JUNE 2018 ISSUE
CANADIAN BANKER w www.rfigroup.com t twitter.com/RFiMediaGRB
Mark Blucher President & CEO, Central 1 Credit Union
RFi INTERVIEW 13
RFI GROUP INSIGHT
SAVINGS & BORROWING
SME & COMMERCIAL
06 Get on board with payments modernization
19 Stress tests raised after BOC decision
Silicon Valley Bank to launch in Canada
RFi GROUP MAY STAT TEN SELECTED STATISTICS FROM DAILY STATS ON RFi GROUP WEBSITE (www.rďŹ group.com)
29% of Canadians SMEs
state that at least half of their workforce is made up of freelancers, temps or contact workers
32% of UK consum
find the concept of applying for a bankin product in branch usi their mobile or tablet appealing.
8% of US consumers regularly send money to friends/family/colleagues via Facebook Messenger
37% of consumers
in Mexico would be very interested in bundling their banking products with a single institution in exchange for certain benefits
84% of consumers i
Egypt consider it very easy (8+/10) to bank wi their main financial institution overall
ng ing t
HONG KONG CHINA
42% of consumers
74% of consumers in
China usually send money to friends / family / colleagues via Alipay
in Hong Kong would most prefer to apply for a home loan via a digital banking channel
of consumers in India have visited their bank's social media pages in the past 12 months
80% of Baby Boomers in
Malaysia have used cash in the last 12 months, compared to only 72% of Millennials
1 in 4 Australian credit
cardholders are using their most used credit card more often than they were 12 months ago
Welcome to the June edition of the Canadian Banker, a newsletter designed to give you an update on news and trends within the Canadian retail and commercial banking market, contextualized by RFi Group data. On the back of a number of great events across North America last month, I share some insights in this edition around the hottest topics for the industry at the moment, including payments modernization and customer expectations around digital trends. We have two great interviews this month; one with Mark Blucher, new CEO for Central 1 talking about opportunities for credit unions across Canada and the
importance of the cooperative system for future innovation. Secondly, Aubrey Hawes of Oracle shares his global FinTech expertise and how banks need to be digitally transforming in the lending space. Aubrey also talks of personalisation as a key opportunity, and we have an additional special article around this, off the back of a breakfast event we hosted in Toronto last month Kind regards, I hope you enjoy this issue!
Cyrielle Chiron +1 416 644 8524 firstname.lastname@example.org
RFi GROUP INSIGHT Get on board with payments modernization
RFi GROUP INTERVIEW
The global state of digital identity
Mark Blucher, President and CEO, Central 1
Aubrey Hawes, Senior Director Product Marketing, Oracle
Transforming Homebuying into a Digital Experience
ECONOMY & REGULATION
SAVINGS & BORROWING
Canada lost 1,100 jobs in April, jobless rate holds at 5.8%
Stress tests raised after BOC decision
31 SME & COMMERCIAL
Transferwise plans launch of cross-border debit card in Canada in 2019
Silicon Valley Bank to launch in Canada
RFi GROUP INSIGHT
GET ON BOARD WITH PAYMENTS MODERNIZATION WORDS CYRIELLE CHIRON
ver the past few weeks, I have had the pleasure of speaking at a number of financial services conferences across Canada and in the US. While I spoke about a range of different topics, sharing insights on RFi Group’s latest research on SMEs and consumers, one topic in particular became a recurring theme – how consumers (and SMEs) are reacting to the new payments and banking trends that are happening right now; and how Payments Modernization will affect them. Canada is in the midst of a paradigm shift, changing both the way we bank and the way we pay. This is the result of a
06 RFi MEDIA
number of different forces, such as technology, regulation, incumbents, new entrants, and consumers and businesses themselves. We are also entering an era where consumers and businesses are growing increasingly demanding and are expecting experiences to be more flexible, faster, simpler and more secure. As my colleague Mark Schultz mentioned in his recent article ‘Meeting the evolving banking needs of Canada’s small businesses’, RFi Group insights show that Canadian businesses have a considerable appetite for new technologies that would improve the way they manage their business. Payments and
RFi GROUP INSIGHT
RFi Group insights show that Canadian businesses have a considerable appetite for new technologies that would improve the way they manage their business.
cash flow management is currently a struggle in the SME space, and 39% of Canadian SMEs would be comfortable sharing their accounting information with their bank in order to get improved services. Payments modernization is set to benefit SMEs, as the new system will provide faster, safer and more data-rich payments. Things are a bit different from the consumer perspective. Canadians want choice, innovation, simplification, security, and a guarantee that they will receive their money. RFi Groupâ€™s data shows that the usage of non-traditional payment
methods is growing, while the usage of cash and cheques is declining. Consumersâ€™ main payment pain points are around speed (i.e. balances not updated fast enough or access to funds being too slow), cost, and security. Some also mention passwords & payment authentication, particularly for online payments. These new payments methods address these needs, and RFi Group research has found one area of opportunity (or disruption depending on which side of the fence you are sitting on) is around P2P payments, where the usage and preference for digital payment methods is growing.
CANADIAN BANKER 07
SAVE THE DATE!
