Scotiabank Adapts Its Mortgage Business

Old way-new way FB A recent Scotiabank survey reinforced what most of us already know: the Internet is radically changing banking.

The bank found that:

  • 96% of Canadians rely on the Internet for information.
  • 89% of Canadians say it’s easier to get info online than through other sources.

In turn, by 2020 less than 1 in 10 financial transactions will occur in branches, predicts Scotiabank CEO Brian Porter. “At the same time, we expect sales through digital channels to increase materially – likely in excess of 50% of total products sold,” he told the Financial Post.

That’s exactly why the company has invested billions in fintech, including a new technology “factory” in Toronto, which will house 350 new online engineers and designers. There, it hopes to spit out brand new web tech that will do things like simplify the mortgage application process (which its “Rapid Lab” team is already piloting at certain Scotiabank branches).

“We’re moving from a paper-based approach to a more technology-enabled, digitized approach,” a spokesperson told Reuters.  (We can only hope that includes e-Signing, something customers love for its convenience.)

All of this is shifting employment at the bank. While Scotiabank is ramping up mortgage tech jobs, it announced job cuts to its adjudication centres and mortgage operations last fall. There’s no better glimpse of human resource efficiency than at its Tangerine subsidiary. Tangerine serves two million customers with just 1,000 employees (compared to 23 million with more than 89,000 employees at Scotiabank).

Tailored Pricing

Half of those who use the net for research feel overwhelmed by the amount of data it presents. So it’s no surprise that 70% of Canadians still rely on advisors for mortgage advice. Seventy per cent is a lot but it used to be closer to 100%, so times are changing and Scotiabank knows it.

With consumers comparing rates online, pricing is more of a factor than ever. That’s partly why Scotiabank has quietly joined the low-frills mortgage movement. Its new “Value Mortgage” follows the lead of BMO, which has had a stripped-down mortgage since 2010.

Compared to Scotiabank’s regular mortgage, the Value Mortgage has:

  • A rate that’s roughly 10-15 basis points lower
  • 10% lump-sum prepayments instead of 15%+
  • Once-a-year lump-sum prepayments or payment increase instead of the ability to make them anytime
  • An annual 10% payment increase option instead of 15% plus double-up
  • 90-day rate holds instead of 120 days
  • STEP product not available
  • No porting

The Value Mortgage has no refinance restrictions, which is a big plus compared with BMO’s “Smart Rate” mortgage, but the lack of portability could be a major turn-off. It requires borrowers to potentially pay a penalty in order to move their mortgage to a new property. Albeit Janet Boyle, Vice President, Real Estate Secured Lending assures, “We will work with customers up front to ensure they are selecting the term that is right for them and fits with their future plans.”

Scotiabank’s low-frills pricing is currently only available in branches. When asked if the product will be available to brokers, who account for roughly 40% of Scotiabank’s volume, Boyle said there are no such plans “in the immediate future.” That’s largely because brokers already have access to deeper rate buydowns than branch reps.

Scotiabank-Logo-PNG-03791-1Encouraging Conversations

Scotiabank now offers three brands of mortgages:

  1. The “Value Mortgage”
  2. The “Flexible Mortgage” (Scotiabank’s regular mortgage)
  3. The “Rewards Mortgage” (which comes with an annual cash reward and Scotia Rewards® Points)

This isn’t by accident. The bank intentionally wanted to create more customized mortgage options.

“We did a lot of behavioural research on what customers want to pay for,” says Boyle, who acknowledges that the Value Mortgage “appeals to a very small segment of borrowers.”

“The approach of having three mortgage solutions has really worked well for us on a national basis,” she says. “Customers like to research on the Internet but they prefer to sit in front of a person,” and having different options lets Scotiabank bankers strike up a dialog about what needs and goals are important to clients.

As for pricing, the bank is constantly investing more in data analytics to better understand its customers. Ultimately, says Boyle, “The customer profile and their relationship with the bank determines the rate.”


  1. Another timely post Rob, Brian Porter is the first bank CEO I know of that has publicly declared what all the other CEO’s are thinking: more than 90% of bank transactions will eventually move online.

    What is even more interesting is that even within the bank there is contrary commentary. “customers like to research on the internet but they prefer to sit in front of a person”

    When you read the stories of the amazingly successful new digital players who are changing their industries the theme is always the same, even when there are massive, entrenched existing players like Borders / Chapters, the whole taxi industry, the whole music industry: those industries can see that they are in trouble, they understand they need to adapt but they really don’t change and the reason they don’t change is always the same: legacy and inertia.

    Very few industries are as entrenched in a dead business model as traditional banks. Every single independent survey of Millennials says the same thing: they do NOT want to go to branches. They think the idea of going somewhere to fill out a form or “have a chat” is more or less crazy. What is the backbone of traditional banking? Branches!

