TD Bank’s first fintech acquisition is an AI company

TD Bank just bought its first technology firm, Toronto-based artificial intelligence startup Layer 6. The Canadian banking giant, also based in Toronto, invested an undisclosed amount in Layer 6 to help it “continue to transform itself” in the industry shift from mobile-first to AI-first customer experiences, said Rizwan Khalfan, TD’s chief digital and payments officer. The transaction was completed Tuesday morning. Banks always say to keep up with competition -- which now includes financial startups and retailers as well as competing banks -- their best bets are to build, buy or partner with them. But buying is rare: last fall JPMorgan Chase acquired WePay, a small business-focused payments company. In the last three years, Silicon Valley Bank acquired API startup Standard Treasury, BBVA acquired digital bank Simple, Ally acquired trading platform TradeKing. But bringing in an AI startup, and Layer 6 specifically, whose niche is in personalization and prediction, solves a huge problem for banks as they compete with other industries' more personalized customer experiences. The ability to anticipate the needs and preferences of individual customers doesn't exist in banking today, but will be a requirement going forward, Khalfan said. Consumer activity is becoming more digitized everyday and the amount of customer data from digital transactions doubles every two years. “This is the evolution of the self-serve environment,” Khalfan said. “You want to continue to empower the customer to access all banking services when, where and how they want… that’s been the biggest revelation over the last ten years.” The acquisition doesn't rule out the need to partner with other types of AI startups and doesn't necessarily give it the technological foundation necessary to build any and all AI solutions going forward, he added. Most banks doing anything with AI are interested in how it will improve back-end efficiencies -- many are excited about using it for fraud detection, particularly as fraudulent activity gets more sophisticated. But some are planning to create virtual assistants and some are piloting chatbots. Over time, the industry hopes AI can reduce banks’ cost of serving customers and improve customer interactions. Some banks are running pilots with RPA and Natural Language Generation, but most are still just considering different technologies or haven't made any plans.

Only nine percent of banks are running AI pilots are planning to invest significantly more in AI in the year ahead than they did in the last, according to data gathered by Celent. Another 23 percent of banks indicated they planned to invest more than 25 percent more. Many bankers feel its expensive and that people have a general lack of understanding, Celent analyst Stephen Greer recently told Tearsheet. That was one of Khalfan’s biggest concerns with AI and a major reason TD is so interested in Layer 6: the company doesn't just provide data and insights, they explain how and why the bank should act on them. “A lot of people describe AI as a black box; people often say what the next best product is for a particular customer,” he explained. “But how do you act on that if no one explains to you why that product is the right answer?” Khalfan described the AI company’s objectives in consumer banking as “altruistic,” and in tune with its own customer centricity, company culture and Bank Human messaging they’ve promoted in TV spots and at events over the last few years. He didn’t say how the company will apply Layer 6’s talent to forthcoming products specifically, but touted the company as a provider of back-end solutions, rather some AI companies like Kasisto that are more committed to front-end AI that interacts directly with customers. Making those front-end interactions count more by reading them and making them more personal and proactive, streamlining lending processes by automating them, pushing insights to advisors and identifying the next product and stages of customer relationships are all part of the bank’s broader vision for implementing AI. In the last year TD has integrated Kasisto’s conversational bank bot into its mobile banking app, launched a voice banking Alexa skill for Amazon Echo devices and began collaborating with the Vector Institute for Artificial Intelligence on developing new AI technologies. "They interact with us billions of times a year," Khalfan said about TD's customers. "Here is all this data, how can we make those interactions count even more? Whether it's just to do transactional things all the way to planning for retirement, there's a whole self-serve capability that AI can actually personalize."