Globetechnology: Banking on technology

By Bernard Courtois
Special to Globe and Mail Update
Front Lines is a guest viewpoint section offering perspectives on current issues and events from people working on the front lines of Canada’s technology industry.Bernard Courtois is president of the Information Technology Association of Canada.

As a sector, Canada’s financial services companies have built one of the most extensive and sophisticated customer service networks in the world.

Since 1996, Canada’s six largest banks alone have invested almost $25-billion in information and communications technology. In 2003, these banks spent $3.9-billion on technology more than double the $1.8-billion in annual spending seven years ago.

Not surprisingly, these investments are paying off. Today, more than 85 per cent of retail banking transactions in Canada is conducted electronically through use of debit cards, telephone banking, on-line banking and hand-held wireless devices. And Canadians are the highest per capita users of automated banking machines (ABM) and debit card services in the world.

According to the Bank for International Settlements (BIS), Canadians logged 45.6 ABM transactions per person in 2002, compared to 36.7 in the U.S. and 36.0 in Sweden. BIS figures also show that Canadians made 76.4 debit card transactions per person in 2002, compared with 66.9 in France, 66.2 in the Netherlands and 54.0 in the U.S. In 2003, Canadians used their debit cards almost 2.6-billion times to pay for products and services valued at almost $116-billion.

A 2004 survey conducted on behalf of the Canadian Bankers Association (CBA) further reveals that the percentage of Canadians who bank primarily through the Internet has almost tripled in the past four years from eight per cent in 2000 to 23 per cent in 2004. This survey also found that 32 per cent of the respondents who are not currently banking on-line expect to be conducting banking transactions over the Internet within the next two to three years.

Canadians clearly value the ease of being able to conduct their financial transactions electronically. According to the 2004 CBA survey, three out of four Canadians (78 per cent ) believe that the electronic services offered by their financial institutions, including ABMs, telephone and on-line banking, make their personal banking more convenient. What’s more, 88 per cent of Canadians believe that Canada’s banks will improve their banking experience even more with future technological advances. That belief is well founded.

In July 2004, Hewlett-Packard (Canada) Co. and the TD Bank Financial Group announced a seven-year agreement, valued at $420-million, whereby HP will upgrade and manage TD’s national ABM network of some 2,400 Green Machines as well as its point-of-sale (POS) transaction infrastructure. Designed to enhance the banking experience for hundreds of thousands of retail and commercial customers, this initiative will improve the accessibility, security, and performance of TD’s ABM and POS networks. It will also enable TD customers to benefit from emerging technologies such as smart cards.

In a similar vein, IBM Canada is working with Laurentian Bank to expand and improve the bank’s ABM network across Quebec. The new network’s machines respond faster to customer prompts for services and provide instantaneous information updates about the bank’s services. IBM Canada is also modernizing the ABM network of the Desjardins Group, the largest financial institution in Quebec, to provide new financial services and to support the bank’s expansion outside of Quebec.

In the largest technology initiative in its history, BMO Bank of Montreal completed an entire refit of its coast-to-coast sales and service technology platform last year. It replaced multiple systems with one simplified platform based on Microsoft’s Windows 2000 Professional operating system and application software with the Microsoft Active Directory service. The new platform is called Pathway Connect.

Pathway Connect provides a single point of contact for the bank’s personal and commercial banking customers. It also gives employees fast access to relevant customer information. And with its detailed customer knowledge and decision support software, Pathway Connect enables employees to anticipate customers’ needs. What’s more, the system is expected to bring savings of 15 to 20 per cent .

Prior to Pathway Connect, BMO had different systems for different types of personal and business accounts. It was confusing for some customers and frustrating for the 16,000 branch employees who work with customers everyday. In a matter of months, the BMO team and its partners, including Guild Electric, IBM Canada and NexInnovations, ripped out every computing device at each of the bank’s 900 branches across Canada. These devices were replaced with Pathway Connect PCs, flat-screen monitors, printers and servers. Employees at each branch were trained on the new system in advance and immediately following its installation, began serving customers.

In addition, BMO selected Microsoft Visual Studio .NET and the Microsoft .NET Framework to build a “smart client” application that uses XML Web services to access the company’s host systems. It didn’t make sense to use a “thin client” solution since it couldn’t deliver the functionality and performance required for BMO’s sophisticated customer service application. BMO also wanted to decouple the desktops of users from the complexity of back-end systems to simplify the process of making system changes and to accelerate the delivery of new applications.

BMO validated its decision to standardize the development of smart client applications on Microsoft .NET by building a proof of concept. In matter of weeks, four developers created a Windows Forms based smart client that used Web services to execute three sample transactions against the company’s host systems. The proof of concept testing confirmed that .NET provided rich and mature development tools with uncompromising stability and performance. As a result, BMO developers can now easily connect with core systems and thereby rapidly deliver smart client solutions to support new products, improve business processes, and increase customer satisfaction.