GLOBAL DIGITAL BANKING SERIES 2018 NORTH AMERICA EDITION
Now in it’s third year, the Global Digital Banking Series is back, touring London, Singapore, Sydney, Auckland and Toronto, with the North American edition edition taking place in September. This event will gather innovators and thought leaders from around the world to share case studies and engage in panel discussions, focusing on the full range of retail banking.
The day will bring together 200 banking executives and decision makers to discuss the sector and all that’s top of mind for those in North America retail banking and digital.
The agenda will provide key insights into what it takes to improve digital performance across customer experience and satisfaction, how to win the all-important main bank relationship as well as economic, competitive and regulatory factors affecting the North America’s retail 08 RFi sector. MEDIA banking
Jaime Cabrera +1 416 640 7126 email@example.com
For tickets, sponsorship and exhibition enquiries:
RFi GROUP INSIGHT
% THAT PREFER DIGITAL/ ONLINE PAYMENT METHODS Prefer digital payment methods
Do not prefer digital payment methods
80% 70% 66%
30% 20% 10% 0% H1 2016
Source: RFi Group H2 2017 Canada Payments Council Study
Also, payments is becoming more and more ubiquitous with the growth of contextual commerce, where payments are completely imbedded across the entire shopping experience. Consumers are now expecting to be able to buy anytime, and anywhere. We are moving towards an ecosystem where we are going beyond an ‘omnichannel’ payments experience - we are now moving towards an ‘omnipresent’ payments experience, where there is an ever-present ‘buy’ button. Companies are now trying to reduce the need to enter the details of the transaction, with the aim of removing it from the purchasing experience altogether. Payments modernization will help the ecosystem to move in that direction, by providing the payments system that customers demand faster, simpler, safer and more secure. By opening the system and allowing providers to participate more, customers are then left with more choice. Other countries have already started implementing changes to their payments and banking systems. Although it is too early to talk about learnings, RFi Group’s studies conducted in North America, Europe and Asia Pacific show the usage of
Fintechs globally remains low (excluding China and India) but is growing, and payments is the product that consumers are most comfortable obtaining from a non-bank provider. Payments modernization is coming, and no one will be able to stop it. If incumbent players don’t jump on board, someone else will and customers will have no problem with trying something new.
Payments modernization will help the ecosystem to move in that direction, by providing the payments system that customers demand - faster, simpler, safer and more secure. By opening the system and allowing providers to participate more, customers are then left with more choice.
CANADIAN BANKER 09
GLOBAL DIGITAL BANKER PODCAST
Global Digital Banker Podcast EPISODE 11
Becoming a Unicorn - Investment advice for emerging FinTechs
Financial inclusion & the leap frog effect of banking in developing markets
Guests: Cristina Alba Ochoa, CFO, OakNorth & Toby Heap, Founding Partner, H2 Ventures
Guests: Dare Okoudjou, Founder & CEO, MFS Africa and Melissa Guzy, CoFounder & Managing Partner, Arbor Ventures
This episode shares advice and examples from both sides on the fence when it comes to seeking investment within fintech.
In this episode, we take a look at the leapfrog effect of banking within developing markets and share a great example of innovation within financial inclusion occurring in Africa.
From a fintech perspective, we have Cristina Alba Ochoa, CFO from OakNorth (the first UK Fintech Unicorn), who shares her unique perspective from the CFO point of view on securing investment, the key reasons behind their success within their first year and some honest advice to other FinTechâ€™s who have recently launched. From the investor perspective we have Toby Heap, Founding Partner at H2 Ventures who discusses some big trends within FintTech at the moment, how FinTech owners can seek external investment and Tobyâ€™s two key ingredients for achieving business success. START LISTENING HERE
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Dare Okoudjou, Founder & CEO at MFS Africa discusses financial inclusion across Africa, overcoming barriers to usage beyond geographic remoteness and the opportunities and future learnings for MFS Africa from being backed by a Chinabased VC. Melissa Guzy, Co-Founder and Managing Partner, Arbor Ventures uncovers the types of technologies that on the rise across Asia and the evolution of FinTech 2.0.
START LISTENING HERE
GLOBAL DIGITAL BANKER PODCAST
The profitability to banks for payments within messaging apps 32 MIN Guests: Marieke Flament, Chief Marketing Officer, Circle, Dr Matthew McDougall, President, Australia China Daigou Association and Charles Green, CEO, RFi Group
This episode focuses on the profitability to banks for payments within messaging apps, overcoming barriers to digital usage and how companies can encourage new habits for consumers to drive digital engagement.
Dr. Matthew McDougall explains how to build consumer trust for payments within messaging apps, shares case studies from Asia and the changing perceptions of money from a user perspective.
Marieke Flament shares how they are leveraging new technologies to change payments transactions, their approach to altering the perception of money from a user perspective and how Circle are creating new behaviours for consumers to move beyond traditional payments solutions.
Charles Green, CEO at RFi Group explains the insights on the future of digital payments, the challenges and barriers to future uptake and how digital payment customers are going to be the key to driving bank profitability in the future.
