FEBRUARY 2018 ISSUE
CANADIAN BANKER w www.rfigroup.com t twitter.com/RFiMediaGRB
Head of Canada, Square
RFi GROUP INSIGHT
SME & COMMERCIAL
04 Tougher rules, higher rates â€“ Canadian mortgage market
11 Client-centric loan pricing boosts front-line performance
27 Small businesses raise prices, cut workers due to wage hike
Welcome to the February 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. This month, we have multiple insightful pieces on lending innovation, and the opportunities for various players in the market. With the changes in legislation to the mortgage market, this is more prudent than ever. We are pleased to feature Cathy Vigrass, who is leading the Canadian operations for one of the worldâ€™s leading merchant acquirers, Square. She shares how their offering can benefit small business owners beyond just acceptance.
Look out for information on our upcoming events next month, which will extend on both these themes. The product news highlights some spectacular innovations from the last four weeks as well as a positive economic overview of the country. Hope you enjoy this issue! Kind regards,
Cyrielle Chiron +1 416 644 8524 email@example.com
CONTENTS FEBRUARY 2018
04 RFi GROUP INSIGHT Tougher rules, higher rates – Canadian mortgage market
08 RFi GROUP INTERVIEW Cathy Vigrass, Head of Canada, Square
Client-centric loan pricing boosts front-line performance
Measuring up: Five key metrics to measure “digital maturity”
ECONOMY & REGULATION
SAVINGS & BORROWING
Sustained growth continues within manufacturing
Canadian call debt reduction their top financial priority
PAYMENTS & TECHNOLOGY
SME & COMMERCIAL
Cryptocurrency and Blockchain potential value at $10 trillion
Small businesses raise prices, cut workers
RFi GROUP INSIGHT
WORDS MARK SCHULTZ
s 2017 wound to a close, the Canadian mortgage market appeared to be in good shape. Housing resales experienced 5 consecutive months of growth, with prices up 9.1% year-on-year according to the Canadian Real Estate Association. This included strong growth in Toronto, which had experienced a slump over the summer on the back of Government attempts to include speculation. However, 2018 is already looking to be significantly more challenging, both for current mortgage borrowers and those seeking to enter the market. On January 1st, new lending criteria from the Office of the Superintendent of Financial Institutions (OSFI) came into effect which tightened the
04 RFi MEDIA
lending criteria banks use to assess potential borrowers’ ability to repay their loans. Under the new rules, all borrowers will now be subject to a lending stress test, which previously only applied to borrowers with deposits of <20% that required mortgage insurance. Furthermore, the ability of the borrower to repay is now tested against either the Bank of Canada’s 5-year benchmark rate (5.14% at the time of writing) or their contract mortgage rate plus 200 basis points – whichever is higher. According to Bank of Canada (BOC) predictions in November, up to 10% of prospective borrowers may be disqualified under the tighter rules. According to RateSpy.com founder Rob McLister, “[the] OSFI hasn’t just tapped the brakes, it’s jumped on the brakes with both feet.”
RFi GROUP INSIGHT
According to Bank of Canada (BOC) predictions in November, up to 10% of prospective borrowers may be disqualified under the tighter rules. According to RateSpy.com founder Rob McLister, “[the] OSFI hasn’t just tapped the brakes, it’s jumped on the brakes with both feet.”
CANADIAN BANKER 05
06 RFi MEDIA
RFi GROUP INSIGHT
Compounding the effects of these tighter rules are rising interest rates. The BOC raised the benchmark rate to 1.25% in January, the highest rate since 2009, and this increase was quickly passed on to the mortgage customers of the ‘Big 5’ banks. Many analysts predict further rate hikes over the coming 12 months if economic indicators continue to improve, although uncertainty around the future of the North American Free Trade Agreement may delay further rate increases. As well as affecting current borrowers, higher rates will make it more difficult for potential borrowers to enter the market, particularly in conjunction with the stricter stress testing criteria.
More millennials would prefer to apply for a mortgage through digital channels than via a branch, and CUs will need a strong digital presence if they hope to successfully attract these younger customers.
