Direct Banking Strategy Options

We are seeing a trend toward new Direct Banking offers.  Credit Unions are looking for ways to extend market reach beyond local markets and Mortgage and Deposit broker channel players look to diversify funding to the less volatile direct to consumer market.  There are important strategic choices facing these institutions as they develop and manage their direct offering.

Market Reach:  A nation-wide or Province-wide approach has the benefit of maximizing growth potential; however, costs to build brand awareness can be prohibitive for some.  Some institutions worry about cannibalizing their core business by offering a value-added direct banking offer in their local markets.

Most choose to create a platform that can reach markets across the country while focusing their business building efforts to select markets.

Branding:  Will the direct bank be a clear extension of the parent brand or will it be distinctly different?   Most – notably Tangerine and Simplii – have chosen to have a differentiated brand to reduce internal cannibalization and to avoid brand confusion. Most banks and credit unions have positioned their direct offers as a supplementary channel to their parent brand. There has been selective product differentiation available only to branch or direct banking customers; however, the thinking here is to offer consumers the convenience of multi-channel access under one brand.

Those who choose a differentiated brand want to develop a unique competitive differentiation not available through multi-channel banks and credit unions and they are willing to invest in the substantial cost to develop brand awareness.

Product Offers:   Is the intent of the direct bank to be an independent and comprehensive access channel where consumers are able to complete almost all of their financial affairs online – like Simplii or Alterna Bank – or is the mandate to offer a limited set of advantaged products – like EQ Bank and Oaken Financial?  The full relationship banks and credit unions appear to favour a full relationship offer whereas broker channel players are focused on a limited set of products.

Tangerine chose to be a product focused direct bank – “if you want a relationship, get a dog!”  The strategy was successful in building a large book of demand deposits ($28B) when they were able to sustain advantaged high rate savings rates versus banks and credit unions.  Now they are migrating toward a relationship approach.


Channel:  Home Capital, Manulife Bank and Equitable Bank have built large term deposit and mortgage businesses mainly through advantaged pricing offers through mortgage and deposit brokers.  This approach requires a very low-cost platform as best price is a table stake to winning business in this channel (relationship with brokers and servicing are winning criteria).


Direct to consumer requires significant investment in advertising and promotion and distinct points of competitive advantage versus multi-channel banks and credit unions (like free transactional banking and better loan and deposit rates).  Balances are less volatile than those acquired through the broker channel and there is much higher potential to build share of wallet with direct banking primary relationship customers.


Offer:  The main choice here is whether to become a low-cost provider offering advantaged pricing on a select array of products or a value-added provider offering high levels of customer service, loyalty rewards, advice, branch and ATM access, specialist sales forces etc.

There is no one right path for all direct banks.  It is important; however, to make distinct choices that you intend to define the business in the long term.  Those who aspire to have it all will likely lose to those who are more focused on their primary mission.