START LISTENING HERE
The global state of digital identity 29 MIN Guests: Marieke Flament, Chief Marketing Officer, Circle, Dr Matthew McDougall, President, Australia China Daigou Association and Charles Green, CEO, RFi Group
In this episode we take a look at the global state of digital identity. From the West we hear from John Erik Setsaas, Identity Architect at Signicat and from the East we hear from Jonathon Thorpe, Head of Identity at the Australian Govt. Digital Transformation Agency. John Erik Setsaas shares how financial institutions can position themselves at the centre of this technology shift, the
opportunities to banks for investing within this space and some great examples of institutions that are leading in market. Jonathon Thorpe explains the next phase of work for the Digital Identity Framework, the organisations that they are partnering with to implement their solutions and how they build trust and mitigate against risks for consumers. START LISTENING HERE
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CANADIAN RETAIL BANKER 11
RFi GROUP INTERVIEW
Mark Blucher President and CEO, Central 1 Credit Union
THE OPPORTUNITIES FOR CREDIT UNIONS IN TODAYâ€™S DIGITAL BANKING WORLD WORDS SARAH HOLLINSHEAD
inancial services globally is at an inflection point, with digital disruption outside and within banking driving this change. This presents huge opportunities and challenges for the full ecosystem of financial services providers, and not exempt from this are credit unions. Remaining competitive and relevant against the larger players in the market is becoming more important than ever, and working in a cooperative system, Canadian credit unions are facing a decisive time in banking. Ready to kickstart this journey of transformation and support credit unions in their development of services are Central 1 Credit Union (Central 1). To discuss how they attempt to ride the wave of this revolution, Mark Blucher met with RFi Groupâ€™s Sarah Hollinshead in one of his first interviews since being appointed CEO in January
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Canada is right on the cusp of a significant disruption in financial services, and with that disruption there will be winners and losers across the financial services landscape. This is a huge opportunity for credit unions to become even stronger and more competitive than they are today, by taking advantage of what the shift is going to be.
RFi GROUP INTERVIEW
“Canada is right on the cusp of a significant disruption in financial services, and with that disruption there will be winners and losers across the financial services landscape. This is a huge opportunity for credit unions to become even stronger and more competitive than they are today, by taking advantage of what the shift is going to be.” At the core of this opportunity is business digitisation, and Central 1 sees their role as enabling innovation for its members and clients, to ensure they can maximise their responses to changes within the industry. The power that credit unions have, Blucher argues, is in their cooperative nature. “Being part of a cooperative network, credit unions can leverage capabilities built out by a central supplier, such as Central 1. Being able to build a standardised digital banking capability and distribute many times across the network is a huge advantage. Even better, we aid our users with a compelling offer, and then can funnel any revenue back into their business, member advantage and community” Blucher highlights the significant role of branding and perceptions around credit unions in Canada as another advantage. As
the world becomes more data driven, being a trusted entity is more integral than ever before.
The credit union brand as trustworthy, socially conscious and communitybased is very compelling across the financial services market. With aggregated services and products built on top of this, the credit union model has such strength. “The credit union brand as trustworthy, socially conscious and communitybased is very compelling across the financial services market. With aggregated services and products built on top of this, the credit union model has such strength.” And whilst digital services are growing significantly around the world, customers are increasingly expecting more choice in how they engage with their financial services provider.
CANADIAN BANKER 13
RFi GROUP INTERVIEW
“The ability to switch between channels seamlessly on a common digital platform is something we hear consistently from our clients as being central to their strategy.” Blucher is known for being a transformational leader, both at an industry and organisational level. He started his career at ANZ Bank in New Zealand, witnessing several acquisitions across his 18 years there and playing a key role in growing the bank to become the largest mortgage lender in the country; ANZ is now one of the big 4 banks across Australasia. Blucher then joined Suncorp, which at the time was a very modestly sized insurance company and regional bank. After 12 years as an Executive in a number of key roles of leadership, Suncorp is now the largest insurance company in Australasia. During this time, Blucher also worked with Australian credit unions, collaborating to take on the major banks in areas such as payments. Furthermore, Australia began digital banking investment far sooner than the rest of the world, transformation was happening around Blucher at an industry level, as well as him driving it within. As well as digitization of the masses, regulation is playing a key role in transforming financial services. European markets have begun opening up their systems, and Canadian regulators have hinted that open banking is on its way to Canada. Blucher believes that this is only a good thing for credit unions.
The ability to switch between channels seamlessly on a common digital platform is something we hear consistently from our clients as being central to their strategy
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Credit unions have a fairly close relationship with the individual customer, I would argue much closer than many other larger financial institutions. People feel as though they are not a number in a huge system, they are a person and are given an individualised service. This is not just a perception, I believe this is the essence of the value that they bring. “Credit unions have a fairly close relationship with the individual customer, I would argue much closer than many other larger financial institutions. People feel as though they are not a number in a huge system, they are a person and are given an individualised service. This is not just a perception, I believe this is the essence of the value that they bring.”
People really want to be able to deal with an institution, even if they have products and services elsewhere; they will want a place to access and view everything. In an open banking world, I think credit unions are well placed to be the provider of that. Indeed, there is a need for the best digital platform enablement to support this, to ensure end to end digital experiences etc. Overall, there is an element of risk in such changes, but also a huge opportunity for businesses who will stand up and make it easier for their customers.