WHAT WOULD BE YOUR MOST PREFERRED CHANNEL TO APPLY FOR A NEW MORTGAGE? % that prefer digital channels By age 50% 40% 33%
10% 0% 18 - 34
35 - 44
45 - 54
55 - 64
Source: RFi Group Canada Priority & Retail Banking Council 2017 H2
However, every dark cloud has a silver lining, and in this case there is a significant opportunity for Canada’s Credit Union (CU) sector. Many CUs are regulated at a provincial level, which means that they fall outside of the OSFIs jurisdiction and are therefore not bound by the harsher stress test rules. For potential borrowers who no longer meet the stricter stress testing criteria, CUs may prove to be an attractive alternative particularly for younger customers entering the housing market for the first time. Data from RFi Group’s Canada Priority and Retail Banking Council suggests that mortgages may be a potent tool for banks to draw millennials away from their traditional family banking relationships; when asked why they considered a bank to be their main financial institution, millennials were significantly more likely to say that it was the bank their family had always banked with – except for those that had taken out a mortgage in the past 12 months, where the impact of this family relationship was almost non-existent. By leveraging the ability to apply more generous stress testing, CUs can potentially win younger customers, a segment that the sector has traditionally struggled to engage with. However, CUs will need to ensure they are able to reach these customers on their own terms – RFi Group data suggests that more millennials would prefer to apply for a mortgage through digital channels than via a branch, and CUs will need a strong digital presence if they hope to successfully attract these younger customers. Overall, Canadian mortgage lenders may experience considerable challenges in 2018; much will hinge on how aggressively CUs and other non-banks court borrowers that do not meet the stricter stress testing criteria, and whether they can convince these borrowers to bring their other products with them if they do choose to borrow from a CU. If they can, the repercussions will be felt not just in the mortgage market, but across the entire banking industry.
CANADIAN BANKER 07
RFi GROUP INTERVIEW
Square is focused on making business operations digital, real time, and connected to provide business owners with holistic information about their business. Itâ€™s not just about payments but also inventory levels, customers and employees.
Cathy Vigrass Head of Canada, Square
WORDS SARAH HOLLINSHEAD
08 RFi MEDIA
RFi GROUP INTERVIEW
quare is one of the most pioneering global FinTech success stories out there, having transcended the hype and become a fully-fledged member of the financial services ecosystem. It possesses dual powers, not only playing a pivotal role in the development of new payments trends, but also encouraging merchants across industries to run their businesses more effectively. Responsible for the Canadian operations is Cathy Vigrass, a passionate and conscious leader fresh from Silicon Valley. Vigrass met with RFi Group’s Sarah Hollinshead to discuss Square’s current position and future hopes for innovation. With experience ranging from large companies such as eBay, to working in start-ups, Vigrass is well equipped to focus on a variety of business owners, all hoping to be empowered and able to fully participate and thrive in the Canadian economy. A common thread across the companies Vigrass has worked at, is the use of technology to build tools that help level the playing field and allow businesses to compete with bigger organizations more effectively. Square is obviously no exception to this rule and Vigrass talks more to this point, as she hopes to continue making commerce easier and more accessible to all in Canada.
Sellers express appreciation in having an affordable, quick and easy way to accept card payments anywhere, anytime. What has been the response from Canadian customers since your launch in the market 5 years ago? We have seen a phenomenal response with hundreds of thousands of individuals and businesses in Canada having accepted payments using Square. We have representation across every province, every territory, every size of business and across different industries from contractors, to
professional services, coffee shops and retail stores. Sellers express appreciation in having an affordable, quick and easy way to accept card payments anywhere, anytime. We are encouraged by our ability to help Canadian sellers grow into their ambitions. How has the Canadian financial services industry responded?
On the industry side, Square is not an island, we are part of the financial services ecosystem, so we work closely with our Canadian partners to bring innovative technology to sellers across Canada. On the industry side, Square is not an island, we are part of the financial services ecosystem, so we work closely with our Canadian partners to bring innovative technology to sellers across Canada. One of the interesting things about our Canadian sellers, is that over 70% are new to accepting card payments, they were typically cash only businesses before, which really speaks to how much our payment and business tools service an underserved segment of the market. This is something our industry partners appreciate and are enthusiastic about working with us on. It is important to remember bank customers are also our sellers, so they are a key collaborator for us. The way we think about this is; we help sellers get started in taking card payments, who otherwise would not be able to access the financial ecosystem. And this is typically because they have been seen as too small, too risky, and don’t have credit history to be able to get a card terminal with more traditional players. Due to our ability to serve this segment of business owners, we play a key role in driving ubiquity of card payments, which
is good news for issuing banks in terms of helping card payments displace cash. Outside of acceptance, what is the biggest impact of Square on the merchant experience? For Square, it’s not just about helping sellers make the sale. The next most critical need Square helps sellers with is running their business. Business owners have to stitch together all of these different processes and systems to handle basic business operations and often end up turning to pen and paper. Square is focused on making business operations digital, real time, and connected to provide business owners with holistic information about their business. It’s not just about payments but also inventory levels, customers and employees. This allows sellers to make informed decisions; it’s amazing how many sellers, when I visit them, the first thing they’ll do is pull up their analytics and show off their dashboard. It is really interesting hearing the decisions they have made off of the data we provide.
