Partnerships are at the heart of TD’s plans to modernize operations

By Fiona Collie | November 2017

A spate of recent announcements from Toronto-Dominion Bank (TD) demonstrates the commitment of established financial services institutions to keep pace with the quickly changing landscape of financial technology (fintech).

In October, TD announced a program to help startups patent new technologies; a partnership with an artificial intelligence (AI) company; and plans to open a cybersecurity office in Israel.

"What you're seeing here is a lot of very purposeful action on the innovation agenda," says Tim Hogarth, vice president, innovation framework and strategies, with TD. "We're building the bank of the future, and we're doing several things that are pushing that agenda forward."

At the heart of these actions are the partnerships TD is looking to build - with both fledgling startups and established companies - to further its plans to modernize its operations.

Partnerships are a key component of most financial services institutions' plans to beef up their technology capabilities, according to a recent study from Netherlands-based KPMG International. That study found that 61% of financial services institutions around the world have taken a partnership approach to technology, while 81% plan to partner with fintech firms in the future.

Building closer partnerships and getting a head start in new technologies is one of the drivers behind TD's new patent program. As part of that program, TD will provide both funding and access to its network of patent lawyers to tech startups. In exchange, TD will have a non- exclusive licence to the patents developed through the program.

"We have a vested interest in making sure that we develop the right talent in Canada," says Hogarth, "and fintechs are a wonderful opportunity for us to find and cultivate [that talent], which also allows us to find good fits for our business."

To fund this program, TD has designated $3.25 million from its $30-million fintech investment pool. The pool typically is used to invest in startups in exchange for an equity stake in the startup, but the patent program provides an alternative form of investment.

Applying for a patent can be a drawn-out and expensive process and, therefore, sometimes is beyond the capabilities of new companies. For example, the application document can be up to 30 pages in length and difficult to complete due to the often complex technology developed by startups as well as the strict rules surrounding the patent process.

"It's important to get [a patent application] done right up front and that takes a fair bit of effort," says Paul Horbal, associate lawyer with Toronto-based law firm Bereskin & Parr LLP. "And startups, which often are cash-strapped, often don't have the resources to prepare the 'Cadillac' of patent applications."

TD's program could prove beneficial to a startup company by helping it protect its intellectual property. The one potential drawback is that future investors or buyers may be less keen about a company whose primary asset (the patent) is directly connected to another institution, such as TD.

"That [tie to TD] may affect the valuation - at least, for the Canadian business - of that fintech," says Victor Krichker, a partner with Bereskin & Parr.

The types of companies TD may invest in through the patent program are likely to vary widely. For example, Hogarth notes, the bank talks to startups that work in several areas, from client interfaces to customer protection.

One area of particular interest at TD is AI. To that end, TD recently announced a partnership with New York-based Kasisto Inc., an AI company spun off from Menlo Park, Calif.-based SRI International, the latter of which developed Siri, Apple Inc.'s virtual assistant.

Through this partnership, TD plans to integrate Kasisto's white-label "chatbot" platform, called KAI, with the TD mobile banking app in the first half of 2018. Once the integration is complete, TD's customers will be able to talk to the KAI chatbot via text or voice about basic banking tasks, such as calculating expenses, paying bills or transferring money between accounts.

Initially, the chat platform will apply only to TD's core banking channel. However, the bank intends to extend this AI capability to the entire organization.

TD also is a supporter of the Vector Institute for Artificial Intelligence, a Toronto-based independent research facility focused on AI.

"We really think this is a game-changer," says Ruby Walia, head of mobile and online banking with TD. "And, beginning at the most senior levels of the organization, there's an understanding that artificial intelligence is one of those capabilities that come along every so often that actually do change both the services we provide and how we provide them to our customers."

Indeed, TD is not the only major Canadian bank connected to the Vector Institute. Bank of Nova Scotia, Bank of Montreal, Royal Bank of Canada and Canadian Imperial Bank of Commerce, all based in Toronto, also are associated with the institute.

TD, in addition to looking at technologies that may change the services available to clients, also is focused on partnerships that will help protect the bank's online capabilities.

Specifically, TD plans to open an office in Tel Aviv that will focus on beefing up TD's cybersecurity efforts. The bank will invest $3 million-$5 million in the new office in Israel and plans to hire 12 staff members within the year.

"As you would expect, cybersecurity is a key area of focus for us to protect the assets of the bank and the information of our customers," says Jeff Henderson, executive vice president and chief information officer at TD.

Significant cyberattacks, such as the recently revealed attack on Atlanta-based Equifax Inc., have raised concerns about the security of digital information among both the public and financial services firms. A survey by the Canadian Securities Administrators of 649 registered firms found that 51% had experience a "cybersecurity incident" in 2016.

TD chose to locate its new office in Israel because that country is known as a market leader in cybersecurity - expertise that's in high demand.

"[The location of the cybersecurity-development office] is largely a talent play," Henderson says. "It's not to suggest that there is not good talent in North America; there is good talent in North America. The problem is that there isn't enough."

TD's move makes sense, given the complicated nature of cybersecurity, says Henry Kim, associate professor of operations management and information systems with York University's Schulich School of Business in Toronto.

"It's really hard to do cybersecurity well," Kim says. "So, why not go to the places where you think the best experts are?"

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