“People really want to be able to deal with an institution, even if they have products and services elsewhere; they will want a place to access and view everything. In an open banking world, I think credit unions are well placed to be the provider of that. Indeed, there is a need for the best digital platform enablement to support this, to ensure end to end digital experiences etc. Overall, there is an element of risk in such changes, but also a huge opportunity for businesses who will stand up and make it easier for their customers.” Blucher is certainly excited for times ahead, in a developing industry and an evolving organisation. Central 1 have embarked on a new vision, announced at their recent Members Forum, in which they aim to be the national banking partner of choice for digital banking and payments, with a national focus (Central 1 are currently more concentrated in the British Columbia and Ontario regions), and also exploring clients outside the credit union system.
Central 1 has to be good enough to compete openly in a very competitive market outside the credit union system. That will make us a better company and a better partner for our credit union services. “Central 1 has to be good enough to compete openly in a very competitive market outside the credit union system. That will make us a better company and a better partner for our credit union services.” As the keynote speaker at Central 1’s recent Members Forum stated, Canadian credit unions are facing their “Kodak moment”. Blucher does not see credit unions succumbing to the same fate as Kodak however, and aims to play a role in ensuring that these financial institutions are leading the path of innovation in Canada.
A S P E C I A L F E AT U R E I N T E RV I E W W I T H
Aubrey Hawes Senior Director Product Marketing, Oracle
CANADIAN CANADIANBANKER BANKER015 15
THE OPPORTUNITIES IN LENDING WITH DIGITAL
he digitization of the masses across North America has led to some of the biggest shifts in financial services in recent years. However, when it comes to more complex and risky products, such as car and home loans, the customer still expects that personal touch to aid them through the process. It begs the question – how far are we from a digital-only mortgage, and is it something we ever want?
more digital, and we are arguably a digital-first world now. If the banks don’t go back and meet that, then they are going to miss out. Yet, what banks do have is this unique opportunity to go back and leverage their physical capability with the digital world. Banks also need to be thinking about how to provide information and advice based off information captured online that shows that the customer has a lending need. Assessing their
RFi Group’s Sarah Hollinshead sat down with Aubrey Hawes, Senior Director Product Marketing for Oracle, to discuss how ‘digital’ the mortgage process should be to meet customer needs, and how banks can be adjusting their offering accordingly.
behaviour, such as looking at car websites for example, for a bank, this can be a lending opportunity.
Aubrey has an impressive history at Oracle, having worked across product strategy, product marketing, product management and sales consultancy over the past 10 years. In addition to this, Aubrey has some very notable involvement in the FinTech community, sitting on the operating committee for the Carolina FinTech Hub as well as President of Finsiders, which hosts bi-monthly boutique events for the FinTech community. Not only is Aubrey a very busy man (!), he also has insights into all corners of the financial services ecosystem and presents a unique perspective on how digital will impact banking moving forward. How important is bringing in digital elements to lending today? A lot of people’s lives have become
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That is the big opportunity here, starting early in the process, using progressive data capture and progressive decisioning as you continue down the path. So, when the customer goes to the banks website, or visits mobile banking, why are banks not targeting the customer based on that digital footprint? We all know travel agencies and retailers are using this information, and banks need to be doing the same, providing relevant offers based on searching history. That is the big opportunity here, starting early in the process, using progressive data capture and progressive
decisioning as you continue down the path. What advisory role should banks be playing here? And how does digital help? One of the interesting things coming out of the numerous events I have done, is a lack of financial services education. That is the real challenge for banks, to not push products, help advise customers, and educate on what products or services they should be using.
That is the real challenge for banks, to not push products, help advise customers, and educate on what products or services they should be using. If you look at Bank of America, they have done an interesting partnership with the Khan Academy on this. Also, one of our customers, KeyBank, has a big focus on ‘financial wellness’. People these days are all about physical and health wellness; financial wellness is the exact same thing. Another example that is relevant is UBank in Australia, who published competitive rates on their own website. As a digital-only player, they knew customers were going elsewhere to compare pricing, so thought, why not bring them to our website? Whilst
always competing on price, being top three or so, UBank were not concerned about being number one, as their customer experience was their winning element. This shift in approaching was so different from traditional banks, making them more of a destination, and tying back into that wellness aspect. What are the main challenges for the banks that are holding them back in digital transformation in lending? I think to some degree it is the complexity that exists inside of their organisations. In that, one person owns a product relationship with a customer rather than the bank having a total relationship with that customer that consists of multiple products.
I would say that the whole model needs to be flipped and those operations need to be shifted. I think that perception is changing though. The same with channels, the branch might want to own the customer experience, but you also have alternative business channels. I would say that the whole model needs to be flipped and those operations need to be shifted. The customer want is to be simple – they want a new car, to buy a home, to send their kids to college, or to retire. They don’t want a car loan, mortgage etc., so the question is around engaging customers around these financial products. When considering the regulatory changes in Europe around access to data, would a more open system make a difference here? I think the world is watching, the US and Canada are looking at PSD2 and what is happening with opening up the system.
We have had some of these fintechs start consuming a lot of our open APIs to drive connectivity and I think the more technology savvy banks are realising that the more they open up the bank, the more channels to market they can go to and distribute their product in different ways. That’s how a bank can win in the API economy. We have had some of these fintechs start consuming a lot of our open APIs to drive connectivity and I think the more technology savvy banks are realising that the more they open up the bank, the more channels to market they can go to and distribute their product in different ways. That’s how a bank can win in the API economy. How far away are we from a purely digital mortgage and do we want it? I think we do want it. Taking into consideration though that when we say digital, that does not necessarily mean no humans are engaged, as video webchat counts as digital.