Iit’s not just about helping sellers make the sale. The next most critical need Square helps sellers with is running their business. For example, there is a Square seller in Vancouver called Birds & the Beets, and the co-owner, Matthew, said every time he refreshes the Square app, it is like he is refreshing his understanding of the business. He knows the days after a long weekend will be different from a sales perspective, and rainy days mean the coffee rush will happen later, so by taking all that data and looking at it in a holistic way, he is able to make adjustments to his preparation levels, to inventory and staffing, to ultimately better serve his customers. And that is a very typical example of how we are able to help sellers with running their business.
CANADIAN BANKER 09
RFi GROUP INTERVIEW
Are you seeing technology shifting the way that merchants can provide marketing and loyalty programmes to their customer? There is a lot happening with premium credit cards and an increasing focus on the points you can get when you spend with a credit card. But, when you think about it on a local business level, the loyalty drivers are less transactional, or points driven, and more around delivering a personalized and seamless experience. One feature we released in response to this trend is Square feedback, which is a direct customer service tool for local businesses. This allows a conversation between business owners and their customers through the Square digital receipt, allowing businesses to resolve issues directly in real-time and in a private forum, which works better than a public dialogue on an online review or on social media. With payment innovations, such as contactless and mobile, do you believe this is being driven by the merchant, or the consumer? It is interesting the latest trends in payments are not yet a standard across smaller, local businesses, as they are for larger retailers. Because we have been able to make contactless payments affordable and accessible for local businesses, it is a delightful experience when a local business can accept payments with a mobile device like Apple Pay – it cements in the customer’s mind that this is a forward-thinking business and it creates a halo effect on the brand and reputation of the local business.
Cathy Vigrass Head of Canada, Square
10 RFi MEDIA
When thinking about who is driving payment innovation, it is a ‘chicken and the egg’ situation. You need customer demand, but you need the merchant experience and one definitely drives the other. At Square, our goal is to always be one step ahead, to make sure local businesses can future proof for the next wave of payment technology, like we
have allowed for with our newest reader accepting mobile device payments.
When thinking about who is driving payment innovation, it is a ‘chicken and the egg’ situation. You need customer demand, but you need the merchant experience and one definitely drives the other. What are some of the technologies you are backing that could transform the industry? We are very bullish on the ability of machine learning to have a big impact on the risk side but also on the experience side. A lot of that will be the not be visible to the seller but will create a more seamless and delightful experience from behind the scenes. What do you love most about your job?
To meet our sellers and hear about their entrepreneurial journeys is both inspiring and humbling. I love talking to our sellers. To meet them and hear about their entrepreneurial journeys is both inspiring and humbling. Hearing Square is truly making a difference to them; that’s my favourite thing.
If you would like to keep up to date with the latest interviews and news at RFi Group, follow @RFiMediaGRB on Twitter.
CLIENT-CENTRIC LOAN PRICING BOOSTS FRONT-LINE PERFORMANCE In today’s hyper-competitive credit markets, consumers expect to get rate information — including negotiated rates — without waiting. Yet many front-line lenders still rely heavily upon pricing desk escalation to finalize their price to the client. For an eager client looking for the right mortgage product, time to decision is of the essence — how can lenders better align their offer with each client’s unique situation? WORDS JOHNATHAN BANT, NOMIS SOLUTIONS
oes this sound familiar? A client inquires about a mortgage with a mobile advisor, and the advisor immediately engages in a generic discussion about price without a clear understanding of the client’s preferences and goals. Instead of a customized financial solution, the client can potentially end up with an offer that doesn’t meet his/her needs, hurting both the client and the bank. And there is no way for management to know how often this happens because there is no record of these interactions. It’s a story that resonates well with most of the mortgage portfolio managers I talk to. They know, all too well, that their front-line customer-
service people and personal bankers are interacting with clients who range from sophisticated to newbie, each with quite different expectations, but all aiming to find a mortgage that works for them. In other words, your branch, mobile advisors, and call-centre sales staff are effectively high-stakes asset managers. They’re at the forefront of interactions and negotiations with your most valuable asset: existing and prospective clients. The performance of your front-line lenders—particularly when it comes to discretionary pricing—profoundly affects your revenue and, more importantly, the overall client experience.
Your branch, mobile advisors, and call-centre sales staff are effectively high-stakes asset managers. They’re at the forefront of interactions and negotiations with your most valuable asset: existing and prospective clients.
