Financial Literacy

RBC’s CEO says tech companies pose threat to financial industry

By: Lisa Coxon on March 13, 2019

They’re often referred to as the FANG companies: Facebook, Amazon, Netflix and Google. And the Royal Bank of Canada’s (RBC) chief executive officer, Dave McKay, is worried that these tech behemoths might be encroaching on his territory.

On Tuesday, McKay told investors in New York that the FANGs are getting between the bank and its customers, who are increasingly turning to the companies instead of banks when looking for financial services.

McKay’s sentiments reflect growing concern in the finance industry that these tech giants might start dipping their toes into the world of banking — offering loans to customers, handling online payments themselves and even accepting deposits, Bloomberg reported.

“They are getting between us and the moments of truth of our customers,” McKay said at the RBC Financial Institutions Conference in New York. “And currently what they do with that is they sell that insight back to us in the form of search and advertising and other perspectives, and they earn a certain amount of economic rent.”

But, McKay said, the amount of money that the FANGs are seeking to earn from banks “is growing.”

It’s ironic to hear the CEO of Canada’s biggest bank complain about having to pay FANGs more money, since RBC reported a record $12.4-billion profit at the end of October 2018, an 8% increase from the year before.

It’s also a rather bold concern to make publicly. McKay acknowledged to the audience that such comments are known to grab the attention of the technology companies. “I do get calls from the FANGs after I do these events,” he said.

So far, RBC seems to be the only Big Five bank to express concern over this, but McKay certainly isn’t alone in feeling the disruption from these companies.

Under a new directive coming into effect in September, European banks will have to grant FANGs access to customers’ accounts through the use of application program interfaces (APIs). Customers will then be able to make electronic money transfers on these websites using third-party apps that have nothing to do with their bank. The concern is that APIs give way for these companies to access customer data and create their own (competing) financial apps.

American Democratic presidential candidate Sen. Elizabeth Warren and media titan Rupert Murdoch have also expressed complaints that tech giants like Google, Amazon, Facebook and Apple have become too big for their own good and are starting to have too much power in the industries they control. 

In fact, Warren took to publishing platform Medium to air her grievances.

“As these companies have grown larger and more powerful, they have used their resources and control over the way we use the internet to squash small businesses and innovation, and substitute their own financial interests for the broader interests of the American people,” she wrote.

“To restore the balance of power in our democracy, to promote competition, and to ensure that the next generation of technology innovation is as vibrant as the last, it’s time to break up our biggest tech companies.”

As for McKay, he seemed to hint that in order to ride out this disruption, RBC needs to be at the forefront of customers’ minds — the place they turn to “before they have to make a financial choice,” according to Bloomberg.

“Moving higher up in the funnel of decision-making and life moments before the financing decision or before the banking decision is mission-critical in us taking control in that journey and not being beholden to somebody else’s platform,” McKay said.

 

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