology is having on their industry: 84 per cent of banking and capital markets CEOs worldwide surveyed by PwC believe that technology will “completely reshape” or “have a significant impact” on the financial services sector during the next five years, while 70 per cent cited “speed of technological change” as a threat they’re concerned about.

The industry is investing in two “pain points” in particular to improve its future prospects, PwC noted: what the organization calls “customer friction” and behind-the-scenes efficiency, with 65 per cent of CEOs worldwide citing “changing consumer behaviour” as an industry threat.

“Despite advances in web and mobile banking, Canadian banks’ customers are frustrated by the fact that they have to visit a branch to conduct certain key banking tasks, such as opening an account or getting a loan,” the report’s authors write. “The industry-wide drive to eliminate customer friction is creating an ‘arms race’ of sorts between banks—one not based on products, but on capabilities, experience and ease of use.”

For example, the report cites TD’s collaboration with Moven to launch the MySpend mobile app, which allows customers to track their spending and transactions in real time; BMO launching a service that invites them to open accounts through their mobile phones; Payments Canada’s recent attempts to modernize the country’s electronic payment infrastructure; and BMO, CIBC, RBC, Scotiabank, and TD collaborating last year to bring Apple Pay to Canada.

Canada’s banks have been a bit slower when it comes to improving efficiency behind the scenes, the report acknowledges, noting that doing so is hardly an easy task for companies saddled with decades-old legacy systems.

Though automation, both fintech-driven and not, AI, machine learning, robotic process automation, and blockchain are all seen as tantalizing potential solutions, the report says, Canada’s banks are evaluating the opportunities presented by each of them cautiously, perhaps waiting for high-profile efforts such as Goldman Sachs’ attempt to build an AI-driven commodities trading platform to make their next move.

However, the report notes that while Canada’s banks have historically preferred to keep new product and service development in-house, today they’re increasingly likely to collaborate with outside organizations to accelerate their digital transformation. For example, CIBC is working with fintechs such as Borrowell, Thinking Capital, and AutoCapital to deliver improved customer service; Scotiabank has partnered with Kabbage to improve its small business capabilities; and RBC is using its research arm to invest in artificial intelligence (AI).

Rather than viewing fintechs as disruptors, ScotiaBank considers them enablers, Scotiabank president and CEO Brian Porter told PwC.

“We’ve learned a lot from fintech companies and I think they’ve learned a lot from us in terms of our partnership, banking and our footprint,” the report quotes him as saying.

In addition to ScotiaBank’s fintech partnerships, Porter highlights the company’s network of “digital factories” – innovation, research, and training hubs in the key markets of Canada, Mexico, Peru, Chile, and Colombia that launched in 2016.

Another, perhaps less well-known, use of technology highlighted by the report is regulation technology, or “regtech” – automated solutions that could allow banks to use AI, machine learning, and predictive analytics to pre-emptively identify and address compliance issues.

Sample domains for regtech solutions. Courtesy PwC.

In the year ahead, PwC anticipates that banks and fintechs will continue their collaborative efforts to improve Canadian banking, whether it’s in the form of upgrading payment systems, enhancing the customer experience, or addressing regulations.

“The year 2017 will be an exciting one to watch as these developments continue to progress for Canada’s banks,” the report’s authors write.

You can check out the full report here.

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