When Scotiabank bought ING Direct Canada in 2012, people wondered about the implications for ING’s mortgage business.
We posed this question to Peter Aceto, ING Direct Canada’s CEO. Out of all banking industry executives, Aceto is possibly the most in touch with consumers. Case in point: his blog and his Twitter feed.
Here’s how he and ING Direct plan to approach the Canadian mortgage market going forward.
ING Direct has a long history of mortgage innovation. It, more than any other Canadian company, established the model of selling mortgages with no face-to-face interaction. ING also gave consumers industry-leading mortgage flexibility and championed transparent mortgage rates (in stark contrast to the major banks’ misleading “posted rates”).
We asked Aceto what to expect from a mortgage standpoint when ING is renamed to Tangerine (which will happen before July — April reportedly). “The product hasn’t changed (since being acquired by Scotia),” he said, “and it won’t change.”
That’s fortunate for customers, given that ING’s mortgage is one of the most flexible in the country (with 25% prepayment privileges, honest penalty calculations, a favourable blending policy, etc.).
ING’s 1.9 million customers will continue dealing with Tangerine employees, and not Scotiabank reps. Customers “talk to our people today and that will continue to be whom they speak to 2-3 years from now.”
Aceto also confirmed that ING customers will not be offered or renewed into Scotiabank mortgages, as some have speculated.
One thing that will change at Tangerine is how ING generates mortgages. “We used to purchase mortgages through white label channels and brokers,” Aceto notes. “The only way we’ll be involved in mortgages going forward will be the direct-to-consumer channel.”
ING has a total mortgage portfolio of $25.7 billion. Of that, $19.9 billion are mortgages that it acquired through broker and white label channels (strictly as investments), just under a billion are commercial mortgages, and the rest are from its direct consumer channel. Despite speculation that ING was liquidating its mortgage portfolio in recent quarters, Aceto confirms: “We haven’t sold any (mortgages) to anyone.” That said, its broker, white label and commercial portfolios will wind down over time, he adds, and Tangerine’s direct-to-consumer volume “won’t compensate” for this shrinkage.
Mortgage pricing under Tangerine remains to be seen. But ING’s rate strategy today is a clear departure from the ING of old. The company used to consistently advertise rates below its big bank competitors. But since the Scotiabank acquisition, its advertised mortgage rates leave something to be desired.
At this time, for example, ING’s advertised 5-year fixed rate is 3.99%, higher than almost every other bank in Canada. It’s even ½ point higher than Scotiabank. A few years ago, that would have been unheard of for the product it bills as the “unMortgage.”
“A lot has changed…Some years ago we posted a rate that was our best foot forward while most of our competition didn’t. They posted a higher rate…and would negotiate after. Most Canadians, with a little bit of negotiation, didn’t pay the posted rate. Now, we’re seeing lower posted rates and promotional rates being advertised. I wonder how many Canadians actually [qualify for] those promotional rates.”
What ING’s inflated advertised rates really seem to indicate is that things are different under Scotiabank. Its marketing spend is significantly lower on mortgages than it used to be, says Aceto.
“We’re not aggressively trying to grow our business through the (ING Direct) mortgage channel.” The company’s focus is on attracting deposits and building new banking products like overdraft protection, credit cards and investments.
ING is also no longer in the broker business. That’s important since its publicly advertised rates needed to be close to its broker rates (and broker rates are usually very competitive).
ING closed its broker arm because, as Aceto explains, “We’re a direct bank. We’re really good at doing business with people over the web or by phone or on a mobile device…We were in the broker business because we were good at [getting deposits] and needed to put that money to work…When Scotia bought us they were the largest [broker channel lender] in the country and it gave us the chance to be a direct business again.”
But Aceto admits a direct mortgage model isn’t for everyone. “By and large, people are more comfortable getting other products (with a branchless bank).”
“We think that there are over 12 million Canadians who would be willing to buy one or more products from a bank that has no physical presence.” But ING’s surveys indicate that “mortgages are in the bottom half of the list of products customers want from a direct model.”
Why is that? “Our competitors have Canadians a bit confused and it’s hard for people to compare offers side by side,” he says. “People believe the mortgage product is complicated…and very significant (financially)…They feel that face-to-face interaction is necessary. It’s not my view.”
Competition has also dictated ING’s mortgage strategy. “It is undeniably true that mortgages in general are less profitable today,” says Aceto, adding that “it’s not just mortgage pricing that’s more competitive, but savings rates as well. That’s squeezing interest margins in two directions.”
“Maybe 10-15 years ago people thought mortgages were the cornerstone of a banking relationship. I think mortgages now are commodities. People probably care an awful lot less about whom they’re doing business with…and they try to get the lowest rate they possibly can. And I think that’s one of the reasons why brokers continue to be very successful.”
Factoid: About 40% of ING customers in 2013 were referred by its existing customers.
Rob McLister, CMT