It’s no secret that Canadian banks have entered a new, low-growth reality over the medium and possibly even long term. This is especially true for Canadian retail segments, as low GDP growth and over-indebted consumers mean that banks can’t rely on the market to offer much growth.
This won’t stop Toronto-Dominion Bank (TSX: TD)(NYSE: TD). TD currently banks with about 40% of Canadians and has the leading market share in personal deposits, credit cards, and real estate-secured lending. It has also earned the J.D. Power award for highest customer satisfaction among the Big Five banks for 10 consecutive years.
What does all this mean? It means that TD is able to execute what it calls its “One TD” strategy to drive organic growth and gain market share. TD uses its large market share and multiple business segments to bring the entire bank to customers and drive referrals and cross-selling between segments.
Here’s how TD is using this strategy to drive market share growth.
TD is expanding personal banking and wealth management
TD has identified several low-risk opportunities for growth in its personal banking and wealth management segments. For example, while TD currently has the number one market share in residential-secured lending (with about 21.5% of the market), TD is currently lagging in the unsecured-lending market with only a 14% share of the market.
In addition to this, TD currently has about a 24% market share in everyday banking, and this means that there are many TD customers who perform daily transactions and have accounts with TD who are not using TD to perform their lending activities. TD has an opportunity to increase its share in unsecured lending up to the level it has in other product categories simply by deepening relations with its own customers.
TD has a similar opportunity in its wealth management segment, where it has already been successfully executing its strategy of expanding market share through capitalizing on cross-selling to its own customers. In the last year, for example, TD added $24 billion to its wealth book of business simply by increasing the number of retail customers who are also wealth customers.
This will be a key growth strategy going forward, as TD’s advice solutions (which includes planners and full-service brokers) are used by a fairly small percentage of TD’s current customer base who are eligible to receive these solutions.
As an example, TD currently has 4.3 million mass affluent clients and 500,000 high net worth clients. These clients have significant assets, yet only 10% of this population uses TD’s advice solutions, even though much of this client base could benefit from an advisory relationship.
TD plans to capitalize on this huge opportunity by hiring 500 new advisors and relying more on branches and its online platform to drive sales.
TD is also set to grow in the credit card space
Canadian credit cards also provide an organic growth opportunity. Currently, TD has the number one Canadian market share in cards, but there is considerable opportunity to further increase this share simply by further tapping into TD’s massive customer base.
TD has set a goal of adding one million cards per year by 2018, and this will be accomplished by increasing the amount of TD customers that use TD credit cards to 50%, which is a reasonable target. TD will also use the same strategy with its business credit cards and hopes to add 150,000 new accounts by 2018 simply by increasing the percentage of TD’s commercial customers who have cards.
TD’s efforts should add $500 million in annual revenue by 2018. To put it in perspective, this would represent about a 2% increase to its projected 2015 revenue.
This type of growth is low risk and low cost and will allow to TD to generate earnings growth in a weak macroeconomic environment simply by better integrating its various businesses.
