Big five banks set sights on financial upstarts

Four years ago a cocky, foreign upstart entered Canada's staid financial services sector and started to tell consumers that it could 'Save your money.'

Four years ago a cocky, foreign upstart entered Canada’s staid financial services sector and started to tell consumers that it could ‘Save your money.’

Today, ING Direct’s no-nonsense approach has enticed more than 400,000 Canadians to its lineup of low-interest mortgages and loan accounts, and higher-interest savings accounts and investment products.

The messages crafted by ING’s agency Garneau Wurstlin Philp have stuck to that simple premise with mixed-media campaigns focusing on the benefits of ING’s financial products, while pointing out where the big banks fall short.

Just over three years ago, in an even more impudent move, a popular grocery chain extended the equity of its President’s Choice brand to its own virtual bank.

PC Financial is a full-service virtual bank that offers its customers no-fee banking and credit card products, and lower-rate mortgages, all accumulating PC points to be used for free groceries. PC Financial must have a recipe for success because it has more than 500,000 customers. Palmer Jarvis DDB handles PC’s mass advertising work, while Tattoo Direct + Digital takes care of direct response and the electronic business.

Of the big five banks, only Royal Bank of Canada – while keeping its rates competitive – has not abandoned its ‘Make the most of your dreams’ corporate branding strategy. The others have become much more retail with low-price mortgage offers and higher interest chequing and savings products. The almost unheard of sweepstakes promotions now offered by a few of them are seen to be an attempt to put a friendly face on the bank, although some industry watchers call it a sign of desperation.

Scotiabank is offering cash prizes to customers opening online accounts. It is also coming on strong in the mortgage department with a campaign called ‘Total Equity Plan Cash Back Offer,’ which gives customers up to 5% cash back on their mortgages.

CIBC has a sweepstakes underway as part of the promotion of its Waive Account (a low-fee, high transaction chequing account), and its high-interest Premium Growth Account.

TD Canada Trust is offering cash prizes for online customers, in addition to juggling its mortgage and interest rates to stay in line with competitors. Most of its efforts have been around the merger of TD and Canada Trust that began a year ago and should be completed in August. More high profile advertising is expected to follow the full retail integration of the two banks.

At Bank of Montreal, we saw the launch of its first Quebec-only campaign in 10 years this past April. In English Canada it is pushing its Premium Rate Savings Account, and its line of credit products through its MasterCard access card. There is some speculation in the industry that there will be some new and big things from Bank of Montreal in the near future, purely because of its recent appointment of Michael Beckerman, formerly of Nike, Canadian Airlines and, as SVP of marketing.

Whether these tactics, which are counter to their brand building efforts of the past several years, will result in loyal customers or just attract ‘price shoppers’ remains to be seen.

Bill White, president of Aurora, Ont.-based marketing consultancy W. White & Associates, which specializes in financial services, says big banks have no choice but to react to the attractive offers from alternative banks because they want to maintain the more profitable segments of their businesses, such as chequing accounts.

White believes that the alternative segment of the category – ING Direct and PC Financial – will continue to grow in Canada as consumers get more comfortable shopping around for financial services. ‘I think it might be easier for PC Financial because they’ve got a very large existing customer base [through the grocery outlets.] And they go through frequently, at least once a week. That makes it very attractive from a marketing standpoint’.

The big banks also have a real credibility problem, says White. While the average consumer feels very secure about the stability of banks, he says they don’t trust banks to have their best interests at heart from a financial perspective. ‘There is a lot of resentment among consumers generally towards the banks…especially with the level of profits they’ve generated over the past number of years.

‘The banks are going to have to be consistent in terms of their approaches and it’s going to take quite a while to overcome this frustration that customers have experienced over the years.’

Diane Sinhuber, partner in the financial services audit practice of Ernst & Young in Toronto says the presence of virtual banks like ING Direct and PC Financial in the marketplace has made the bigger banks rethink their strategies, and maybe even start to assess whether they really want to be in certain segments of the business.

She says, ‘You can offer low-rate mortgages but if they don’t get the returns they need for their shareholders, then I think they need to re-examine that business altogether.’

‘There’s all this foreign competition out there, too,’ Sinhuber adds. ‘If they decide that Canada is the place to be, they can throw a lot of money and resources into building business in Canada. That’s what we’ve seen with the ING Direct.’

Here’s the perspective on the status of financial services marketing from the folks in the trenches.

Bruce Philp, partner, Garneau Wurstlin Philp, Toronto

(ING Direct’s agency)

What the traditional banks have done increasingly is focus on wealth management because they have, quite correctly, realized that a huge chunk of the population has matriculated from a wealth accumulation lifestage to a wealth management lifestage. The baby boomers now have some money and they have to invest it in something, whereas 15 years ago they were still trying to get money.

During this period you saw banks acquiring brokerages and getting into the mutual fund business directly, generally trying to push the regulatory boundaries in terms of cross-selling, and trying to leverage their customer base into wealth management because that’s where they knew the future was.

Against that backdrop, you saw the emergence of an alternative retail bank category that was led, I would argue, perhaps immodestly, by ING Direct, but certainly PC Financial got pretty serious and did well with it. As well, there are some non-bank brands like Manulife and Altimira selling deposit and mortgage products.

You can’t help but wonder if banks looked over their shoulders from busily building their wealth management practices to realize that maybe their core business was being nibbled away at – and the reason that was happening was because they’d always taken those customers for granted. The message the consumer got was, ‘Get out of here you’re bugging us. Just give us your money to invest and only then if you’ve got lots of it or if you want to borrow a bunch but otherwise just stay out of the branches – go to an ATM.’

