Scotiabank mulls robo-adviser and international expansion for Tangerine

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Bank of Nova Scotia is raising its expectations for Tangerine, floating the possibility it will launch a robo-advisory service and could expand the wholly-owned digital bank internationally.

"When you talk about low-cost, passive, robo-like solutions to engage Canadians, we are thinking of Tangerine as a platform from which we will do that," James O'Sullivan, Scotiabank's group head of Canadian banking, said at CIBC's Annual Eastern Institutional Investor Conference in Montreal on Wednesday.

"We are quite excited about that," he added.

Most of the big banks have been cautious about launching their own robo-advisers – online wealth management services that use algorithms, rather than human investors, to construct financial portfolios.

However, many banks have been mulling the possibility as an increasing number of independent wealth management companies launch robo-advisers with the goal of attracting millennial customers and taking market.

Bank of Montreal launched its online service, SmartFolio, in January. Toronto-Dominion Bank and Royal Bank of Canada have said that they are keeping their options open.

Scotiabank bought Tangerine, then called ING Bank of Canada, in 2012 for $3.1-billion, noting the branchless operation was attractive for its deposits. When the deal was announced, Tangerine's deposits were $30-billion, compared with $175-billion for Scotiabank.

But the purchase has taken on new meaning as bank customers across the sector have conducted more of their daily transactions on their smartphones and computers, making branchless banking, with its lower associated costs, look like a competitive advantage.

Brian Porter, Scotiabank's chief executive officer, has said that Tangerine is the parent bank's "internal disruptor" and a key part of its digital strategy, given that the digital bank can serve customers effectively with far fewer employees.

Mr. Porter expects that by 2020, less than 10 per cent of financial transactions will be conducted at bricks-and-mortar branches.

While Tangerine's customers number about two million, Scotiabank believes that an astounding 12 million Canadians are amenable to doing their everyday banking with an institution that does not have an extensive physical presence.

"We want to help Tangerine get as much of that addressable market as possible," Mr. O'Sullivan said. "They've rolled out their chequing account and they've rolled out their credit card. They've rounded out their product suite quite successfully, but there's still a bit to do."

He said that the digital bank is now working to introduce more wealth management capabilities, which is where a robo-adviser could fit in. And although Tangerine is currently a domestic Canadian brand, that could change.

"We are thinking actively about whether we will take it international, and in which markets," Mr. O'Sullivan said.

"That's something that we're not ready to make an announcement on, to be sure. But it's something that we're very actively thinking about," he said.

Scotiabank is Canada's most international bank, operating in dozens of countries but with a focus on the Pacific Alliance countries of Mexico, Chile, Colombia and Peru.