Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Gic Market In Canada


Published on

Quick overview of the Canadian GIC market circa Q1 2009

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

Gic Market In Canada

  1. 1. GIC Market Dynamics in Canada May 2009
  2. 2. Idea Associates is a Toronto based consultancy focused on financial services products and markets Deposits Credit Cards Mortgages Wealth Insurance Leading Financial Services companies Industry Analysis through the process of VoC Analysis implementing new Strategic Design product and market Business Model Design opportunities. Implementation New Product Strategies Cross-Border Opportunities Process Redesign Mergers & Alliances Disruption Plays Idea Associates Ltd 2 Client Confidential
  3. 3. Executive Summary • GIC Market in Canada is ~$900 billion 67% of funds with Chartered Banks 57% of funds Personal accounts … 43% business Average growth rate is 5% …. Trust company GIC balances grown at 9% • Distribution is key to GIC launch success Creating “captivated” distributors with Investment Dealer or FICDB independents key to success GIC originations not regulated … therefore other distribution channels possible but infrastructure build costly (i.e. mortgage brokers, mutual fund, insurance channels) • GICs must be CDIC to compete in current market Non-compliant product structures exist but are marginalized in market • Market entry plays have focused on rates/commission Differentiated entry plays complicated by generic nature of product Idea Associates Ltd 3 Client Confidential
  4. 4. The Canadian GIC market is valued at just under $900 billion in Q1 2009 … down 4% from peak volumes in 2008. Total GICs in Banks, CUs and Trust Companies $950,000 $900,000 $850,000 ($ Millions) $800,000 $750,000 $700,000 $650,000 $600,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008 2009 Total GICs in Federal Deposit Taking Organizings • On average, GIC volumes have been increasing at an average of 5% per year since 2004 Idea Associates Ltd 4 Analysis.Client Confidential Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates
  5. 5. Individuals hold 57% of outstanding GIC balances and businesses 43% GIC Deposits: Personal Vs. Business Registry 600000 • On average business holdings grew at an average 500000 of 5.5% compared to 3.4% for 400000 individual holdings in the $ M illio n s period. 300000 200000 100000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008 2009 Total Personal GIC Outstanding Total Business GIC Outstanding Annual Growth In GIC Holdings: Personal/Business 2005 2006 2007 2008 Q1 2009 Pers Growth Rate 1.9% 6.0% 4.3% 10.7% -5.9% Business Growth Rate 4.5% 7.5% 16.3% -4.7% 4.1% Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates Idea Associates Ltd Analysis. 5 Client Confidential Note: CU division is estimated as their reporting is a blend of both personal and
  6. 6. Banks are the primary repository of GIC funds … GIC Assets By FI Type 1000000 800000 Millions $ 600000 400000 200000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 43234 42308 41934 41881 41104 41400 41774 42114 42363 42782 49515 49168 50701 51773 57077 61322 62370 Trust Company Total GIC 181031 186482 187953 191297 192932 198208 200176 202699 206035 209433 212893 216416 220005 223659 227381 231171 235030 CU Total GIC Chartered Banks - Total GIC 466657 477117 481547 478606 493687 497159 519972 531227 535652 556514 596242 592503 608646 623519 633031 618895 598302 Chartered Banks - Total GIC CU Total GIC Trust Company Total GIC • 67% of total GIC (~600 bn in 2009) are placed with banks. • Credit unions are estimated to control 25% of GIC market • Trust Companies 7% … although balances grew at an annual rate of 9% per year Idea Associates Ltd 6 Analysis.Client Confidential Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates
  7. 7. RSP GIC Balances are slowly decreasing … growth personal GICs in non-reg business RSP vs Non-Reg GICs 600000 500000 400000 P er sonal GI C V ol ume 300000 RSP GI C V ol ume 200000 100000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008 2009 Total Personal GIC Assets M a rk e ts ha re % 100% 80% 60% 40% 20% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008 2009 Personal GIC Marketshare RSP GIC Market Share Idea Associates Ltd 7 Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates Client Confidential Analysis. Data includes chartered bank, CU and Trust companies.
  8. 8. GICs account for 55% of personal deposits at banks Chartered Bank Personal Deposits By Product Type 700000 • Similar balance expected in 600000 CU markets 500000 • Trust companies are fully 400000 reliant on GIC funds 300000 200000 100000 0 2004 2005 2006 2007 2008 Q12009 Personal Chequing Personal Savings Personal GICs Chartered Bank Personal Deposits: Product Source 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 Q1 2009 P er sonal Chequi ng Per sonal Savi ngs Per sonal GICs Idea Associates Ltd 8 Analysis.Client Confidential Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates
  9. 9. Developing a competitive GIC business in Canada • Distribution driven sales environment Finding “captivated” sales force key to volume … emphasis on captivating sales/channel interest Sales force motivated by commissions, perceived brand quality of FI, paperwork/compliance barriers. GICs are sold … Not bought … therefore POS preference is key Recommended part of financial strategy or life-stage driven fixed income needs Older people are bulk of market for GICs … economic turbulence also drives volume Business and institutional GICs key sources Customers buy term, CDIC, brand, rate ... in that order Rate is generally not a competitive driver … Customer sensitivity to rate is less than sensitivity to CDIC protection, brand and recommendation. Rate is more important in direct markets Idea Associates Ltd 9 Client Confidential
  10. 10. Distribution Channel and Connectivity • Distributor Environment Large dealers … large and bank owned dealers largest source of independent GIC funding (ie. RBC-DS, CIBC Wood Gundy, Nesbitt-Burns, Jones Heward et al). Independent Deposit Brokers … FICDB members who exclusively sell GICs. Alternative Channels Mutual Fund and Financial Advisors Insurance Brokers Banks and CUs Direct • Systems access Cannex – Primary system for access to independents and dealers Proprietary – Fax and or Excel based order and reconcile systems (BNS) and/or direct websites. Alternative systems -- Fundex – mutual fund, life insurance channels. Filogix – mortgage brokers and bank remote channels. Idea Associates Ltd 10 Client Confidential
  11. 11. Simplified GIC Value Chain • The GIC product environment is highly constrained … Competitive drivers distribution sources, rates, product features, fulfillment/compliance pain Profit drive by rates (driven by channel and brand), operating costs (reducing errors, compliance enforcement choices, order automation) Validation of Confirm and Funds Rate Pricing Originate Redemption AML/KYC Reconcile Disbursement Distribution Agreements, Compensation & Distribution Systems (i.e. Cannex) Accounting, Payments and Reporting Product Design Back-Office and Systems of Record Compliance Framework Idea Associates Ltd 11 Client Confidential
  12. 12. A market entry plan for GICs suggests four general alternatives … Rate/Commission Differentiation Channel Differentiated Undifferentiated • Launch generic GICs with • Launch generic GICs with differentiated rates or commissions differentiated rates or commissions. to fund and mortgage brokers. • SO: use price differentiation to buy • SO: New distribution, with simplified volume offer • Challenges: low reliability, brand • Challenges: Channel education, facet of sale to distributors, compliance, market appetite, cost increased competition from other of infrastructure, time to market new banks New Existing Channels Channels Distribution Channel Choice Product/Channel Differentiated Product Differentiated Product Feature Choice • Launch feature based GICs to • Launch feature based GICs to mortgage brokers and fund sales Dealer and FICDB Markets. force. • SO: non-price differentiated • SO: Product differentiated competition competition with advisors not • Challenges: Channel education, currently selling GICs (new income) compliance, entrenched behaviors, • Challenges: Channel education, cost structures. compliance, market appetite, cost structures, time to market Feature Differentiation (i.e. index, etf GICs, etc) Idea Associates Ltd 12 Client Confidential
  13. 13. Idea Associates Experience • Launched GIC, Savings, Chequing and Credit card accounts for Canadian Banks and Trust Companies • Authored strategy and OSFI business plan for Canadian mortgage insurance company • Expert on mutual fund, insurance retailing, mortgage broker and direct channels • Deep operating connections to Cannex, FundServ and Filogix and various back office systems providers • Team of skilled industry professionals capable of implementing winning financial product and channel strategies. Idea Associates Ltd 13 Client Confidential
  14. 14. About the Author • Scott Wilkinson MBA CMC 416-669-5540 Scott leads companies through the process implementing new product and market opportunities by leveraging his strategic consulting background, deep analytical toolset and market understanding. Prior to founding Idea Associates, Scott was a senior consultant with leading U.S. based consultancies Organic Interactive and Dove Consulting. He has advised companies such as AGF Funds Management, MGIC Canada, GE Capital (Genworth), Centract, Bell Canada Enterprises, Chrysler Financial, American Express, Charles Schwab, IBM and others on product, market growth and operational efficiency strategies. Before consulting, Scott spent 8 years with Royal Bank of Canada and CIBC, as a key member of teams assigned to develop new products, payments and channels. Scott is published author on the mortgage industry, housing affordability, payments and billing, interactive banking channels and B2B exchanges. He has published a number of industry white papers, is a contributing author to the “E-Finance Report” on the US Banking Industry published by McGraw-Hill and authored “The Evolving Impact of E-Commerce on Housing Finance and Affordability” in 2003. Scott also has published articles on eCommerce governance. Scott is a certified management consultant with a BA from the University of Toronto and an MBA from Richard Ivey School of Business at the University of Western Ontario. Scott is a member of the Canadian Association of Management Consultants, the Product Development Management Association and the Canadian Association of Accredited Mortgage Professionals. Idea Associates Ltd 14 Client Confidential