Canadian digital-only bank EQ Bank was inundated with applications when it launched its high-interest Savings Plus Account in January 2016. Can it maintain its momentum, or will its lack of credit products adversely affect sign-up volumes? Robin Arnfield reports on this new offering
EQ Bank is the mobile-only offshoot of its Toronto, Canada-based parent Equitable Bank, which has C$17bn ($12.96bn) in assets under management and offers mortgages and savings products through a network of brokers across Canada.
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At launch, EQ Bank offered a savings rate of 3%, but it has since cut this rate to 2%, which is still higher than other Canadian banks offer for instant-access savings accounts. As of January 2017, EQ Bank had received over C$1bn in deposits and had 27,000 customers.
Customers open their accounts totally digitally, although they have to send a cheque for their initial deposit to EQ Bank.
“You can take a photo of this initial cheque on your phone and send the image to us,” says Dan Dickinson , EQ Bank’s vice-president of digital banking.
“The cheque, which can be for C$1, is just to prove that another bank has validated your identity. Then you can link your account at another financial institution to your EQ account and transfer funds electronically between the two accounts.”
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By GlobalDataInitial target exceeded
“EQ Bank beat its first-year target by around 160% in its first three months,” says Stephen Greer, banking analyst with US-based Celent.
“In fact, it had to start a wait list for new customers. I think EQ Bank’s popularity is a combination of its high interest rate and also the fact that, unlike the US, there are not a lot of other direct banks in Canada.
Currently EQ Bank’s three main Canadian direct bank rivals are Zag Bank, a subsidiary of Quebec-based Desjardins; PC Financial, which is provided by CIBC and Canadian retailer Loblaw Companies; and Scotiabank’s Tangerine subsidiary.
EQ Bank was set up by Dickinson, who was previously MD, online and mobile Banking Canada at BMO Bank of Montreal. “I joined Equitable Bank in October 2013 to set up its digital operation EQ Bank from scratch,” says Dickinson.
Single product
Currently, EQ Bank does not offer joint accounts, and its only product is the Savings Plus Account. EQ Bank says on its website that it plans to offer joint accounts and Tax-free Savings Accounts (TFSAs).
“We can offer any kind of savings product,” says Dickinson. “Our roadmap includes Registered Retirement Savings Plans, Guaranteed Interest Certificates, and TFSAs, as our customers are asking for these. It’s about prioritising what we do next – it’s not just new products but also more functionality for the products we already offer. For example, we offer the ability to have pre-authorised transactions on your account such as having your salary deposited directly and reoccurring bill payments.”
“The Savings Plus Account is a hybrid savings and chequeing account with no monthly bank charges,” says Dickinson.
“It lets customers carry out as many banking transactions as they want for free, such as deposits, bill payments and electronic fund transfers. Most other Canadian banks either charge a fee for these transactions or don’t offer them on their high-interest savings accounts. We think that our customers find the concept of a hybrid chequeing and savings account attractive. The concept of separate chequeing and savings accounts is really out-dated.”
EQ Bank customers can make up to five free Interac e-Transfers a month. Interac e-Transfer is the person-to-person email payment service offered by Canadian debit scheme Interac. According to Dickinson, most customers do not exceed five Interac E-Transfers a month.
Cards
Currently EQ Bank does not offer ATM, debit or credit cards. “We’re considering offering customers the ability to make payments direct from their EQ accounts by tapping their phones at a POS terminal and accessing a mobile wallet – either our own or a wallet provided by someone like Apple Pay or Samsung Pay,” says Dickinson.
“We’re not planning to offer plastic cards if we can help it, since virtually all our clients use mobile banking. As our clients are so mobile-centric, we would like to offer mobile payments. Canadian consumer behaviour is changing, and in downtown Toronto or Vancouver a lot of people pay in stores by tapping their phones or contactless cards.
“However, it remains to be seen whether we can offer payments without plastic cards. ATM access is difficult if you don’t offer cards. Most Canadian ATMs include an NFC antenna, but they haven’t been switched on yet.”
Demographics
“We didn’t really go after millennials,” says Dickinson. “It was more psychographics than demographics. We go after mobile-first consumers primarily and have attracted a broad range of ages. People who are comfortable with using technology to take control of their finances range across all age groups. We find our customers are clustered in large urban centres.”
EQ Bank is available across Canada with the exception of Quebec, where there are special regulatory requirements. “We plan to approach the Quebec market in due course,” says Dickinson.
“We realise that right now we’re not the primary bank for our customers,” says Dickinson. “We’re a secondary savings bank for them. Unlike other Canadian direct banks, we don’t play promotional games with our interest rate. Our rivals will offer a higher rate, but only for new customers or for new deposits by their existing customers. We have the same interest rate no matter what the balance is on your account.”
Celent’s Greer says that while EQ Bank’s initial adoption figures have been impressive, the bank needs to offer a wider product set. “They need to be able to offer loans to complete the financial management experience and generate a revenue stream,” he says.
“We currently have no plans to offer credit products through EQ Bank,” an EQ Bank spokesperson tells RBI.
Currently, EQ Bank customers interested in mortgages and home equity lines of credit have to click a link on the EQ Bank website that refers them to Equitable Bank.
Temenos
EQ Bank used Swiss banking software vendor Temenos’s T24 platform for its core banking system, as well as Temenos analytics and digital channels software. According to Temenos, being able to examine and analyse customer data is critical for EQ Bank.
“We’re putting data at the heart of everything we do,” the white paper quoted Dickinson.
“We used Deloitte Digital to help us customise the front-end user interface based on Temenos software,” Dickinson tells RBI.
“We didn’t want our customer interface to be the same as all the other banks’ mobile and online platforms. We started out mobile-first, so this informed our design thinking, whereas the big banks started with online and then moved to mobile.
“Our user interface is designed for mobile-first users with a small screen, and uses differentiated font sizes and highlights the key pieces that clients need.”
Other digital-only start-ups
“There is more interest in mobile-only banks in Canada now, as people have seen our success when we launched and realise there is an opportunity to take advantage of consumers’ mobile adoption,” says Dickinson.
“I think we will see more mobile bank launches here. The Big Six will likely offer digital-only banks in the non-Canadian markets where they operate – they would do that first before launching digital-only banks in Canada.”
Dickinson notes that consumers can keep accounts with a Big Six bank, but have at least one banking product with a non-Big Six bank. “It’s good for Canadian consumers if there are digital-only banks competing with the Big Six banks,” he says.
In August 2016, Canadian broadcaster CBC reported that Ontario-based Meridian Credit Union plans to obtain a licence for a Canada-wide bank. The CBC said Meridian’s new bank, which is not expected to begin operations until 2018, will initially offer only digital channels.
However, Meridian reportedly plans to selectively build a few branches for the new bank in the years following its launch.
