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
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Client Confidential
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
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Client Confidential
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
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Analysis.Client Confidential
Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates
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
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Analysis. 5
Client Confidential
Note: CU division is estimated as their reporting is a blend of both personal and
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
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Analysis.Client Confidential
Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates
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
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Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates Client Confidential
Analysis. Data includes chartered bank, CU and Trust companies.
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
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Analysis.Client Confidential
Sources: Bank of Canada, April 2009. OSFI May 2009. Idea Associates
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
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Client Confidential
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.
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Client Confidential
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
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Client Confidential
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)
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Client Confidential
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.
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Client Confidential
14. About the Author
• Scott Wilkinson MBA CMC
Scott.wilkinson@ideaassoc.com
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.
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Client Confidential