I view totally digital as a big convenience, but am of course aware that my Dad’s view, for example, is that it is inconvenient being totally digital.
I view totally digital as a big convenience, but am of course aware that my Dad’s view, for example, is that it is inconvenient being totally digital. I don’t think every loan will all be digital, but I think you can get the vast majority through a straight through process, risk and compliance if the property is less than a million dollars let’s say, and I can prove that the person has a great income, there is an appraisal etc. It gets a little bit greyer with larger loan amounts, questionable income and these need a different relationship decision around that, more diligence. Some of that gets back into mapping the process back into the type of borrower or type of loan the customer is looking at doing. The key is personalising that approach and having those different options, it won’t be a one size fits all situation. I think you can do a 100% digital mortgage today, are people doing it? That is a different question.
The key is personalising that approach and having those different options, it won’t be a one size fits all situation. I think you can do a 100% digital mortgage today, are people doing it? That is a different question.
CANADIAN BANKER 17
TRANSFORMING HOMEBUYING INTO A DIGITAL EXPERIENCE WORDS SUSAN VARTY, MANAGING PARTNER AT HEADSTART COPYWRITING
chieving a seamless digital experience when buying a home in Canada has a long road ahead, but it seems that change is possible after hearing about case studies from prominent banks in Australia. Showcased by Oracle Financial Services, digital transformation of home lending was the topic featured at a recent breakfast event held in Toronto, Canada, hosted by RFi Group on April 25, 2018. Cyrielle Chiron, Managing Director of RFi Group, North and Latin America, kicked off the morning with an RFi Group study from Canadian consumers that showed that arrears have been the lowest in 10 years; home equity loans have been growing at their fastest rate in the last five years; and that, increasingly, people are demanding a digital mortgage application process. In Canada, Chiron emphasized a key trait dominating the Canadian market, Canadians tend to go to their main financial institution (MFI) when deciding on a mortgage. Almost 3 in 5 mortgage holders took out a mortgage with their MFI, and among this group, under 1 in 10 had their mortgage as the first product with their MFI, highlighting the importance of MFI status in mortgage acquisition and cross-sell strategies. Canadians also have extreme bank loyalty and trust that keep all of their products and services in one place. Surprisingly, according to RFi Group, millennials seek out human advice when they are looking for a home and want
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information about mortgages – it’s not just a digital experience they want. Is this because going online to take out a mortgage in Canada is not available yet? No – it’s because it’s human nature to seek out advice before a new experience or large purchase decision, like going on a vacation. Parents, mortgage brokers and real estate agents seem to be filling this void for guidance, resulting in a huge opportunity for banks to build in more human interaction into the process and also become guides that are trusted advisors. Susan Harden, Senior Sales Consultant for Oracle Financial Services, spoke about access to services through social media, telephone and email at any stage in the process to stay informed. So it is important to build an omnichannel solution with user-friendly digital components, not just the digitization of features and checklists. She walked-through a hypothetical digital customer journey starting from a Facebook post, to “selfie” facial recognition for verification, all the way to searching for a lawyer to close the deal - all on your smartphone. The future of lending is centred around a process that includes offline human touchpoints so that mortgage applicants can be reassured at every step and avoid repeating their situation just to get clarification.
In Canada, privacy and data regulations are seen as a barrier to complete digital transformation. And when more open data standards become the norm, more and more banks want to be where the customer is. As a result, Oracle can also provide “financial data validation” inside a banks’ digital tool development, such as mortgage calculators, so the amount people are pre-approved for is more realistic for homebuyers. Harden also presented how Oracle has helped banks in Australia to improve offerings using an agile approach to deployment. The morning closed with a panel moderated by Aubrey Hawes, Senior Director of Product Strategy and Marketing at Oracle Financial Services. On the panel, Chiron and Harden included some anecdotes on their own home buying experiences in Canada and in Australia. Hawes emphasized that the end-goal is to simplify the process to help someone buy a home and help banks reach an “ideal state” in practical, manageable ways that are faster to market - similar to what they have achieved with banks in Australia.
Hawes emphasized that the end-goal is to simplify the process help someone buy a home and help banks reach an “ideal state” in practical, manageable ways that are faster to market -similar to what they have achieved with banks in Australia.
Susan Varty, Managing Partner at HeadStart Copywriting, writes about payment trends, products and technology in Financial Services.
CANADIAN BANKER 19
ECONOMY & REGULATION
Economy and Regulation
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ECONOMY & REGULATION
Canada lost 1,100 jobs in April, jobless rate holds at 5.8% WORDS ORIN MARKLE
ccording to Statistics Canada, the Canadian GDP grew by 3.3% in 2017, the strongest rate of growth in the past six years. GDP increased in every province and territory except for the Yukon, with Alberta, British Columbia, and PEI experiencing the strongest growth.
Alberta led the charge, growing by 4.9% last year on the back of expansion in both goods and services industries, supported by a modest recovery in oil prices. B.C. grew by 3.9% as a result of expanding services output, primarily in real estate and transport, and PEI grew 3.2%, with 18 out of 20 industry groups experiencing growth. According to Robert Kavcic, Senior Economist at BMO, it is “vividly clear in these numbers that regional growth is converging, a stark change from wide disparities seen over the last decade”.