CANADIAN BANKER 11
12 RFi MEDIA
How do you design and implement a smarter approach to pricing and offers that maximizes client value while addressing the unique needs of each client? Start by asking these three questions: 1. How much visibility do you have into what goes on in mortgage pricing negotiations? 2. Are you making optimal deals that recognize client needs and your portfolio goals? 3. Are you relying too heavily on discounting, rather than client fit, to match the client and the product(s)? Your front line (not your back office) is where decisions must be taken In our work with leading banks around the globe, Nomis has had the opportunity to analyze front-line behaviour and performance in price negotiations across a range of products and markets. We’ve found that a large percentage of frontline negotiated deals—in some cases, as much as 30%—are not only unprofitable for the lender, they also fail to increase the likelihood of acquiring the client. We’ve also seen some interesting patterns emerge: • A significant amount of negotiation behavior is random or driven by judgment and behavioral biases • Front-line negotiators frequently jump directly to the maximum discount or premium to clinch the deal • Discounts are often rounded to convenient units of 10, 15, or 25bps, and not necessarily to the optimal price Client-centric pricing on the front line The challenge is that optimal pricing is complicated because it must balance many factors. With a client on the line, front-line employees are eager to close the sale. And, just like clients, personal bankers bring varying levels of expertise and product knowledge to the table. The best of them—in all likelihood your most experienced bankers—apply client insight to advise and guide clients in selecting a bundle of products optimized to meet their specific needs and goals. So, how do you clone them and enable less experienced bankers to achieve this optimal level of customer-product fit? What they need is clear, systematic guidance. To meet client needs with products aligned to their goals while still meeting your objectives, you need a pricing process that’s extremely smart at the back end and extremely simple at the front line. In practice, this means combining advanced, back-end pricing optimization solutions (employing granular rate grids and discretion boundaries that balance your volume and margin portfolio objectives) with standardized, knowledge-driven client interaction on the front line. Sometimes referred to as holistic pricing, this approach enables even inexperienced front-line agents to offer clients value with packages of customized solutions that meet their goals.
Connect extremely smart (data) to extremely simple (guidance) This data-driven process encompasses great sophistication, since consumer rate sensitivity and buying behaviour vary for different products, population segments, regions, and channels. Predictive models and optimization engines crunch through all this data complexity to find the best product/price combination and can quickly make adjustments when input factors, such as competitor prices, change. Of course, your front-line agents should never see this complexity. What they should see are personalized offers for their clients based on the best and most current insights into these clients. These offers are at optimal target prices, accompanied by optimal discretion ranges if negotiation becomes necessary. With this kind of guidance, we’ve seen exception requests fall by as much as 50 percent. Moving from ‘tribal knowledge’ to customer intelligence Another point to note here is that every client interaction represents knowledge. Therefore, it’s important to capture everything that happens in front-line negotiations—for both booked and lost clients. This data is constantly consumed at the back end, making price-optimization and offer analytics smarter and smarter and ensuring your client offers are increasingly relevant. Knowledge-based front-line guidance means that new hires receive the guidance and insight that traditionally could only be gathered through experience, potentially require less training, and can derive more job satisfaction as client ‘advisors.’ Lastly, agent-client interaction insights drive real-time dashboards for front-line managers, so they can identify their most successful front-line agents and ‘clone’ their success factors.
Every client interaction represents knowledge. Therefore, it’s important to capture everything that happens in front-line negotiations. A closing thought: we often read about how banks are becoming less relevant and need to become more client centric and responsive. My contention is that banks, with their multichannel client touchpoints and detailed customer intelligence, are in fact better positioned than ever to deliver great client experiences and close more business at scale, regardless of channel, agent experience, and customer demographic. Johnathan Bant, VP of Canadian Operations at Nomis Solutions, is a financial services industry veteran with nearly 20 years of experience. Contact him at Johnathan.bant@nomissolutions. com.
CANADIAN BANKER 13
MEASURING UP: FIVE KEY METRICS TO HELP BANKS MEASURE THEIR “DIGITAL MATURITY” WORDS MARK ATHERTON, ORACLE
igital disruption, fintech and emerging technologies have upset the status quo in banking. The conservative approach that served banks so well for so long could prove their Achilles heel in the new environment. Bank boardrooms are abuzz as they try to chart a way forward. And change will only accelerate as more institutions adopt emerging technologies such as artificial intelligence (AI) and blockchain distributed ledgers. The founder of the World Economic Forum, Klaus Schwab, coined the idea of the “fourth industrial revolution,” which is defined in part by its speed and its reach. The short version? It’ll happen faster and change more than the first three. And banks are among the most vulnerable institutions. If they don’t have a plan to measure, improvise and improve on their digital progress, they could lose revenue faster than they realize. A common measure of the digital progress Here’s the rub: banks need new metrics because innovation is happening at such a tremendous pace. True digital maturity isn’t
14 RFi MEDIA
just about technology, it’s about transforming businesses so they can consistently keep pace with the changing market. Part of this process is coming up with meaningful criteria for measuring progress. After all, it’s difficult to improve if you don’t know where you stand to begin with. Of all institutions, banks should understand this. Yearly profit and revenue figures aren’t enough. Banks and other financial institutions need ways of measuring how well they’re adapting to digital disruption. The best banks are already benchmarking their progress. JP Morgan Chase is measuring the impact of digitizing each aspect of their business in its shareholder reports. The progress of digital engagement is now front and centre of their agenda. One of our customers in Australia, Suncorp, measures digital engagement by a fine-grained analysis of logins across digital platforms. They measure the digital impact on the bank’s brand and progress across the digital ecosystem. They report to their investors on both profits and digital metrics. And the numbers are good. There were 63 million logins to its digital platforms, 5 million registered accounts and 55 million visits to its sites across brands.
