'We don't feel the need to do another deal': Q&A with TD consumer head

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TD Bank has long billed itself as "America's most convenient bank," with many of its locations open seven days a week.

But convenience doesn't mean what it once did. Mobile apps, after all, are available at all hours, and banks have no choice but to adapt. Yet they still want to maintain that personal connection with customers and TD is doing that with its "bank human" advertising campaign, which, among other things, promises debit cards on demand and a teller experience free of rope lines.

TD has made it its mission "to be the better bank," said Michael Rhodes, its head of consumer banking. That, he added, means more than beating its peers.

"You remember the old Avis commercials — 'We try harder'? It's kind of the 'We try harder' theme; we want to be better than ourselves a year from now," he said.

TD is one of the country’s largest banks, with a footprint that stretches from Maine to Florida. Since acquiring the $28 billion-asset Banknorth in Portland, Maine, 12 years ago, the U.S. arm of Canada’s Toronto-Dominion Bank has grown tenfold, to $280 billion of assets, and now has more than 9 million customers.

Rhodes joined the TD in 2011 as the head of its North American credit card operations and was named head of consumer banking in 2015. In an in-depth interview, Rhodes explained how TD is translating its culture of service and convenience to the digital world.

He also discussed the bank’s acquisition strategy, explained why stress-testing is a good thing and even made a case for holding wedding ceremonies inside TD branches.

What follows is the interview, which has been edited for length and clarity.

What does convenience mean in a digital world?

MICHAEL RHODES: Historically, convenience has meant that we have stores where you want to be, we're open longer and we're open on weekends. The first TD accounts I got, I opened about 20 years ago. I tell folks that the reason I opened them was that I moved to Wilmington, Delaware for a job, and I needed bank accounts, and I went and basically knocked on everyone's door on a Saturday, and no one was open except for the old Commerce Bank. [TD acquired Commerce in 2008.] This strategy of being open when people want to bank, it's actually not a bad strategy.

[Today] we have what we call "TD omnidial" — you've got to use the word "omni" if you're a bank these days — where, if you're in the TD app on your phone, you can click to call and the phone call goes through, it's answered immediately and you're preauthenticated. We actually pull your authentication through from your phone and use that. That's convenient, because you don't have to verify your identity.

Another thing we're doing now is voice biometrics in our call center. When you go through and you authenticate deeply, we actually capture your voice so that next time you go through, you don't have to go through the 45 questions. That becomes convenience in a digital era. We'll ask for your permission when you call our call center: "We'd like to capture a voiceprint and use that for authentication." You say OK, and we engage you in a conversation for about 20 seconds, in which we actually capture your voice tones and inflections. And then, based upon that, the next time you call in we will immediately know that it's you.

The technology is pretty sophisticated. If you were a fraudster, and you got this brilliant idea — "Oh, let me record that conversation you had" — if that exact same conversation gets played back, we actually know it's the exact same one, because it's too close. There's really cool technology behind this. We spend a lot of time trying to think about what convenience is and how you move the convenience agenda forward.

What about "being human”?

There are a couple of elements. One is that our internal culture is characterized by words like "fun," "wow" — we use the word "wow" a lot — and "legendary." There's this buzz inside the company that's very employee-centric. We try to have it be a good place to work, where people are excited about what they're doing.

We also try to deliver on the customer experience. I was recently at a store up in Portland, Maine, and one of our longtime customers had started a business, and we'd actually helped the customer in starting a business. And then she was about to get married, and actually decided to be married inside one of our stores. So we had a little reception. We don't do that every day, I promise you, but we celebrate stuff like that. When you celebrate the nonroutine, it sends a great message out to the whole organization.

There's another example I use. We had a customer-appreciation day last year, and one of the things we did for a customer — she was 97 years old, and a big Elvis fan, and she used to like to call our call center and would actually ask for a specific specialist whom she really, really liked. We threw a party for her at her nursing home — an Elvis-themed party with an Elvis impersonator — and we flew the call center representative down to meet her, because she was so attached to this person. Doing things like that adds a little buzz and excitement to the business. When you tell your employees about it, it gets them excited about trying to deliver every day for customers.

