Toronto-Dominion Bank (TD.TO) is acquiring artificial intelligence startup Layer 6 AI for an undisclosed amount as financial services companies increasingly look to tap the technology's potential.

Canada's largest bank by assets has been looking to build up its capabilities in AI for some time, said Michael Rhodes, group head of innovation, technology and shared services.

"The mass amounts of data with increases in computing power really give rise to the ability for machine learning, or artificial intelligence, to really play a much more prominent role," he said.

Toronto-based Layer 6, which launched in late 2016, uses AI in its platform to analyze various forms of data to learn and anticipate an individual customer's needs.

Layer 6 will retain its brand name and separate office in Toronto's Yorkville area, but TD will become its sole client and customer, said Rhodes.

TD's acquisition comes after it announced in October 2017 an agreement with U.S.-based Kasisto to integrate its KAI Banking chatbot platform into the bank's mobile app.

This also comes as corporate interest in AI and its potential continues to mount.

Canadian AI companies saw record funding in the first three quarters of 2017, receiving $191 million across 22 deals, according to PwC Canada.

Royal Bank of Canada has been investing in AI research, setting up labs in Toronto and Edmonton, as well as one in Montreal in November 2017. RBC, Canada's largest bank by market capitalization, also last January tapped AI pioneer Dr. Richard S. Sutton as an academic adviser.

Meanwhile, the federal and Ontario governments have doubled down on AI, collectively investing $100 million in a Toronto-based research institute. The Vector Institute, which opened in March 2017, was also set to receive $80 million from more than 30 private sector companies.

Both TD and RBC are Vector Institute partners, while Layer 6 founders Jordan Jacobs and Tomi Poutanen are Vector Institute founders.

Jacobs said after the startup's launch in late 2016, it began doing work for various clients, including TD, last spring.

After Layer 6 won an international competition last August for the best recommendation system -- called the RecSys Challenge -- and as it began looking to raise more money from venture capital that fall, the startup began getting acquisition approaches, he said. Jacobs would not specify which companies, but said the interest came from a variety "both inside and outside of Canada."

He said the startup, which now employs 17 people, was at an "inflection point" and needed to raise money to grow and meet demand. Its decision was guided by its aim to "build a global AI ecosystem in Canada," he said.

"If we go and we raised a ton of money from foreign investors, at some point along the way we essentially stop being a Canadian company even if we're located here," said Jacobs. "And for us, this was an opportunity to build inside a global company that is Canadian, TD, and to help them leap to the front of the pack around the world in adopting AI."

While neither firm would detail exactly how the technology would be applied at TD, Rhodes said this could include detecting certain spending patterns that indicate a customer may be buying a house and offer a mortgage. Or, in the future, applications could include the ability to analyze call centre audio and identify disgruntled customers who make multiple calls, and offer additional measures to address their issues, he said.

Given the growing number of ways customers interact with their banks, such as via smartphone apps, online, social media as well as through call centres and branches, it has become much more difficult to monitor customer needs, he said.

"What we hope to gather from AI is the ability to kind of know and understand our customers, in the same way that store manager knew back in the 1970s," Rhodes said.

