Canada has another digital-only full-service banking contender, motusbank, wholly owned by Meridian, Ontario’s largest credit union, and the third-largest in Canada. motusbank is offering attractive rates for savings accounts, low-rate loans and mortgages, fee-free banking and a focus on high-quality digital customer service. Robin Arnfield reports
Using technology developed by its parent, motusbank provides end-to-end digital platforms for deposit account opening, mortgages, unsecured loans, and lines of credit.
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Through Meridian, which has C$20.6bn ($15.3bn) in assets under management and 300,000 members, motusbank members have access to the Exchange Network, a Canadian no-fee ATM network with 3,700 ATMs across Canada.
motusbank’s Digital Lending Platform allows members and prospects to apply for and receive mortgages, lines of credit and loans completely online without paper forms.
The bank also offers Friends and Family mortgages, enabling groups of up to four people to pool their financial resources and buy a shared home.
Digital lending
With its special focus on digital mortgages and loans, motusbank competes with two incumbent Canadian banks, Scotiabank and TD, both of which have developed digital mortgage application processes.
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By GlobalDataIn addition, two startups, Toronto-based Homewise and Montreal-based Nesto, offer digital mortgage platforms. In March, Scotiabank rolled out eHome, enabling Canadians to apply for a mortgage completely online and track the application status through real-time updates. Scotiabank eHome offers customers preferential rates and savings of up to C$200 in appraisal fees.
In January, TD rolled out its digital mortgage application tool. Canada has a relatively small number of digital-only banks, and unlike the UK, there are no new entrants that are not owned by existing financial institutions.
Also, unlike UK consumers, Canadians are very loyal to their banks and credit unions, often maintaining a primary account with one bank for day-to-day purposes and a savings account or mortgage with another that offers better rates; this makes it hard for new entrants to win the elusive prize of becoming a customer’s primary bank.
The biggest digital-only banks in Canada are Tangerine, owned by Scotiabank, which has 2 million customers and was originally called ING Direct Canada; and Simplii Financial, owned by CIBC, which currently has 1.8m customers.
Others include Alterna Bank, owned by Alterna Savings and Credit Union, and EQ Bank, which specialises in savings accounts and is owned by Equitable Bank. Simplii was founded by CIBC in 2017 following a mutual decision by CIBC and the supermarket chain Loblaw Companies to end their 20- year consumer banking joint venture under President’s Choice Financial.
Brightside
Alberta provincial government-owned ATB Financial, originally known as Alberta Treasury Board, will launch a digital bank later this year called Brightside.
The challenger has already started signing up early adopters. The digital banking market has already claimed one casualty. In November 2018, Quebec-based co-operative financial group Desjardins said it would wind down Zag Bank, its standalone digital bank.
This launched in 2015 and was based on a Western Canadian bank bought by Desjardins.
“We reviewed our activities in Ontario and in the western and eastern provinces, and decided to concentrate our efforts, resources and investments on innovation and growth in property and casualty insurance, wealth management and payment services,” says Denis Berthiaume, Desjardins Group’s senior executive vice-president and COO.
“As a result, we determined that an online or direct bank was no longer a strategic fit with our long-term strategy.”
Prepaid challengers
In addition to digital-only full-service banks, Canada also has several general-purpose prepaid card issuers such as Mogo and Koho, which are positioning themselves as low-cost alternatives to traditional banks for millennials.
Both Koho and Mogo offer financial management tools along with their prepaid cards, and Mogo offers personal loans and mortgages. However, they are not allowed, under Canadian banking law, to market themselves as banks.
Like its digital-only rivals, motusbank offers high interest rates on savings accounts and attractive rates for loans; however, its mutuality business model – being owned by a credit union rather than shareholders – means it can offer better deals than bank-owned competitors.
Introductory offers
For example, motusbank has an introductory mortgage rate of 3.09% applying to all fixed mortgages of one to five years, and a secured home equity line of credit at 2.75%.
“The mortgage market can accommodate many niche players, and having a fully end-to-end digital mortgage offer like motusbank’s is very attractive,” says Christie Christelis, president of Canadian consultancy Technology Strategies International (TSI).
“motusbank could use its mortgage offer to broaden its customer base into other services, but it is still unlikely to be a consumer’s top choice for primary bank.”
Christelis adds: “Research by TSI found that, for the majority of Canadians, their first choice for a primary bank would be one of the big five.” Christelis says that, apart from the big five, other FIs that tend to win primary banking relationships include National Bank of Canada, Desjardins and Laurentian Bank – all based in Quebec – as well as Vancouver-based credit union Vancity, and HSBC Canada.
Typically, consumers use digital-only banks as secondary providers because of their attractive savings rates, Christelis notes.
“To succeed as a start-up digital-only bank, you need deep pockets,” he adds. “Fortunately for motusbank, its parent, Meridian, is providing its technology platform and capital for its balance sheet.”
Product plans
motusbank has a number of products on its roadmap, says CEO Dave Baldarelli.
“We want to get into wealth management and will offer a hybrid robo-advisor product with access to human advisors,” he notes. “This would likely involve a partnership with Aviso Wealth, and we would leverage people on our team who are licensed to offer wealth management products.”
