Consumer assets are like All-Star free agents: Everyone wants them, but only those who can get to the table first with the promise of reliable, high-yield relationships will win them. That means bankers have to take a long, hard look at their financial institutions and decide if they have what it takes to get to market first with convenient, high-yield products and services and then determine what they're willing to risk to get there. Bluntly put, bankers have to realize that they alone arguably don't have the expertise to cost effectively achieve their asset objectives in an acceptable time frame, nor is it desirable to tie up money acquiring the expertise. But what bankers do have is the ability to strike aggressive partnerships with companies that will enable their firms to achieve their goals and grow their market share.
The Canadian Imperial Bank of Commerce (CIBC) partnership with Canada-based Northern Telecom (Nortel) exemplifies the creative alliances that banks need to form if they are to survive in the 21st century's highly competitive, commoditized market. In one deal, CIBC, a $133 billion-asset (USD) institution, has incorporated the technology expertise and development dollars of Canada's leading telecom company, and even more, the bank is now able to aggressively pursue a captive consumer base of 3,000 at Nortel's headquarters complex.
CIBC's business development mission is to leverage its core financial services competencies with companies whose products and services significantly further the bank's strategic objectives. Says Brian Cassidy, evp of CIBC's electronic banking, "Partnering with leading-edge technology firms will allow much more effective use of the investment dollar. It's a combination of absolute dollars and the wisdom is how to invest."
As for CIBC's new partner, the telecom giant's stake in this joint venture is not only to enable its employees to receive the latest in banking products and services, but also the company has gained key entree into the financial services market in developing products and services based on CIBC's wealth of bank research. With an intimate knowledge of financial services technology requirements and the ability to showcase its work-as the Nortel headquarters will be the primary proving ground of the partnership's jointly developed products and services-Nortel will have a significant leg up on its technology provider rivals.
A CREATIVE INVESTMENT STRATEGY
For CIBC, the deal was struck according to two canons put forth by Holger Kluge, the president of the personal and commercial bank: Number one, CIBC must develop new product and services cost-effectively, and if that means creative partnering relationships (i.e. shared risk), then so be it. "But we're careful as to whom we choose as our partners," says Kluge. And number two is that strategy to win market share must evolve beyond existing programs. This second directive led CIBC to launch a "bank at work" program at Nortel, designed to directly tap the PC-savvy Nortel employees and leverage the telecom company's sophisticated network backbone to create a direct link to CIBC's PC banking system. "Typically, financial institutions waste huge amounts of technology investments," says Cassidy. "If we (invest) more effectively-just based on what we as an industry spilled over in the past five years-that will be more than the investment funds we need."
Like most large financial institutions, CIBC's technology budget is in the hundreds of millions of dollars, though neither Kluge nor Cassidy would comment on the exact figures except to reiterate that, as of last summer, CIBC announced that it would spend $200 million over the next three years to develop its retail employees into sales professionals so that the bank can eliminate transactional personnel from branches in favor of ATMs and sales persons. The bank also announced at that time that it would spend an additional $100 million a year to enhance its electronic delivery channels.
LOW RISK RETAIL prospecting
But unlike many big banks, a large chunk of CIBC's recent research and development projects are not expected to show a return on their investments for several years. For the Toronto-based bank, a long-term investment strategy (10 years or more) is the only way to ensure the institution's viability in that time frame. And while the aggregate of the bank's research and development investments may seem high, CIBC officials allocate the bank's money in a multitude of ventures, always hedging its investments. "We're trying to partner with the right companies, small and large, so that together we can place some bets. Our approach is to determine what is possible, then what is probable and finally to deliver what is profitable. We are still in the business of delivering value to our shareholders," says Cassidy.
And that's where the CIBC-Nortel partnership is playing such a key role. In addition to product development, the bank is using the telecom company's employees to pilot bleeding-edge products and services. CIBC has determined that the technology-savvy Nortel employees are an excellent gauge of what the mass banking populous will look like in five to ten years. Thus, their acceptance or rejection of new products and services will enable the bank to focus its spending where consumer demand will be greatest and refine products and services based on Nortel customers' reactions. "The learning that we're getting along the way is powerful and the ability to see new applications of this technology is powerful," says Cassidy.
The second directive, resulting in CIBC's market penetration into the more than 3,000 person headquarters, is expected to significantly jump the number of Nortel employees banking with CIBC. The "at work" market, says CIBC's Kluge, is an important business to tap, considering that most people spend more time in the office than they do at home and considering that corporate penetration is an extremely efficient way to pick up consumer banking market share. "It's a very targeted approach," adds Cassidy, "and an aggressive (customer) acquisition strategy. There is no mass marketing. We don't have to advertise on the TV or in the newspaper. And we're using their network."
The bank at work program also provides access to a CIBC banking center on-site. At the unmanned center, customers have access to multi- application ATMs, which are are capable of loading value on Mondex stored value cards (accepted at food service sites throughout the Nortel complex), and video investment services. CIBC has assigned an investment services representative at its call center to work with Nortel's employees; the employees access their representative at a workstation in the bank center, and a select few are piloting video banking on their PCs at work and at home. Customer response to investment services has been so strong that the bank is considering assigning another call center rep to the Nortel account.
The Nortel partnership, overall, represents a controlled risk venture for CIBC that enables the bank's management to direct new business development without having to jeopardize the bank's capital resources and reputation (read AOL's untried, poorly executed flat-rate decision) to realize it. "What we're trying to do is make more strategic research and development investments," says Cassidy, "without knowing whether there is a pay back down the road. But we also know that if we don't invest now in R&D, we won't have a future."