I think they’re trying to respond…but they’re doing it in a fairly facile way.

If you look closely, you’ll see that financial services hasn’t split into two categories – old and new – it’s split into a bunch because PC Financial is an alternative full-service retail bank.

ING is not a full-service retail bank. We don’t ask you to give up your bank or change anything, we just say we beat the competition on these fronts, so why don’t you just shop around like you do with everything else. In some respects ING is more dangerous. Banks may believe they’re fighting a single enemy – alternative financial institutions. In reality what we’re seeing is the consumption behaviour in the category exploding into all kinds of different solutions.

The biggest asset a traditional bank has is its institutional stature. Canadians hate their banks from the perspective of a customer, but in a funny way love them from the perspective of a citizen. We like our institutions because they kind of protect us.

I think the big banks should have played to their strengths, and I would submit the Royal Bank is doing just that. The others – rather than reminding people what great, noble, successful, deeply rooted, stable, responsible institutions they are – are starting to act like carnival barkers, and I think that’s just going to encourage the consumer to shop around both among big banks and outside the traditional circle.

David Rosenberg, SVP and CD, Bensimon Byrne D’Arcy, Toronto (Scotiabank’s agency)

If you look at any research on how people feel about banks, it’s very negative stuff…so we didn’t believe going into this that you could do a patronizing ‘we believe in fill-in-the-blank-here’ kind of campaign because consumers just don’t buy it.

I think banks are trying to tailor their offers to what consumers would find most beneficial – what they’re really looking for.

We try to do that with the communication on Scotiabank. We try to approach our message with real human insight into what consumers’ problems are, and what issues they’re facing, as with the 5% Cash Back Mortgage. Often when you buy a home you are cash poor. You have no money left over to buy furniture or appliances. That product and the way we advertise it is a way to tell people that Scotiabank understands their situation.

Andrew Bruce, EVP and COO, Publicis Toronto

(the agency behind CIBC)

ING has come in and what it has accomplished without bricks and mortar in a very short time would surprise any business. You have to respond to any competitive attacks accordingly. CIBC is as aggressive about that as anybody else.

What you’re seeing is simplifying the offering, giving consumers what they want. John Hunkin [CIBC's chief executive and chairman] has said it publicly a few times, ‘Our customers have better things to do than banking.’

Consumers want to know, ‘What do you have for me? How does it benefit me?’ and say, ‘Tell it to me straight; don’t tell me you understand my dreams.’

I think that’s why you’re seeing really smart stuff coming out of Scotiabank. I like the work Bensimon Byrne D’Arcy has been doing, and we are working hard to do the same.

David Fong, president and CEO of TBWA Chiat/Day, Toronto

The way a lot of financial institutions are approaching the market is to use some form of financial inducement around a product to increase transactions. Once they’ve got the transaction, they try to convert the transaction to some form of relationship.

The real issue in banking right now, as in most service companies, is that there is not much difference between the value proposition of one banking institution and another. All of the products are at parity, the promotions are at parity, and the promotional devices in terms of ad messages are at parity.

What customers want is not more product, more gimmicks, more inducements – what they want are real and meaningful differences. Make it easy. Make it rewarding. Make it relevant to me.

All the promotions, the activities, the products done right now are all dependent on how much noise you make and whether you can sustain that noise. It’s the retail-sale syndrome. The minute you drop off, transaction levels go down. You have to separate transaction from loyalty in the segment. Transactions don’t necessarily translate into loyalty.

John Farquhar, president and chief creative officer, Young & Rubicam, Toronto

The research we’ve done on the financial services category found that people can’t tell them apart. You end up with a group spending more money on marketing and advertising than a beer company, and having literally no brand differentiation. Consequently, you have a situation that opens the doors for companies such as ING who have an aggressive retail brand where price becomes the primary component.

There is lack of differentiation to the point that people say, ‘Gee, those are the people that make my favourite cookies; I guess I can do my banking with them too.’ It’s bizarre that people would see a brand such as President’s Choice, whose basic premise is quality but in a food area, and would allow that sort of brand extension. Good cookies, mind you.

But banking has become a convenience item. And that’s a long way from 30 years ago when there was a certain kind of fear of banks, that this institution is in control of my financial destiny. What has happened is that control has gone completely over to the consumer.

People used to have a brand experience with a bank manager or a teller, a human being. I had a relationship [with my bank.] I had an assumption that I had a little more leverage than the next person out there. That has disappeared. As with any brand experience, it was something that was vital to [the banks'] livelihood.

I think there’s a maximum level of service you can provide people where they’re going to say, ‘It’s perfect, but all you guys are doing the same perfect service so how do I choose?’ That’s where branding comes in.

That’s where you take relevant aspects of their business and build a relevant, likeable brand through advertising. The unfortunate thing is, they tend to do advertising that appears to have something of a group think to it. Their advertising has to look like what the other guy has done.

It’s taken them a long time to get to a point where their brands are so murky, so it’s going to take some time to get to a point where the brands have some definition again. The category is ripe for someone to come and really create change, and I think ING has done that. The other thing is that [its TV advertising] is a one-to-one conversation. It’s not like this great monolithic corporation talking to me from the TV. It feels like it’s approachable. Even though everything I will do is over the phone – there is no retail – it feels like I’m dealing with human beings who truly understand what my issues are.