CANADIAN BANKER 15
16 RFi MEDIA
The starting line for measurement – key metrics for digital progress 1. Digital engagement & reach Banks need to measure the extent and reach of digital engagement across their products and services. It is critical to measure progress based on customer’s ability and willingness to use self-service channels. Digitally engaged banks offer mortgage services, insurance, as well as investment accounts completely on digital channels and with complete digital process, cutting processing times from weeks to hours. To drive customer loyalty, banks need to constantly innovate. Savvy banks gamify their services, so that people will treat them like a financial Fitbit that lets users track their wealth. 2. Pace of adoption Another measure is an institution’s ability to add a new customer entirely online and originate products digitally across the customer’s lifecycle. JP Morgan Chase, for example, now acquires 77% of its credit card customers digitally. The pace and readiness to adopt digital models shows a bank’s ability to cope with changing business models and disruptive market entrants. 3. Depth of data analytics and customer insight Banks need to measure and benchmark themselves very differently in the age of AI and Machine Learning. Customer data management and analytics need to be at the core of a bank’s processes and they should measure how real-time their decision making is, how data is shared internally – and that these systems are managed for optimum efficiency. 4. Digital enablement of the workforce A digital enterprise needs to be matched with a digital workforce. Technical skills are increasingly a core competency for workers in the finance sector. A digitally mature organisation understands that
progress is a continual process of improving the organisation’s capacity. Financial institutions need a clear gauge of their technical capacity, which means they need to remove inflexible processes and build a collaborative culture. 5. Cross industry comparisons Banks can also deploy traditional measures such as Net Promoter Scores to create cross-industry comparisons to see where they stand against leaders across Telco, Consumer Tech and other sectors. A measured digital response can have valuable pay-offs While banks may seem to lag behind fintech start-ups on innovation and digital models, they also have some advantages that they can build on. They can partner with fintechs or buy them, and can capitalise on their already large customer base. The peer-to-peer payments market in the US is a perfect example. Zelle, which is backed by dozens of US banks, recently launched. It’s a strong product, and building on the major banks’ customer base, it’s expected to quickly overtake the market leader, PayPal’s Venmo.
Companies who understand the value of digital transformation are on average 26% more profitable than their competitors and have valuations that are 12% higher. The rewards of measuring digital responses can be extraordinary. Research by Capgemini and MIT Sloan found that companies who understand the value of digital transformation are on average 26% more profitable than their competitors and have valuations that are 12% higher. Digital leadership can be measured, tracked and ultimately a bank’s level of ‘digital maturity’ is a critical gauge to sustainable growth.
CANADIAN BANKER 17
ECONOMY & REGULATION
Economy and Regulation
Sustained growth continues within Canadian manufacturing WORDS JAIME VAQUER
anada’s manufacturing sector ended 2017 on a high note, with improvements in output and new orders. The Markit Canada Manufacturing Purchasing Manager’s index (PMI), a measure of manufacturing business conditions, improved from 54.4 in November to 54.7 in December, with any reading above 50 indicating growth in the sector. Backlogs of work continued to grow, reaching one of the highest levels in the past 3 years. Manufacturers also noted improving global economic conditions, with orders for exports increasing modestly. Manufacturers are generally optimistic concerning sustained growth into 2018, with 36% of companies expecting the output volume to rise once again, compared to 7% predicting a decline.
18 RFi MEDIA
The Markit Canada Manufacturing Purchasing Manager’s index (PMI), a measure of manufacturing business conditions, improved from 54.4 in November to 54.7 in December, with any reading above 50 indicating growth in the sector.
