Direct Banks

Meridian became the second credit union after alterna bank, to launch a full-service, national direct bank this month – motusbank.  This month we look at what differentiates motusbank from the other full-service direct banks and Royal Bank (as a proxy for full-service, multi-channel banks).

  • All of the four full service national direct banks offer free Chequing as a key point of differentiation from full-service, multi-channel banks.  Using Royal Bank as a comparison, this benefit is worth $14.95 per month.
  • All of the direct banks pay interest on chequing account balances.  Motusbank leads the way with a .5% rate on all balances.
  • Direct Banks offer high rate savings account rates higher than the multi-channel banks. Alterna bank leads at 2.30% with motusbank close behind at 2.25%.  Tangerine and Simplii rates are much lower at 1.20% and only marginally better than Royal Bank.  The lesson here is that as the savings portfolio grows, it becomes more profitable to maintain or sacrifice some market share than to re-price the large savings portfolio to compete.  This feature should be a significant differentiator for both motusbank and alterna bank against Tangerine and Simplii and most banks and credit unions.
  • Motusbank is differentiating themselves on GIC, mortgage and personal lending rates versus all competitors.  They have an innovative 3.09% offer for all fixed mortgage terms facilitated somewhat by the current flat rate curve.  

Observations:

  • PC Financial (now Simplii) was a full-service direct bank from launch.  Free chequing, PC Points and importantly, banking kiosks in Loblaws stores enabled them to build a large (est 2 million) primary client customer base.  They have been less successful at building share of wallet as mortgage brokers, mobile mortgage specialists and financial planners offer consumers an even more convenient and higher value from an advice perspective, approach to their mortgage borrowing and investment needs.
  • Tangerine was a product focused direct bank at launch with high rate savings as their key differentiating product.  They are now a full-service direct bank.
  • Both Simplii and Tangerine suffer from portfolio re-pricing risk in their ability to compete on deposit and loan interest rates with smaller full-service and product oriented direct banks (like Equitable Bank).
  • Motusbank and alterna bank will have to invest heavily in brand development to create awareness outside of the markets where their parents have physical distribution. The broker channel offers a way to build product balances quickly, however, building a base of profitable primary relationship customers with be a long-term challenge.
  • We applaud Meridian and Alterna Savings for taking the leadership among credit unions to extend their reach beyond their local markets with advantaged direct banking offers.  It is undoubtedly the way future generations will prefer to bank; however, it could be a long and painful process to build to economic size.  We look forward to tracking and reporting to our subscribers on their progress in our market share reports.