Real GDP by industry grew in every province for 2017 WORDS ORIN MARKLE Despite losing 1,100 jobs the Canadian jobless rate holds at 5.8%, the lowest level of the past 40 years. Stats Canada reports that goods-producing industries lost close to 16,000 jobs in April, but this loss was mostly offset by the addition of almost 15,000 jobs by the service sector. This result is considerably lower than economists expectations of 20,000 additional jobs for the month, with BMO Economist Doug Porter saying that while these numbers were “a tad disappointing, many of the details of the release were notably healthier, and we would view this report as roughly neutral overall”. Porter singled out the addition of 28,800 full time jobs, which replaced a similar number of part time jobs. This resulted in a year-on-year increase of 378,000 full time jobs, and only 100,000 part time jobs lost.
CANADIAN BANKER 21
ECONOMY & REGULATION
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ECONOMY & REGULATION
Trump tax changes impacting north of the border WORDS ORIN MARKLE Tax changes implemented in the United States in late 2017 under the Trump administration are having unintended consequences on U.S. or dual U.S.-Canadian citizens living in Canada. The tax reform involves a one-off repatriation tax, which applies retroactively, and applies to all corporations. While aimed at preventing large multinationals from exploiting tax loopholes by transferring funds to foreign subsidiaries, the measure is having an unintended impact on American citizens that have corporations – particularly those leveraging corporations to save for retirement.
MacDonald this is “double taxation” and will need to be addressed during NAFTA negotiations. However, MacDonald is skeptical as this tax has “been signed into law by the U.S. government, by the president.” The uncertainty from south of the border is reflected in data from RFi Group’s H1 2018 Canada Priority & Retail Banking Council study, with 26% of Canadians concerned about the US economic outlook affecting them over the next 12 months.
26% of Canadians concerned about the US economic outlook affecting them over the next 12 months.
The measure also represents a double-blow for affected Canadians – any funds removed from the corporation to pay taxes in the US will be again taxed by the Canadian government. According to Conservative Senator Michael
HOW CONCERNED ARE YOU ABOUT THE FOLLOWING AFFECTING YOU OVER THE NEXT 12 MONTHS? Concerned (4-5/5)
20% 10% 0% Inflation
The Canadian economic outlook
Changes in interest rates
The US economic outlook
Source: RFi Group H1 2018 Canada Priority & Retail Banking Council study
CANADIAN BANKER 23
SAVINGS & BORROWING
Savings & Borrowing 24 RFi MEDIA
SAVINGS & BORROWING
Stress tests raised after BOC decision WORDS ORIN MARKLE
he rate used to calculate the OSFI stress test has increased 5 times since last May, going from 4.64% to 5.34%. According to the co-founder of Ratehub Inc. James Laird “Canadians will pay more per month for their mortgage, it also means the amount Canadians can qualify for has diminished” which puts pressure on first-time homebuyers and mortgage renewals. According to the OFSI rules, borrowers must be able to either pay the higher of either the BoC’s qualifying rate, or 200 basis points above their contracted rate. Cynthia Holmes of Ryerson University says these measures make sure that mortgages are affordable, and not just when rates are really low. This is resulting in first-time buyers
drastically reducing what they can afford purchase or seeking out alternative lenders and credit unions which may offer riskier mortgages. This test is also making it difficult for mortgage renewals, as people are finding it increasingly difficult to leave their existing lender. According to the BoC almost $700 billion in mortgaged debt is up for renewal in the next year, with mortgage broker Varshan Thavarajah stating he has seen big banks offering renewals 0.2-0.5% higher than the previous term. Since the OFSI stress test only applies to renewals when customers switch lenders, their existing lender can apply a higher rate as the client may be unable to leave. CANADIAN BANKER 25
SAVINGS & BORROWING
Luxury home sales slump in Toronto, Vancouver WORDS ORIN MARKLE Royal LePage has found the sale of luxury homes, or those with a sale price at least 3x more than the market average, has dropped by more than 1/3rd in Vancouver, and almost 2/3rds in Toronto when compared to Q1 2017. = The recent expansion of stress tests to cover all borrowers is being blamed, with LePage stating there is a “market turmoil” and that “buyers moved to the sidelines in order to gauge the impact.” However, this isn’t the only factor depressing the market, with Ontario’s 2017 increase in the foreign buyers tax to 15%, as well as Vancouver implementing its own foreign buyer tax and tax on homes worth more than $3 million. Despite these challenges it is not all bad news for these housing markets, with Lepage CEO Phil Soper saying “Home prices in Canada’s luxury real estate market have remained remarkably resilient” with the average price of a luxury home in Vancouver up 5% since last year, and luxury condos in Vancouver and Toronto up 7% and 10%, respectively. According to Soper, these increases “reflect the strong aspirations of luxury buyers to reside and work in cities that are consistently ranked among the most desirable on the planet.”