ECONOMY & REGULATION
Canada “prepared for every eventuality” ahead of 6th set of NAFTA negotiations WORDS JONATHAN RUSTON Ahead of the sixth round of the North American Free Trade negotiations in Montreal in January, Foreign Affairs Minister Chrystia Freeland commented that Canada is “ready for anything”. Various key issues are still to be discussed in the penultimate round of talks, including the US’ desire for increased US-made content for cars produced in North America. Since last August, Canada has been attempting to renegotiate the trade deal after the US President’s continual claims that his country is ready to withdraw from the agreement. According to Freeland, Canadian negotiators are taking these comments seriously. Freeland commented “I think that it is only sensible and prudent for us to take the President at his word. We are absolutely prepared for every eventuality”. Despite their concerns, it was also noted that Canada can only focus on its own issues and that the US will make their own decision over the future of NAFTA.
CANADIAN BANKER 19
ECONOMY & REGULATION
20 RFi MEDIA
ECONOMY & REGULATION
40-year low in unemployment as Canadaâ€™s economic growth continues WORDS JAIME VAQUER Canada has gone into its thirteenth month in a row of job creation, as the unemployment rate fell to 5.7% in December, a 40-year low, with the largest employment gains observed in Quebec and Alberta. Statistics Canada reported that employment rates have increased across a wide assortment of industries, mainly in manufacturing, wholesale trade and resources, having benefitted from higher oil prices and the stronger but still lower Canadian Dollar against the US Dollar boosting exports. RFi Group data highlights that almost half of Canadians are not concerned about unemployment
affecting them in the next 12 months, reflecting the strength of the economy, soothing fears over unemployment. Following strong economic growth, provinces such as Ontario and Alberta announced plans to raise the minimum wage up to $15 per hour. The Bank of Canada however estimated increases in minimum wages across the country would lead to 60,000 fewer jobs by 2019. In its research paper, the Bankâ€™s prediction on the number of jobs lost was based on a 0.3% decline in the number of hours worked, whilst forecasting an increase in the aggregate real wages by 0.7%.
HOW CONCERNED ARE YOU ABOUT THE FOLLOWING AFFECTING YOU OVER THE NEXT 12 MONTHS? Unmployment Unconcerned (1-2)
100% 80% 60%
40% 20% 0%
Source: RFi Group Canada Priority & Retail Banking Council
CANADIAN BANKER 21
SAVINGS & BORROWING
Savings & Borrowing WORDS ORIN MARKLE
Despite record debt levels, Canadian call debt reduction their top financial priority
tephen Poloz, the Governor of the Bank of Canada, has raised concerns over escalating household debt levels, putting the country’s long-term economic health at risk. According to Statistics Canada, increased mortgage debt is the main factor driving overall household debt, while RBC further cites flat disposable income growth as being a culprit. With more interest rate hikes expected from the Bank of Canada and house prices predicted to decline during 2018, these hinder the ability to meet debt repayments among Canadians. According to RFi Group data, over a third of Canadians are concerned about their current financial situation, an increase of 6% over the past 12 months.
HOW CONCERNED ARE YOU ABOUT YOUR CURRENT FINANCIAL SITUATION? Trend Unconcerned (1-2)
Source: RFi Group Canada Priority & Retail Banking Council
22 RFi MEDIA
According to Statistics Canada, increased mortgage debt is the main factor driving overall household debt, while RBC further cites flat disposable income growth as being a culprit. There is, however, a conscious effort among Canadians to reduce their household debt. In a recent survey conducted by CIBC, 25% of those surveyed indicated that debt reduction was their top financial priority. While Canadians owe $1.71 for every dollar of household disposable income according to Statistics Canada, around half of those surveyed had reduced spending on non-essential items, and almost a third had made a household budget in order to meet their financial goals. Despite the necessary adjustments, only 16% reported actually achieving their financial budget. Jennifer Hubbard, Managing Director of Financial Planning and Advice at CIBC commented “We all know how hard it is to keep New Year’s resolutions. That’s why when it comes to your finances you want to set smart goals that are specific, measurable, time-bound, and most importantly, realistic”.
SAVINGS & BORROWING
Planswell now available across Canada Eric Arnold commented “basically no one knows what they need to do on a monthly basis to maintain their lifestyle in retirement,” and since only 1% of the population currently have access to a financial advisor, the company aims to help the wider Canadians save more towards their retirement through better planning.
Planswell - an online financial planning platform - is now available in British Colombia, Alberta, Manitoba, Ontario, New Brunswick and Nova Scotia, after securing a $6.8-million seed round from a range of investors, including former senior executives from top Canadian financial institutions. Designed by personal finance and technology experts, the service allows Canadians to create a free financial plan by answering 30-40 simple questions within three minutes, aimed at maximizing their investment potential, minimizing their borrowing costs, and financially protecting themselves and their family. Planswell CEO and co-founder, Eric Arnold, commented “basically no one knows what they need to do on a monthly basis to maintain their lifestyle in retirement,” and since only 1% of the population currently have access to a financial advisor, the company aims to help the wider Canadians save more towards their retirement through better planning.
