Banks spend plenty on information technology but most of it is for running the back office.
But IT can also boost a bank's top line. A case in point is Toronto-based RBC -- which offers personal and commercial banking, wealth-management services, insurance, corporate banking, and capital markets services.
RBC is leading Canada in the way it interacts with consumers via their smartphones thanks to technology from Personetics, a Tel Aviv-based fintech.
And that's boosting the number of accounts and the amount of revenue those accounts generate for RBC.
(I have no financial interest in the companies mentioned in this post).
Over the last five years RBC -- Canada's largest bank -- has been growing modestly. In the five years ending 2018, RBC revenues grew at a 6.9% annual rate to $42.6 billion; net income increased at an 8.7% annual rate to $12.2 billion; and its stock has risen at a 4.6% annual rate to about $77 a share on March 4, according to Morningstar.
In the latest quarter, its results were modestly disappointing. For the quarter ending January 2019, RBC's net income rose 5% to $3.17 billion. Results from its personal and commercial banking and insurance divisions were solid. But its wealth management revenue was unchanged and RBC suffered declines in capital markets and investor and treasury services, according to the Financial Post.
RBC lets consumers access their accounts via smartphone and uses branches as a place to engage them in conversations with people in its branches. According to my March 5 interview with Rami Thabet, its Vice President, Mobile,
RBC's corporate strategy is to be a digitally-enabled relationship bank -- giving consumers, wherever, whenever, convenient access to their day-to-day finances. Through Personetics's NOMI services, our customers can live healthier financial lives through AI tools. Our branches and digital channels are mutually reinforcing mechanisms during critical life events.
RBC chose Personetics based on three criteria. As Thabet said, "I was part of the decision-making process a few years ago. We evaluated suppliers based on three criteria: Did the solution offer AI, insight, and the ability to support multiple use cases? Did the provider align with us on strategy, culture, and values? Was the solution the most robust?"
RBC piloted the Personetics technology for 12 to 13 months and went live 16 months later. "We have had very healthy adoption from our client base and when they can't access it, they miss it a lot," he said.
RBC has four million mobile app clients and "all of them use NOMI Insight. This Personetics product has delivered 500 million pieces of advice or nudging to our clients. For example, I was using the same insurance company for 15 years and due to an insurance change, my premium changed. NOMI noticed that I had been double-charged $230. I did not notice it -- so I called my insurance agent," said Thabet.
RBC customers are benefiting. "NOMI users spend 93% more time on their financial accounts and engage in 50% more digital interactions. Our clients also use NOMI Find & Save which identifies funds that users may not have been aware were available to be saved. The client is always in control. So far, we've identified $69 million in total savings -- $150 per month."
These applications are paying off for RBC. "Surveys show that RBC is the North American leader in customer acquisition through digital channels. Thanks to NOMI, people open more accounts and we have deeper relationships with them. For example, through Find & Save, a woman was able to save enough for a house -- that $150 a month makes a meaningful difference."
Personetics was founded by Israeli entrepreneurs who knew banking systems well. As Eran Livneh, its Vice President, Marketing told me in a January 29 interview,
Our cofounders had sold a previous company for a nice amount and asked themselves: 'What do we know?' The answer: banking systems. They decided to launch Personetics in 2011 to help bank customers save money. The product launched in 2014 or 2015 and in the last three years we have doubled the number of customers every year. We have 50 banks worldwide and 55 million customers using it.
Personetics has grown from about 50 people in 2016 when Livneh joined to 160 in 2019. "Banks pay us an annual subscription which varies based on the size of the bank. The total addressable market is very large -- in the billions of dollars. And we have a 100% renewal rate."
That's not that surprising given RBC's experience. Livneh said that Personetics has increased the so-called Net Promoter Score (NPS) of banks' customers. "We have seen a study by one of the banks that shows NPS was 37% higher for customers that received personalized information vs. a control group that did not. There was another study that showed even a higher lift of over 50%."
So far, Thabet says, no other Canadian banks are using Personetics or anything similar.
I am guessing that if those NOMI services bring in enough new customers with those deeper relationships Thabet mentioned, RBC could achieve faster growth in future quarters.