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SAVINGS & BORROWING
BMO offers largest mortgage rate discount ever WORDS MARK SCHULTZ Bank of Montreal (BMO) slashed its 5-year variable rate to 2.45% until the end of May, a full 100 basis points below its prime rate. The discount, the largest by one of Canadaâ€™s largest banks, was quickly matched by TD, Scotiabank, and RBC, before being surpassed by HSBC with a 106 basis point discount. The lower variable rates come at a time when banks have increased their fixed rates, which has resulted in the highest differential between fixed and variable rate loans since 2011. As the mortgage market tightens on the back of stricter legislation and rising rates, Canadian lenders are being forced to compete more aggressively to maintain share in the variable rate space, where margins are generally higher and are expected to continue improving as rates rise. With RFi Group data showing that interest rates are the most important factor among home loan borrowers when looking for a new mortgage, the significant discounts on offer may resonate with Canadian borrowers.
WHAT FACTORS WOULD BE MOST IMPORTANT TO YOU IN SELECTING A NEW HOME LOAN? Top 5
The customer service
20% 0% Interest rate
Fees and charges
Lending terms and conditions
Source: RFi Group Canada Priority & Retail Banking Council 17H2
CANADIAN BANKER 27
PAYMENTS & TECHNOLOGY
Payments & Technology WORDS MARK SCHULTZ
Transferwise plans launch of cross-border debit card in Canada in 2019
ransferwise, a UK-based online remittance company, has announced plans to brings it’s cross-border debit card to the Canadian market in 2019. The debit card recently launched in Europe and is aimed at customers that are frequently outside the country. It will be attached to the company’s Borderless Account, which launched in Canada in August 2017. The Borderless Account currently allows customers to hold up to 40 different currencies, and customers using the debit card will not be charged any transaction fees when making purchases in a pre-loaded currency. When making purchases in a currency with zero balance in the account, a conversion fee of 0.6-1% will apply. According to Transferwise CEO Kristo Kaarmann, “When people go out of the country, they are inevitably spending money. They’re booking hotels, they’re booking flights, often in other currencies, and that’s where banks scoop the hidden fees.
Vancouver transit system goes open-loop WORDS MARK SCHULTZ As of May 22nd, commuters using Vancouver’s bus and SkyTrain network will now be able to make payments using their credit cards or mobile wallets and will no longer need to rely on the closed-loop Compass card. Once a payment card is tapped, and adult fare will automatically begin, with the final fare being calculated based on distance once the user taps off after reaching their destination. The move to open-loop will be welcomed by visiting tourists, who no longer need to purchase an additional card. However, Translink still recommends that regular commuters continue to use the Compass card, which provides a discount on adult fares that open-loop users will not receive. While debit card payments are not currently available, the company is investigating the possibility of adding them in the future, as well as the potential to load the Compass card onto phone via a proprietary app.
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PAYMENTS & TECHNOLOGY
CANADIAN BANKER 29
PAYMENTS & TECHNOLOGY
Samsung to deliver Omnichannel cash back and rewards WORDS ORIN MARKLE According to Nana Murugesan a VP and GM of Samsung Electronics America, with the addition of cash back in April 2018, Samsung Pay is “now a cash register, a marketplace, and a piggy bank.” The cash-back feature provides users with exclusive offers on the app’s home screen, with purchases earning Samsung Rewards points, which can be spent anywhere customers can make Samsung Pay purchases. The Samsung Rewards functionality is also continuing to improve, with users also able to purchase points if they do not have a sufficient amount for their preferred redemption option. Samsung hopes to attract not only consumers, but merchants as well. Sang Ahn who is also a VP & GM at Samsung Pay says that cash back and various rewards can help bridge the gap between the in-store and online shopping experience. Ahn
The Samsung Rewards functionality is also continuing to improve, with users also able to purchase points if they do not have a sufficient amount for their preferred redemption option.
says merchants can continue to offer their own cash-back rewards, which would stack on-top of Samsung Pay rewards -offering even greater benefits to consumers. According to Ahn, these services offer “a distinct reason to shop with us”, and “Samsung is the most rewarding place to shop”. Furthermore, Ahn states that merchant deals are fragmented, and this centralized product allows them to put cash back in one single place allowing consumers to easily access what’s offered in store. With data from RFi Group’s H2 2017 Canada Payments Council study showing that the usage of mobile payments among Canadians continues to grow at a moderate pace, the pool of customers available to take advantage of the new functionality added to Samsung Pay looks set to grow over the course of 2018
% OF CONSUMERS WHO HAVE USED A MOBILE WALLET TO MAKE AN IN-STORE PAYMENT
Source: RFi Group Canada Payments Council 17H2
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SME & COMMERCIAL
SME & Commercial Silicon Valley Bank to launch in Canada
Shopify to open first bricks-and-mortar
WORDS MARK SCHULTZ
WORDS ORIN MARKLE
ilicon Valley Bank (SVB), which focuses on the techstartup and venture capital space, has announced plans to hire more than a dozen bankers in Canada, with the eventual goal of banking 40% of Canada’s tech and life-science companies. The announcement comes as the Canadian tech scene is flourishing, and according to SVB Head of Canada, Barbara Dirks, “With all that activity comes opportunity for banks willing to lend to small, unproven startups” SVB has been lending to tech startups for 35 years, and according to Dirks that offers them a unique perspective on the risk associated with providing financing to startups. However, SVB’s push will not go uncontested by incumbent Canadian banks. CIBC recently completed the purchase of Wellington Financial, a lender with a focus on technology companies, and placed CEO Mark McQueen in charge of a new ‘Innovation Banking’ division within CIBC. This new division will be able to offer a full suite of banking products to startups, whereas SVB will only have permission to offer lending initially.