    I am not saying that banks will never adapt, Brian Porter’s statement is proof they know things will need to change. But can they shed legacy fast enough and can they overcome internal inertia fast enough. The banks in this country have two things going for them most of the other disrupted industries did not have, firstly they have huge influence over the federal government and the feds can step in to block new financial product vendors, secondly, banks have so much money, more money than we can imagine and that could allow them to just buy the new players.

    That being said, branches will go the way of the record store, just go to a branch and look around, very expensive real estate filled with 8 to 15 people almost exclusively doing the very lowest value transactions: people paying bills, people doing foreign exchange, people updating their savings account books. Really, I watched that happen the other day when I was getting US cash. One thing is certain, no business can afford those overheads in a world of shrinking margins.

    1. You basically hit the nail Ron. On a net basis, CBA data shows Canadian banks have been opening branches while most banks in developed nations are closing branches. Only recently have they realized the party is ending. Here’s a sampling of what’s happening internationally:

      That said, branch banking is not a dinosaur yet when it comes to older Canadians. There’s still evidence that closing branches costs a bank customers when other banks don’t follow suit. So it’ll probably take a while for the branch footprint to shrink significantly, which gives bank challengers an important head start.

    2. Dead business model? Yet “so much money, more money than we can imagine…” That there dead business model is the source of their billions in ultra-low-cost, sticky deposits. It doesn’t matter that cashless millenials want to bank online… as long as pensioners are willing to leave $75,000 on deposit for 0.3% and free chequeing, the holders of those deposits are going to be dictating much of how mortgage lending works.

  2. Push Button, Get Mortgage. Why not? You can do that with bank account, investment, GIC, savings, credit card, etc.

    Hell, let’s introduce the Netflix or Amazon model, and have the system tell us what we need and it will make recommendations. When I log into my bank account, I want them to say you should get this or you should buy this based on these reasoning. If I have a mortgage, it should recognize if I have higher interest debts and offer to pay it down with lower interest products. It should recommend I invest in this etf for these reasons.

    Banking is really in the stone age, but this will change….

    I hope yall have your business plans ready.

  3. I disagree that the Canadian banks are opening branches like they used to. Frequently, look at the last five years of any bank’s Public Accountability Statement, and while they list “branch openings,” very often there is an equal branch nearby closing down. Rather than list it under “relocation,” they choose to list it as an “opening” (and a “closing” on the other side) so it can be counted on their “branch opening” count. It’s a numbers thing. Same thing with “branch consolidations,” whereby two branches consolidate into one brand new premise. If you strip out that “noise,” the data I’ve seen is that any of the “Big 5” banks are opening, on a “net” basis, of *maybe* 3-5 branches (depending on their size). And, even then, 99% of those opened where a nearby isn’t closed or consolidated are opened in growing urban areas of major metropolitan cities.

    It’ll probably take another 20-30 years to see branch counts to be reduced significantly, perhaps longer, but what you *will* see is the branch footprint in square footage decrease substantially. So, while branch numbers may not even get reduced all that much, what you’ll see is instead of having 5,000+ square foot branches, you’ll see 1,200-2,000 square foot branches. Gone will be CSRs. Typical branch complement will be 5-6, perhaps as little as 3-4 in smaller suburban or rural branches, and consist of a Branch Manager, a Financial Advisor, a Personal Banking Officer and either of a 0.5-1 Banking Ambassador (or whatever it may be called) that promote their product offerings, handle branch displays & marketing, assist with self-serve channel offerings (i.e. in-branch tablets and ABMs) and the like and, potentially, an Assistant Manager of Branch Operations (or whatever it may be called) in more urban branches that require it.

    With all the automation and digitization, it’s a move I fully support and branches will be better utilized to generate revenue and sell their products and enroll customers in other banking channels or partner offerings (i.e., online discount brokerage). As we’re already doing now, contact centres will continue to be utilized to provide customer service & administration as well as sell products for customers that prefer that channel (like me – I love dealing with the bank contact centres – they run them so well!) and centralized processing centres will handle any non-digitized activities, which, eventually, will be hopefully be very few.

    And let’s face it, 20 years is about right – any of the “early baby boomers” (i.e., those born in the late 40’s or early 50’s) will either have passed away or likely be either independent or assisted living residences or more complex residential care facilities and, in any case, will like have their banking taken care of by their son or daughter acting as their Power of Attorney who, let’s face it, will be those Generation X’ers and millennials that will insist on pre-authorized debits for all their recurring bill payments and for them to use a credit card, so the Generation X’er or millennial can track their spending and also ensure the credit card bill gets paid automatically by one of those pre-authorized debit each month. So, you just won’t need any CSRs in 20 years, really, out of non-necessity. That said, there will still be that role for the “Banking Ambassador,” which will effectively be the former CSR and they may still be able to perform routine non-cash or cheque transactions that can’t processed through self-serve or digital channels but that workload will be significantly reduced. :)


Your email address will not be published. Required fields are marked *