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(Bill Grimshaw)
(Bill Grimshaw)

Financial Services

The bank formerly known as GMAC tackles Canada Add to ...

There's a new option for people wondering why the waning of the global financial crisis hasn't been reflected in their dealings with the big banks.

Ally is the brand name for some new online banking products being launched today in all provinces but Quebec by beaten-up car finance company GMAC LLC.

If you're mad at your bank, Ally wants to be your new friend.

Ally was introduced in the United States in mid-May as a customer-friendly rebranding of the banking arm of GMAC, which was smacked around in the financial crisis and received rescue funds from Washington.

GMAC was once known as General Motors Acceptance Corp., and it's this background as a lender to car buyers that helps explains the move into retail banking both in Canada and the United States. Money taken in as deposits is a cheap, stable way to raise money to finance car loans.



People know their money is going to be safe with the banks, and I think the credit crisis has reinforced that. But they still uniformly despise them. Mike Spero


Here in Canada, the Ally name is being used for a high-interest rate savings account and guaranteed investment certificates issued by ResMor Trust Co., a Toronto-based trust company that GMAC bought two years ago.

Ally arrives here at a time when people are paying higher rates for mortgages and lines of credit than they did in precrisis days, and returns on savings accounts and GICs are beyond pathetic.

Bank profits are improving, but customers aren't seeing any benefit of the return to financial stability.

This is clearly an opportune time for Ally's good-guy marketing pitch, but there are still some challenges.

The natural skepticism people have toward any financial institution, even one that tries to be customer-friendly, will have to be overcome. This will be amplified in Ally's case because its U.S. parent was knee-deep in the financial crisis.

Another challenge is the very crowded online banking market here in Canada. Did you know that Canadian Tire, for example, has an online bank? Ever heard of Achieva Financial, Maxa Financial or ICICI Bank Canada?

Leading the introduction of Ally in Canada is Mike Spero, who more than a decade ago helped develop the online bank President's Choice Financial, a joint venture by Loblaw grocery stores and Canadian Imperial Bank of Commerce. Mr. Spero said his research shows that Canadians have pretty much the same attitude toward their banks now as they did back then, which is to say there's a high level of trust but little else.

"People know their money is going to be safe with the banks, and I think the credit crisis has reinforced that. But they still uniformly despise them."

Ally will exploit this by casting itself as the straight-talking, do-the-right-thing bank. In a marketing campaign on TV and in print, you'll see taglines like "We make money with you, not off you."

It's a good little phrase, and Ally is demonstrably trying to back it up. For example, it's pledging not to offer a high initial rate of return on its high-rate savings account and then lower it once a bunch of people have set up accounts.

"We're not going to hide behind asterisks and fine print and any sort of sneaky teaser campaigns," said Mr. Spero, managing director of Canadian deposits for ResMor Trust. "The easiest thing is to come out with an eye-popping rate. What we've chosen to come out with is a great rate, but it's not something crazy."

Ally's no-fee High Interest Savings Account pays 2 per cent, which is just below the leading 2.1-per-cent rate from Peoples Trust and well ahead of competitors like ING Direct and ICICI Bank Canada. Obviously, Ally's first credibility check will be whether it maintains the current return.

The one-year GIC offered by Ally pays a highly competitive 1.75 per cent, has no minimum investment and can be redeemed penalty free, with interest paid up until the day you call to get out. With most banks, a redeemable GIC means a big sacrifice on rates. Yesterday, some financial institutions posted rates as low as 0.15 per cent for cashable one-year GICs (please, no one tell me they bought one of these).

These rates do stand out, comparatively speaking. But financial industry consultant David McVay said Ally will still have to contend with what he believes is an overcrowded market for online banks. Take Canadian Tire, for example.

"They have a strong brand, they're paying well above ING Direct on their savings account and they have a robust credit card base to market to," he said. "And yet they've done virtually nothing." It will be tough sledding for another bank to come in, he added.

Ally is starting off with conventional and tax-free savings accounts and may get into registered retirement accounts next year. Other potential new products include a chequing account and mortgages.

Meantime, GMAC is in the process of getting regulatory approval to convert ResMor Trust into a bank under the Ally name. That should help shore up customer confidence in the new brand, although it's worth noting that ResMor is currently a member of Canada Deposit Insurance Corp. In other words, deposits of up to $100,000 are protected against any business problems that ResMor runs into.

*****

How Ally rates

The Challenger

The Ally High Rate Savings Account

2.00%

Market Leaders

Peoples Trust

2.10%

Maxa Financial

2.00%

Achieva Financial

1.85%

Middle of the Market

Canadian Tire Bank

1.50%

Outlook Financial

1.50%

ICICI Bank Canada

1.40%

ING Direct

1.20%

The Next Tier Down

President's Choice Financial

0.75%

Royal Bank

0.75%

Source: Cannex.com

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