ABBOTSFORD, B.C. - One Canadian credit union is looking to drum up deposits through an Internet-only division-and it's counting on the cost-effectiveness of the Internet delivery channel to do it.
Fraser Valley Credit Union has formed Ubiquity Financial, a branchless division that will attempt to attract member deposits by offering deposit rates that run as high as eight times higher than rates offered by other banks and credit unions in British Columbia.
"Rather than expanding Fraser Valley through British Columbia with new branches, we saw this as an opportunity to expand by targetting people comfortable with this delivery channel," said Larry Davey, president of Ubiquity Financial. "We don't incur the brick and mortar costs this way."
The interesting thing about Ubiquity Financial is that it's really a one-trick pony in that its sole purpose is to attract savings deposits. There are no checking accounts or lending products.
"We believe this is going to be the savings vehicle of the future. Here in Canada we all suffer from liquidity issues. We wanted a deposit gathering machine so it makes it easier for Fraser Valley to lend money out," said Daryl Verbeek, vice president of operations for Ubiquity Financial.
"Credit unions are battling for a bigger share of a shrinking pie. More deposits are going into (mutual) funds. Charter banks can rely on the bond market to fund their loans, credit unions can't," said Verbeek.
While a normal savings rate for a Canadian financial hovers around .50% (see chart), Ubiquity Financial will offer member a savings rate of 4.55%.
The only regulatory roadblock Fraser ran into when forming Ubiquity is assuring regulators that, although it is accessible from anywhere in the world over the Web, it would only take deposits from individuals within British Columbia.
As a division of Fraser Valley, Ubiquity was not required to qualify for its own deposit insurance, it qualifies under Fraser's.
Verbeek and Davey say they know the on-line model can work. One of the things spurring the move to the Web was the success of ING Direct, a branchless subsidiary of the ING Group of the Netherlands, which has managed to attract over 150,000 Canadian customers since opening the on-line unit in Vancouver some three years ago. ING also touts the high rates made possible by the lack of brick and mortar expense.
"There's a market here, ING is here, American Express is here. People look for online financial services," said Verbeek. Since unveiling Ubiquity in early January 2000, Ubiquity has already signed up about 400 members.
People dealing with Ubiquity have full access to ATMs; they can transfer funds from other financials; and can get funds transferred from direct payroll deposit.
Ubiquity members, however, cannot utilize Fraser Valley branches. "We don't offer any access points within our branch networks. Once we cross that line it becomes expensive and the rate model doesn't work," said Davey.
Davey does expect a small percentage of Fraser Valley members to join Ubiquity. Fraser Valley members are not automatically members of Ubiquity.
Last year VanCity launched its own virtual bank, Citizens Bank of Canada. But Verbeek says that's not the same concept as Ubiquity. "They've made it just a full extension of VanCity. We are separate and not offering all the services of Fraser. There are no mortgages or checking accounts, and we're offering the higher rates," said Verbeek.
British Columbia is an extremely competitive market. There are 70 credit unions alone in the province, as well as major Canadian banks. The population of British Columbia is concentrated mostly to the lower mainland which is home to some four million Canadians.
About half of the assets of Canada's 800-plus credit unions are in British Columbia.
Fraser Valley administers $730 million in assets and serves 47,000 members.
Ubiquity is using Prologic's Ovation Internet banking solution. -
pgentile@cutimes.com