CANADIAN BANKER 23
PAYMENTS & TECHNOLOGY
Payments & Technology WORDS JAIME VAQUER
Cryptocurrency and Blockchain potential value estimated at $10 trillion
nalysts at the Royal Bank of Canada (RBC) predicted that cryptocurrencies and the blockchain technology market could increase exponentially in 15 years, reaching an estimated $10 trillion in potential value. Mitch Steves, Capital Markets analyst for RBC, has high expectations for blockchain technology and its applications. In his report, he argues that the bulk of value will not lie in cryptocurrencies themselves, but in the ecosystem that surrounds blockchain and cryptocurrencies. He goes on to predict that blockchain will allow decentralization of value-storage services such as Dropbox and iCloud, which will drastically improve security, as there will no longer be centralized servers (which are susceptible to hacking). Steves also points to international remittances, an area where blockchain technology is already starting to have a significant impact.
24 RFi MEDIA
PAYMENTS & TECHNOLOGY
Cash still king, contactless gaining ground Figures released by Payments Canada reveals that cash remained the most commonly used type of payment in Canada in 2016, primarily due to its popularity for frequent low-value purchases. The figures also highlighted the rapidly growing popularity of contactless payments â€“ Canadians made 2.1bn contactless transactions in 2016 totalling $67.1bn, up from 1.2bn transactions totalling $37.7bn in 2015. RFi Group data supports these findings - across the past two years, the total amount of Canadians making contactless purchases has slowly increased, with almost 2 in 3 Canadians having made a contactless payment in the second half of 2017.
HAVE YOU EVER MADE A PURCHASE USING ANY OF YOUR DEBIT OR CREDIT CONTACTLESS CARDS, BY WAVING IT OR TAPPING IT IN FRONT OF A CONTACTLESS READER? % who said Yes 80% 60%
40% 20% 0% H2 2015
Source: RFi Canada Payments Council
CANADIAN BANKER 25
PAYMENTS & TECHNOLOGY
TD Canada Trust buys AI tech group to improve customer experience TD Canada Trust has purchased Canadian AI firm, Layer 6. The Toronto-based start-up, founded in 2016, focuses on using its prediction engine to anticipate the needs of customers in real time. While Layer 6 will continue to operate as a separate entity out of its existing office, TD will become its sole client. TD hopes that this acquisition can help them to better understand their customers. According to Michael Rhodes, TD Group Head Innovation, Technology and Shared Services; “what we hope to gather from AI is the ability to kind of know and understand our customers, in the same way that store managers knew back in the 1970s.” This is a sentiment echoed by Rizwan Khalfan, TD Executive Vice President and Chief Digital and Payments Officer, who indicated that the acquisition would help TD to better leverage its existing data, provide more personal customer experiences, and automate processes. According to Khalfan, “for us to be able to partner with organizations like Layer 6 who are considered both best-in-class from a research and a pragmatic perspective, is really the secret sauce.”
26 RFi MEDIA
What we hope to gather from AI is the ability to kind of know and understand our customers, in the same way that store managers knew back in the 1970s. Michael Rhodes, Group Head Innovation, Technology and Shared Services, TD
SME & COMMERCIAL
SME & Commercial Small businesses raise prices, cut workers after minimum wage hike WORDS MARK SCHULTZ
n January 1st, the minimum wage in Ontario rose to $14/hour, in addition to strengthening worker protection around scheduling, vacation time and equal pay. However, many businesses in Ontario have voiced concern over the rate of increase; the jump from $11.60 to $14 represents a 20.7% increase, which is scheduled to jump further to $15/hour on January 1st 2019. Some businesses have begun to cut employee hours and benefits in order to recoup the cost of higher wages; however, other businesses may be cautious about choosing this path following community backlash against Tim Hortons, after a franchise owned by the children of the chainâ€™s founder cut employee benefits due to the wage increase. According to a survey conducted by the Canadian Federation of Independent Business, 51% of responding businesses intend to raise prices as a result of the wage increase, while 31% intended to cut working hours and 28% intend to lay off staff.
According to a survey conducted by the Canadian Federation of Independent Business, 51% of responding businesses intend to raise prices as a result of the wage increase, while 31% intended to cut working hours and 28% intend to lay off staff.