With all that activity comes opportunity for banks willing to lend to small, unproven startups Barbara Dirks, SVB Head of Canada, Silicon Valley Bank
Online e-commerce platform Shopify will be opening a brick-and-mortar store during 2018. While the location is still undisclosed, Shopify says they hope it will offer a hub of support for existing customers, as well as potential new ones. According to Shopify COO Harley Finkelstein, “it is kind of weird that a company that was forged in the fires of the internet commerce is having a physical store, but it is a bit of a canvas for us to do some cool experiments.” Finkelstein asserts this new venture is not driven by slowing growth or market fluctuations, despite rumours of merchants opening and then closing their Shopify stores. These rumours started circulating when a short seller targeted the company in 2017, saying they rely on small merchants with an uncertain future, and calling for the release of data on customer churn. Finkelstein responds to these allegations further by saying “some businesses don’t succeed, but the ones that do, stay with us for a very, very long time”. Finkelstein says, “we don’t actually have to sell anything at our bricks and mortar store, it’s just an extension of our brand, maybe it’s a way for us to communicate with our community”. This means the physical location will serve as a space for developer and merchant inquiries, hosting events, and even selling merchant products.
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SME & COMMERCIAL
Boston Pizza testing mobile payment support at some GTA locations WORDS ORIN MARKLE Boston Pizza is partnering with MyCheck to test mobile payments through the Boston Pizza App at some GTA locations. MyCheck partners with companies to help them integrate mobile payments into apps and existing POS systems. Participating Boston Pizza restaurants will allow customers to check in with the app, redeem rewards, review the bill, split or pay the bill with Apple Pay or credit, and receive digital receipts. Boston Pizzas VP of Business Technology, Cavin Green, says “through this partnership with MyCheck, we are evolving MyBP from a loyalty app to a multi-feature platform” to enhance the
user experience. Green hopes this will eliminate customers waiting for the server to bring their bill, as well as allowing diners to control their dining experience through a smartphone. Many features of the app will resonate with Canadian businesses. According to RFi Group’s H2 2017 Canada Merchant Acquiring Council study, the ability to accept contactless and mobile payments, split bills and email receipts were among the features most desired on merchant terminals by cardaccepting merchants, suggesting MyCheck may find a receptive audience among Canadian businesses.
WHICH OF THE FOLLOWING FEATURES WOULD YOU MOST LIKE INCLUDED ON YOUR PAYMENT TERMINAL? Top 5 features Merchants that accept cards at in-store locations 20% 15%
Ability to accept contactless paymentes
Ability to accept mobile payments
Option for customers to split bills / payments
Source: RFi Group H2 2017 Canada Merchant Acquiring Council study
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Ability to email receipts / invoices
T H E C A N A D A S M E D I G I TA L B A N K I N G CO U N C I L THE CANADA SME DIGITAL BANKING COUNCIL PROVIDES DEEP INSIGHT INTO THE FASTMOVING SPACE OF DIGITAL TECHNOLOGY USE, INNOVATION AND ADOPTION WITHIN THE SME SEGMENT. KEY FOCUS AREAS ARE DEVICE OWNERSHIP AND USE, BUSINESS MOBILE BANKING AND PAYMENTS AND CHANNEL PREFERENCES. THE CANADA SME DIGITAL BANKING COUNCIL UNCOVERS INSIGHTS SPECIFIC TO PRODUCTS, ACROSS PRODUCTS AND CUSTOMER RELATIONSHIPS THROUGH THE LENS OF DIGITAL CHANNELS
KEY INSIGHTS FOR FINANCIAL SERVICES ORGANISATIONS IN CANADA INCLUDE:
CHANNEL USAGE AND PREFERENCES
Banking channels used, satisfaction with channels, preferred banking channels
BARRIERS TO DIGITAL
Reasons for not banking via online or mobile, appeal of new technologies, usage and preference towards digital product applications
ONLINE AND MOBILE BANKING
Usage of digital channels for banking tasks, preferred digital functionality, engagement with digital channels
Usage and appeal of integrated software, preferred integrated functionality
For further information, please contact Nish Gnana, Business Development Manager email@example.com or +1 416 644 5088 CANADIAN BANKER 33
ABOUT RFi GROUP
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Covering 44 key global markets with regional offices in San Francisco, Toronto, London, Singapore, Hong Kong and Sydney, RFi Group consistently provides clients with tailored advice and independent intelligence relevant to their specific markets and business needs. EXCLUSIVE FOCUS ON BANKING AND FINANCE RFi Groupâ€™s expertise and deep understanding of the banking and finance sector delivers high-value outcomes. Our areas of expertise include: Retail Banking Mortgages Transaction Accounts Savings Accounts Consumer Lending Cards and Payments
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RFi Group’s syndicated research RFi Group is a global intelligence and media provider focused exclusively on financial services. We specialize in data and information gathering, customer based insight generation and business decision support for the world’s leading financial service providers. Our syndicated research is delivered via our Financial Councils model. Upcoming North American Financial Council research includes:
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