One business story that gets pulled out with painful regularity is the buggy whip, which was a big business until automobiles destroyed the industry. It's a classic tale of disruption, which every industry is likely to face at some point if it stagnates. Banks, which are by design pretty staid and boring, are facing a technology challenge, as more and more customers shift online. Canada's Toronto-Dominion Bank (TD 0.46%) is upending its own business so it remains a finance leader for years to come. Here's what you need to know.
TD is a giant in North America
Toronto-Dominion Bank, which is more commonly called TD Bank in the U.S., hails from Canada. In that market it is the second-largest bank by deposits. This business provides a solid foundation for the bank because the Canadian market is highly regulated. Effectively, the Canadian government forces the country's largest banks to operate in a highly conservative manner and have limited merger and acquisition activity, leading the biggest names to have entrenched industry positions.
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In the United States, where the company calls itself "America's most convenient bank," TD is No. 6 by deposits. While the company has fairly broad exposure across Canada, it is largely an East Coast bank in the United States, so there is material growth opportunity for it in that market. It is a top-10 bank in North America, with sizable wealth management and insurance operations as well. It is also building up its position in the investment sphere, most recently with the purchase of investment bank Cohen.
Although the company recently suffered a setback when U.S. regulators chose not to approve a merger, the company has a long and successful history behind it. In fact, TD traces its history back to 1855. And while its dividend hasn't been increased every year (partly thanks to heavy-handed Canadian regulation), it has a solid track record of regular increases. The yield today is roughly 4.6%, which compares favorably to some of the largest U.S.-based banks.
TD Dividend Per Share (Annual) data by YCharts
The boring business is hiding an exciting one
From a top-down perspective, TD Bank looks like a very typical big bank. But don't let that fool you. For example, during the bank's fiscal third-quarter 2023 earnings conference, management highlighted that it had achieved the No. 1 position in customer satisfaction with mobile banking apps according to JD Power. This is a big deal because so-called fintech start-ups have been looking to upend the historically sleepy world of finance by leveraging technology.
Basically, TD sees the threat and is acting now to disrupt its own business so other companies don't beat it to the punch...and steal its customers. So far, it seems like TD Bank is doing a good job.
For example, the number of mobile users in Canada rose 8.1% year over year in the second quarter, with the U.S. figure at 7.8%. The percentage of the company's clients that are classified as digital adopters is 63.6% in Canada and 52.7% in the U.S. market. But here's the really impressive stat: 91.9% of all transactions in Canada were digital (that includes ATMs), with the U.S. at 80.6%. Basically, the vast majority of TD Bank's customers are already working with the bank in a digital fashion.
Not enough of a reason to change
Finance relationships tend to be kind of sticky, given the hassle of changing providers. Going digital in an increasingly digital world is a good reason to shift to a new bank. But TD Bank has worked to make sure that it is providing the digital services its customers want and need, reducing the threat from fintechs and peers with similar offerings. And, as an added bonus, TD Bank still offers physical locations (staffed by real human beings), if you need to stop by for some reason. This may seem like a small issue, but TD Bank's efforts to disrupt its own business with digital technology make it a more attractive partner for its customers and a more attractive long-term investment for its shareholders.
