Every morning, a group of millennials stands in a circle, passing around a stuffed animal to share their progress then re-arrange sticky notes on a whiteboard to track it. In a few weeks, the board will be emptied, and they’ll scrawl a new set of tasks to complete.

Behind them, another whiteboard is covered in brackets, outlining the staff ping-pong tournament. It would be a familiar scene at Silicon Valley startups. But this is one of Canada’s biggest and oldest companies.

The Bank of Nova Scotia’s rapid labs gather employees from different divisions for intensive 16-week brainstorms, tackling issues that once took more than a year to resolve. “That’s how digitally native firms operate,” says Kyle McNamara, co-head of information technology at the bank.

“Just like the Facebooks, the Twitters, the AirBnBs, we iterate and improve.”

Some of the firms the bank is emulating are also hungrily eyeing how they can profit in the financial services sector.

Scotiabank’s workplace experiment is one of the ways Canada’s major banks are trying to disrupt their long-entrenched business models before an onslaught of new competition does it for them.

Driven by demand from millennials, who prefer to bank on phones rather than at branches, such disruption has been quietly creeping into traditional banking for years. But Canadians’ adoption of financial technology — or fintech — is expected to triple over the next year, putting a big slice of banks’ bread and butter business at stake, financial consultancy firm Ernst & Young predicted in January.

“Banks are trying to disrupt themselves. They’re recognizing they have to operate at a different speed than they were before,” said Paul Battista, EY’s leader in financial services.

“If complacency takes hold, if the banks rest on their laurels, rest on the strength of scale and brand, they will be vulnerable.

“These startups will come into the market and identify the most lucrative or underserved components of the bank’s value chain, and they will essentially erode the profitability of the sector.”

Technology has lowered the barriers to entry for fintech players, which operate in niche banking segments such as small loans or investment management.

Online loan companies such as Mogo, Grow and Borrowell can offer quick sign-up and approval processes to borrowers who might not be approved by the bank. Other online-only operators such as Tangerine and EQ Bank offer higher interest rates on savings accounts. Then there are the roboadvisors like WealthSimple who offer lower fee portfolio management.

The fintech disruption has been framed as something that pits small start-ups against big banks. But recently, industry veterans have shown a willingness to view startups as partners rather than challengers. The greater threat could come from global technology giants looking for their next wave of growth the profitable banking space.

Google, Facebook and are the brands that millennials already interact with daily. Three-quarters of those aged 18 to 34 in a 2014 Accenture survey said they’d be willing to use a “nonbank” for financial transactions.

RBC chief executive Dave McKay called out the threat by name at a conference last year, saying the banks were on a “collision course with the Googles and the Apples of the world.” Both have launched digital wallets on their smartphones, while Facebook has entered the peer-to-peer payment space through Messenger.

Those moves pose the threat of disintermediation — getting between financial institutions and their customers — which can have disastrous implications for revenues, branding, data collection and beyond for the banks.

Tech giants have the trust and size advantage of the big banks, but the nimbleness and rapid engineering culture of startups, said Kris Hansen, financial services head at information technology firm SAP.

“If the big tech firms were to enter the banking space fully, and bring the full weight of their brand and their full technology capability, that’s certainly a concern for everybody.”

That’s one reason why partnerships with smaller fintech players is suddenly in vogue. “When the new fintechs first emerged, many of them wanted to create a partnership with the banks and they kind of banged their heads against each other for a while and then they walked away,” Hansen said.

“Now they seem to be coming back together and saying, ‘How can we engage and do this in a way that’s actually fruitful?’ ”

TD announced a partnership with personal finance upstart Moven in April, while CIBC recently announced one with online lender Thinking Capital.

Such partnerships give startups, which lack the trusted brand name of a big bank, access to millions of customers. For banks, they deliver ready-made innovation. And keeping the fintech players independent, rather than buying them outright, allows those digital startups to continue operating quickly and flexibly.

Large and small players agree on at least one thing — this revolution is being driven by customers. And the next big question is whether Canadians are comfortable with the fragmentation of their banking services.

Will they give up the convenience of having all financial needs — from RRSPs to lines of credit — in one place in the interest of lower fees and more choice?

Hansen believes the new wave of competition in banking will lead to the unbundling of services over the next two years, before consumers demand they be put back together again under one umbrella.

Kevin Sandhu, CEO at peer-to-peer lender Grow, which is already partnering with credit unions, believes the banks will eventually come around to offer products like his as well.

“I suspect the majority of products banks offer today within the next decade will not be offered or created by banks themselves,” he said. “It’s really comforting to have a one-stop shop and I think that’s what an effective bank of the future is really going to be.”

FINTECHS ON THE OFFENCE

Technology-enabled challengers are stepping into the ring to win a piece of the highly-profitable banking sector — and analysts believe they’ll win at least a few rounds.

The new players are not subtle about their intentions, taking public shots at the perceived stodginess big, old institutions in their messaging and branding themselves as the anti-banks.

The Canadian bank oligopoly has not been good for customers, because it allows a few companies to charge as much as they want, leading to billions of dollars in profits, said Andrew Graham, CEO of peer-to-peer lender Borrowell.

“The challenge is you can get locked into profitable but suboptimal business models when you’re a successful organization,” he told a Financial District crowd, pointing to Royal Bank’s record $10 billion profit in 2015.