What is the bank's current growth trajectory?

I like to give three narratives with respect to our growth. One is just the core overall U.S. bank — in the past 10 years, we've grown our assets at a 22% compound annual growth rate. For top-10 banks in the U.S., the number is 5%. So we're well outgrowing the market. Certainly we've done deals and acquisitions during that time, but our core organic growth is actually quite strong as well.

There are all sorts of metrics you can look at for organic growth. One of the ones I like to look at is household formation — how many new households you're bringing on. That's the raw material that funds your business. And our new household formation is about 4%, give or take, per year — and that's twice the industry average. One example is New York City. Ten years ago, we had roughly 50 stores — we still call them "stores" — and today that number is just shy of 140. We were barely a top-10 bank 10 years ago in New York; we're now No. 3 as measured by deposits and store share.

In my old business, the card business, the growth narrative is that when I joined we had roughly $1 billion worth of card loans in the U.S., and we now have $10 billion. That works out to a 65% annual rate growth rate. There are two sources of that growth. One is organic, through our retail distribution — selling cards — and the second is that we won a couple of really key marquee partnerships, one of which was Nordstrom. Another was Target. Two great brands that we're very proud to be affiliated with.

Is TD poised to deliver organic growth solid enough that you don't need to be on the lookout for any new acquisitions? Or are there specific areas — maybe chinks in the armor — that you'd like to fill with a deal?

We don't feel the need to do a deal. If there's something interesting, we'll look at it. The best acquirers are good operators, because they can get the most out of what they acquire. So our No. 1 job is just to be good at what we do. Historically, we've looked at buying traditional banks from a very opportunistic perspective. If the math makes sense, if the footprint makes sense, if we think their business model aligns with our business model, we'll be opportunistic.

There are certain places — in the card business, we've done two transactions in the U.S. in the past three or four years. We like hard assets, we think we have a very good team and we feel that we have the credibility to be a good acquirer. If you look at our balance sheet from the outside in, you would see a whole lot more deposits than loans — maybe $100 billion more. So that would suggest that credit assets could be attractive for us. But you only buy credit assets in spaces that you actually know and understand, so that limits the universe that you can look at.

What are the areas that you think you know and understand?

Certainly credit card assets. There are probably some specialty commercial business lines that could be interesting. But it's not going to be a long, long list. If you find someone who has a unique platform that just hasn't been scaled and they need distribution, those can be interesting deals. Those are pretty rare. Everyone wants one of those.

In my own career, I've been part of a number of deals involving the acquisition of platforms and businesses, and it's nontrivial. You buy processes, you buy technology, you buy customer bases, but you're also buying people. The biggest thing you've got to get right is the team — do they actually want to be part of my business, or are they looking to cash out? Ideally, you want the people to become permanent members of the staff. Customers make the decision about where they want to bank based on the reputational trust in an institution, the reputational trust in individual people. As you're managing these platforms, the people are extremely important.

TD Bank's stock went way up in 2016, and since the election a number of bank stocks have rallied. What do you think the outlook is under the Trump administration?

Honestly, I have no idea. It's too early to tell. You can see what's going to happen with other regulatory agencies in terms of proposed nominees, but in the banking industry we just don't know. We're planning our business as if it's just business as usual.

What about Dodd-Frank? If that gets relaxed somehow, would that be positive or negative for TD? Or for the industry as a whole?

I don't know about the industry as a whole. Dodd-Frank requires a lot of stress-testing work, but stress testing work is actually good. It's good, prudent risk management. Banks take risks — that's what we do — and our risks are borne by the sovereign, the U.S. government. I very much have a viewpoint that, with the U.S. government being the backstop of so many of the risks that we're taking, they have every right to ask us to do all sorts of things that they ask us to do in order to manage our risk effectively.

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