Today, for example, with the swipe of a customer’s card, a BMO customer service representative has access to an in-depth customer profile, enabling the representative to provide better service and to cross-sell products and services. In addition, transactions are processed faster, customers no longer need to fill out transaction slips, and they receive a single receipt detailing all transactions and balances.

Recently, ING Canada signed an agreement with IBM to implement innovative IT services that will support ING’s continuing growth and help the company to better serve its insurance clients across Canada. Specifically, ING was seeking to strengthen its customer service capabilities with flexible and expandable solutions, enhanced security features, and improvements in its existing recovery plan. It wanted easy, real-time access to its technology tools and services to better support its network of 2800 independent brokers across Canada.

ING Canada will deploy a new IBM eServer zSeries server running Linux. With this architecture, ING can create virtual servers that will supply as little or as much processing power as needed to respond to fluctuations in user demand. This resilient IT infrastructure will enable ING to handle substantial growth without compromising service levels.

In addition to satisfying the appetites of Canadians for new and better services, financial services companies are striving to improve their back-end systems as well. With total assets of more than $260-billion, for example, managing risk has become a top priority for Canada’s banks. So is regulatory compliance. In Canada alone, there are about 50 financial services regulators administering more than 120 pieces of financial legislation.

To handle the need for better risk monitoring and reporting in the face of growing investment portfolios, the RBC Financial Group implemented a new Global Market Risk Management System. This new system provides RBC’s senior management with aggregate measures of RBC’s daily exposure to market risk on its trading activities conducted at major global trading centres in Toronto, New York, London and Sydney.

Introduced in 2002, the RBC’s Global Market Risk Management System exceeds the regulatory requirements the bank must meet for effective overseeing its trading operations. With actionable data delivered in real-time, the system can quickly identify and monitor RBC’s portfolio risk around the globe on a daily basis as markets move, rather than after market closing. As a result, risk analysts are able to quickly identify potential pockets of risk.

Developed almost entirely in-house by RBC project teams and using the latest data warehousing and business intelligence solutions, the system is also integrated with analytic tools that aggregate risk according to trading book, geography and risk type. A new mapping tool was also introduced to standardize data input from a variety of sources. Today, the RBC Financial Group processes approximately 400,000 trading transactions and performs more than 300-million computations daily to independently re-assess the market risk on its trading portfolios.

Given the enormous volume of transactional traffic, maintaining the fidelity of financial networks is also business critical. The August 2003 blackout, which knocked out power grids throughout most of eastern Canada and the United States, occurred at the worst possible time for Scotiabank during the monthly update of its data warehouse. This warehouse serves as the backbone of Scotiabank’s customer relationship management and retail banking campaigns. What is more, the EDS team which hosts the Scotiabank’s data warehouse was implementing a new system technology at the time.

Fortunately, EDS had a disaster recovery plan in place. It includes an EDS hosted environment, backed up by diesel-powered generators, as well as client contact procedures to co-ordinate emergency efforts in real time. As a result, the EDS team not only successfully deployed the new system, it set a client record for speed and efficiency in updating the data warehouse during the blackout. The same robust system integrity and planning also ensured that the customer networks of BMO Nesbitt Burns, another long-time client of EDS, were unaffected during the blackout.

Technological innovation in financial services, however, isn’t limited to Canada’s major banks and insurance companies. In September 2003, Toronto start-up Dexit launched a new electronic payment service in its home city. The Dexit service allows consumers to pay for items like coffee, newspapers or quick service meals using a Radio Frequency Identification or RFID tag, a thin one- by two-inch plastic tag that attaches to a key ring or cellphone.

The customer need only wave the RFID-enabled tag in front of the RFID reader at the cash register. The Dexit system then authorizes payment within two seconds a fraction of the time it takes to carry out a transaction by other methods. This time saving can make a real difference to merchants who rely on quick customer turnover.

To obtain a Dexit account, consumers simply sign up for the service. They can then load funds from their Canadian bank account or through preauthorized debit or electronic bill payment. Using electronic bill payment, consumers can replenish their account on the Internet, by telephone or at an ABM. Adding value to the Dexit tag costs $1.50 per transaction and consumers can spend up to $100 per day. Dexit also provides detailed transaction records that allow consumers to keep track of their small value purchases.

Developed with the support of CANARIE and launched in cooperation with TD Canada Trust, National Bank and TELUS Mobility, hundreds of merchants in the Toronto area are already on board. The Dexit service will initially be extended to merchants in the 416 and 905 area codes and eventually rolled out to merchants in other major urban centres across the country.

According to Renah Persofsky, president and CEO, Dexit Inc., “People tend to use credit for large value purchases and debit for mid-range, but until now there hasn’t been a widely accepted electronic form of payment available for items under $20. With the introduction of Dexit, there is a speedy, convenient payment method that we think will be hugely popular with consumers and merchants alike.”

Pretty soon, pockets full of loonies and toonies may be a thing of the past for many Canadians. In the future, if the Canadian penchant for existing electronic financial services is any indication, Canada will once again emerge as the world leader, this time as a pioneer of the cashless era.