Aviso is a wealth management business set up by Desjardins, the Cumis Group, and a partnership of five provincial credit union centrals in 2018.
Another area for motusbank to enter is small business banking, Baldarelli says.
“I’m very interested in the small business segment as it is very underserved,” he explains.
“The big banks are more focused on bigger companies; I think our value proposition will really resonate with small businesses. We will either build our small business service inhouse or partner with a fintech.”
motusbank does not have any branches of its own, nor does it use mortgage brokers or a mobile mortgage sales force. “That could change later on, and I could see us introducing a mobile mortgage sales force,” says Baldarelli.
“Also, I could see us introducing branches eventually, like Tangerine has done with its Tangerine caféstyle branches in big cities, which are good flagships for Tangerine.”
Launch on the radar
Currently, motusbank does not provide credit cards.
“A credit card is on our roadmap for the next six to 12 months,” says Baldarelli. “We do offer a credit card on the Meridian side, so we have the infrastructure and systems to offer a credit card to motusbank members, but we thought it would be good to have more scale on our membership base before launching a credit card.”
The reason why Meridian launched motusbank was because it wanted to expand outside Ontario by taking Meridian’s value proposition to a larger market.
“We decided that obtaining a banking licence and setting up a separately branded company was the best way to do that,” says Baldarelli. “motusbank is available nationwide except in Quebec, where we can accept deposits but not offer loans.”
Baldarelli says Meridian conducted market research that indicated an appetite from consumers for a company such as motusbank to grab market share from incumbent banks.
“We found out that rates and fees are the number one reason why people would consider shifting to another bank,” he says. “The other reasons are simplicity in the user experience, and being transparent and honest with consumers. So, having found out what consumers wanted, we built motusbank accordingly.”
In the two months prior to its April launch, motusbank invited consumers to sign up. “We were blown away by the number of prelaunch sign-ups and the number of members that we got in the first two weeks after our launch,” Baldarelli says. “Demographically, we’re across the board in terms of our members.”
Segmentation
Baldarelli continues: “Our target member segment is 25-55-year-olds, who are very comfortable about banking digitally. It’s very important not to lose sight of that target demographic when you’re doing marketing or launching services. You must ensure the language and tone of your value proposition are aligned to that target segment.”
Baldarelli says motusbank has a telephonebased member services team. “They are our secret weapon, as they are available for phone calls, emails and live chat, and we will soon launch video banking,” he explains.
“On the credit union side, we’ve achieved some of the best net promoter scores in the business, and we want to achieve the same with motusbank.”
motusbank is capitalised by Meridian, which has put cash onto motusbank’s balance sheet to support its mortgage and loan offers.
“We want to get that capital provided by Meridian working by getting assets onto the balance sheet in terms of loans and mortgages,” Baldarelli notes. “Loans and mortgages are a priority, but we’re bringing in members on all of our deposit products. Our most popular account is our free chequeing account, which is a massive success.”
Meridian is also keen to collaborate with appropriate fintechs. “Some years ago, fintechs were seen as threats to financial services incumbents,” says Baldarelli. “But now things have evolved and fintechs are seen as partners to banks. So we’re looking at fintechs to see how we can partner with them to enhance the value we provide to our members.”
Open Banking
Meridian and motusbank’s unsecured lending platform, which is used to offer loans to the two companies’ members, was developed with a fintech called Grow in Vancouver.
“Meridian has a price-matching service called Price Drop, which was developed with a fintech in Winnipeg, and will be offered to motusbank members soon,” says Baldarelli.
“Price Drop lets you take a photo of your receipt from a big-box retailer and then it searches for a better price than the one you paid. You then show the resulting information from Price Drop to your retailer to get a discount on your purchase.”
Once Canada introduces Open Banking, this will be a great benefit to motusbank, Baldarelli believes. “Open Banking is definitely going to happen here at some point,” he adds.
“For example, it will greatly facilitate account switching, which is currently not a seamless process in Canada.”
Open Banking will also facilitate collaboration with fintechs. “Our motusbank digital platform is our own internal solution, and we leverage API technology,” says Baldarelli.
“So we can use APIs to tap into relationships with fintechs such as Grow.”
As part of the motusbank rollout, the company introduced its Money Mover service.
“When you open a motusbank account, all you need to do is log into motusbank and then into your existing bank account, and we screen-scrape all the information needed from that account,” Baldarelli says.
“This enables new members to transfer funds from their existing bank to motusbank via EFT. We also offer remote cheque deposit and Interac e-Transfers as ways to fund new motusbank accounts.”
Getting people to make motusbank their primary bank is the million-dollar question, says Baldarelli, adding: “We want to be the primary relationship and we want to be really relevant in the consumer’s life.”
“We don’t just want to have their mortgage or line of credit. To become the primary provider of financial services, the number one product you need is a chequeing account and you need to get the member’s direct payroll paid into their chequeing account,” he concludes.
“If you achieve that goal, you’re 90% on the way to becoming their primary financial services provider.”
