Sweeping changes to the financial sector driven by new technology and shifting consumer behaviour will take years to play out, Bank of Montreal chief executive officer Bill Downe says.
"I can see a decade of change," he said in an interview, suggesting banks have more time to adjust to increasing competition than some observers believe. "The art in this is going to be moving very quickly in the areas that have a rapid payback and not trying to introduce 100 new features if five matter."
Canada's big banks are making large investments in technology at a time when they are cutting expenses in many of the more traditional areas of banking as revenue growth slows and consumers do more of their day-to-day transactions online or with smartphones.
BMO has taken restructuring charges totalling $149-million in 2015 as part of a sectorwide approach to cost-cutting that could add up to more than $1-billion by the end of the year, according to Sohrab Movahedi, an analyst at BMO Nesbitt Burns.
Spurring them along is the widely held belief that incumbent banks are vulnerable to disruption from financial technology startups, known as fintech.
A recent study from global consultancy McKinsey & Co. said banks could lose up to 60 per cent of their retail profits over the next decade as tech-savvy players drive down the cost of many traditional financial services and capture market share.
Analysts, too, have been noting the emerging threats. Peter Routledge of National Bank Financial said last month the banks "face a material threat to their most profitable business line, Canadian personal and commercial banking, from innovators who intend to fleece their golden geese."
Mr. Downe, though, believes the banks have some advantages in meeting this threat. "I don't think it's any easier if you're a startup than if you're an incumbent," he said.
"I think that if you are fired up about the opportunity, you should be able to make a lot more money in the future using the tools or innovations that we are talking about if you have a customer base to begin with," he said, pointing to BMO's nearly 14 million customers.
Mr. Downe said that millennials, defined as anyone born between the early 1980s and 2000, may not be the generation that will turn away from banks in droves, as some believe, and into the arms of tech behemoths such as Google Inc. and Apple Inc.
He has been meeting with dozens of millennials to hear what they have to say on a number of topics, including employment demands and customer needs.
These meetings have left him with the impression that this generation is not so different from others when it comes to brand identity and trust, especially as banks develop financial services in response to technological developments.
"Our industry is innovating in its own way, and at a rapid-enough pace, that it is at least holding ground and, in some cases, I think it is gaining ground," he said.
Many of the investments made over the past five years to upgrade the underlying systems architecture within Bank of Montreal, he said, will pave the way to innovations such as fingerprint-authentication withdrawal of money from ATMs using smartphones.
That will deliver a better experience for customers and should drive greater efficiencies within the bank down the road.
But the investments continue. "Yes, there will be big expenditures, and there should be big expenditures across the industry on architecture," he said. "But it's not an arms race."