CANADIAN BANKER 27
SME & COMMERCIAL
Investment intentions hit 3-year high WORDS ORIN MARKLE
PLEASE INDICATE WHETHER THE BUSINESS EXPECTS THESE CHALLENGES TO WORSEN OR IMPROVE OVER THE NEXT 12 MONTHS Improve
Business optimism is at its highest level in 3 years, driven by strong increases in acquisition and growth plans, according to a recent study published by the Business Development Bank of Canada (BDC). SMEs are estimated to make $140.5 billion in investments this year, with acquisition plans increasing to $18.9 billion - up 79% compared to a year ago. RFi Group data shows similar findings with SMEs expecting positive net improvements in sales, margins and profits as well as cashflow in the coming year. However, investment intentions are weaker in Atlantic Canada compared to most other regions of the country - down by 14% with the lowest average investment intention per business recorded at $210,000. According to the BDC, weaker retail sales and housing starts, declining employment growth, and the winding down of large infrastructure projects in the region have depressed economic growth and hurt business confidence.
28 RFi MEDIA
Management of cashflow
Management of margins and profits
Access to funding
Source: RFi Group Canada SME Banking Council H2 2017
SME & COMMERCIAL
Canadian government urged to support women-lead SMEs WORDS ORIN MARKLE Launched after a meeting between Justin Trudeau and Ivanka Trump last year, a cross-border women’s business council has urged the Canadian government to change its procurement practices to encourage more bidding from companies owned by women. The proposed policy is similar to an existing US federal procurement program which requires 5% of federal contracts to be awarded to women-owned small businesses. The group argues that procurement spending can help these companies grow and recommends large private-sector businesses to apply similar policies to allow more partnership with women owned businesses. According to CEO of NRStor Inc., Anette Verschuren, while women are well-represented among small business owners, there is a holdup in their ability to grow to the next tier, which these contracts could override. Annette emphasized that this change “really creates a market and helps push the advancement and growth of women”. In addition to its first report, the group plans on releasing separate reports on increasing women’s access to capital, leadership advancement and entrepreneurship, as well as encouraging more women in the fields of science and technology.
The group argues that procurement spending can help these companies grow and recommends large private-sector businesses to apply similar policies to allow more partnership with women owned businesses.
CANADIAN BANKER 29
ABOUT RFi GROUP
RFi Group is a global intelligence and digital media provider focusing exclusively on financial services. We specialise in data and information gathering, customer based insight generation and business decision support for the worldâ€™s leading financial service providers. Our aim is to combine global intelligence and local knowledge to provide insightful, valuable and actionable recommendations, with a core focus on the provision of exceptional client service. OUR BRANDS
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
For any advertisement enquiries, please contact your regional RFi office or email your enquiry to Nish Gnana at : firstname.lastname@example.org For more information, visit: www.rfigroup.com www.globalretailbanker.com
30 RFi MEDIA
Mobility and Banking Technology SME and Business Banking Private Banking Wealth Management Banking Regulation
RFi AUSTRALIA & NZ
RFi NORTH & LATIN AMERICA
Level 12 70 Phillip Street Sydney NSW 2000 Australia
One Embarcadero Center Suite 500 San Francisco, CA 94111, USA
P +61 2 9126 2600
P +1 415 315 1690
RFi NORTH ASIA
Unit 740, 2 Exchange Square 8 Connaught Place Central Hong Kong
Level 12, 9 Battery Road MYP Centre Singapore 049910
P +852 2297 2427
P +65 6597 7028
2nd Floor, Saxon House 48 Southwark Street London SE1 1UN United Kingdom
100 King Street West Suite 5600 Toronto, Ontario M5X 1C9
P +44 203 862 2166
P +1 416 644 8524
ABOUT RFi GROUP
RFi GROUP ACTIVE IN 44 INTERNATIONAL MARKETS
Our markets include Australia, Argentina, Belgium, Brazil, Canada, Chile, China, Colombia, Egypt, France, Germany, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Kuwait, Lebanon, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, Peru, Philippines, Poland, Qatar, Saudi Arabia, Singapore, South Africa, Spain, Sri Lanka, Switzerland, Taiwan, Thailand, Turkey, UAE, UK, Uruguay, USA and Vietnam.
SOME OF OUR CLIENTS AROUND THE WORLD
AU / NZ
CANADIAN BANKER 31
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:
RESULTS OUT NOW
Canada SME Banking Council – 2017 H2 Canada Payments Council – 2017 H2 Canada Commercial Banking Council – 2017 H2
Canada SME Digital Banking Council – 2018 H1 Canada Digital Banking Council – 2018 H1 Canada Insurance Council – 2018 H1
Find out how you can access RFi Group’s latest business intelligence! For further information, contact Jaime Cabrera on email@example.com or +1 416 644 8524
An RFi Group Publication