He believes the alternative-loan space will be a multibillion dollar market in Canada in less than 10 years.

Millennials have no attachment to banks — in one survey, 70 per cent said they’d rather have a root canal than visit a bank, said Dave Feller, CEO of online lender Mogo. Instead, these consumers look to the convenient technology-enabled experiences in other sectors and want the same of their banks.

“We look at Uber as an example, that’s the kind of experience the next generation is expecting from financial services,” Feller said.

A Canadian Bankers Association survey found 55 per cent of Canadians are doing a majority of their banking online already, making relationship between customers and banks more about fees and convenience than advice and rapport.

Online-only companies can offer more flexible and affordable alternatives because they don’t have to worry about the overhead costs of operating thousands of branches. EQ Bank, which launched at the beginning of this year as a “completely digital” bank, advertises its lack of branches as a bonus for customers who can avoid monthly fees.

Just 13 per cent of Canadians use branches as their main method of banking, according to the CBA survey.

Branches of the future will almost exclusively cater to a much smaller customer base of individuals in search of personal advice and help they can’t get online, said Ernst & Young’s Canadian financial services leader Paul Battista.

As fintech players increase their market share, there’s little doubt banks will comprise a smaller portion of the space, but there are some product areas that will likely remain off-limits to the alternative competitors— some aspects of heavily regulated spaces like securities and corporate finance, he added.

“There are some products that you cannot sell unless you are a bank — and unless regulations change, that’s going to be a real limitation in terms of how far these organizations can go.”

BANKS ON THE DEFENCE

Canada’s big banks are trying to fight the threat posed by upstart competitors by acting more like startups themselves.

“The inspiration comes from looking outside the bank and seeing what’s happening with fintech in general,” says Jeff Martin, TD Bank’s chief information officer.

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“We see these guys doing something really cool and creating something, and we know if we followed our old approach, that would be a deterrent.”

Meanwhile, TD chief executive Bharat Masrani used the company’s annual meeting in March as a platform to call for stricter regulations on fintech startups, suggesting they are plagued with security breaches and solvency issues.

The sense of urgency to prove banks are leading innovation is industry-wide. “Silicon Valley is coming,” JP Morgan CEO Jamie Dimon warned shareholders in his annual letter last year.

Banks that don’t adapt to the digital disruption could see profits decline by as much as 35 per cent, according to a report by McKinsey & Co.

“Banks have three to five years at most to become digitally proficient. If they fail to take action, they risk entering a spiral of decline similar to laggards in other industries,” it warned in 2015.

The jury is still out on whether the banks are serious about innovation, or just pouncing on the latest buzzword to appear fluent in a digital space that is actually foreign to them.

Banking analyst Peter Routledge doesn’t buy the banks’ rhetoric about leading the change. Instead, he says, they are implementing costly but necessary defensive strategies.

“This threat is clear, present, intensifying and has staying power,” Routledge wrote in a well-known report in the industry.

“We think they are worried . . . worried that innovators will nip away at, and ultimately fleece, their golden geese.”

The newfound focus on hiring and investment in technology means that banks are cutting branch jobs while adding tech jobs.

In May, Scotia is set to open its Digital Factory, which will house 350 technology-focused employees. TD launched a 120-person innovation centre in the tech hub of Waterloo, Ont., late last year. The Bank of Montreal and CIBC have partnerships with tech incubators. And RBC last year held its first hackathon, a staple in the tech startup community but a new frontier for Canadian banks.

As mobile technology changes the way customers interact with their financial institutions, banks are also looking at ways to deliver services where new competitors are moving in. BMO became the first Canadian bank to launch a so-called “robo-advisory” service, which was already being offered by low-cost online portfolio managers.

They’re also going mobile in another sense. CIBC has about 1,000 mobile mortgage advisers across Canada that meet clients at a time and place that’s most convenient.

Banks are also showing customers they’re on the cutting edge by investing in biometrics.

BMO is the first Canadian bank to launch MasterCard’s “Selfie Pay.” TD is talking about using Touch ID to sign into its app. Scotia’s Tangerine division is experimenting with voice-activated banking and RBC has partnered with Nymi to allow customers to use wearable tech to verify their identities with heartbeat.

HOW BANKS ARE BUILDING START UP SPACES

Banks are revamping some of their workspaces in an effort to attract and retain top tech talent who might otherwise consider joining Google or starting a company.

Here’s a look at what some of their offices include:

Quirky and/or inspirational messages

Leisure space — ping pong and foosball

Lounge areas

Open workspaces

Whiteboards/chalkboards

Breakfast areas

Free food and coffee

Bike racks

FINANCIAL TECHNOLOGY BY THE NUMBERS

100-plus: The number of Canadian fintech startups as of August 2015

92%: Year-over-year rise in fintech investment in 2015.

13 billion: Number of payment transfers over mobile devices in 2015, up 150 per cent

68: The percentage of Canadians who use online banking weekly, according to a Yahoo survey.

31: The percentage of Canadians who use a mobile banking app weekly.

16: The percentage of Canadians who visit a bank branch weekly.

8.2: Percentage of Canadians who have used at least two fintech products in the past six months.

16.5: Percentage of Americans who have used at least two fintech products in the past six months.