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).
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 now offers three brands of mortgages:
- The “Value Mortgage”
- The “Flexible Mortgage” (Scotiabank’s regular mortgage)
- 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.”