Commerce Bancorp Inc.'s purchase Wednesday of a Pennsylvania online wealth management company will enable it to outsource to other banks a "virtual private banker" tool it intends to develop, its chief executive officer said.
Commerce said it had bought eMoney Advisor Inc. of Conshohocken, Pa., for $32 million of stock in order to expand in online banking and wealth management, and to offer more products to financial planners.
Vernon W. Hill, Commerce's chairman, president, and CEO, said that with the acquisition the bank plans to launch a virtual private banker system that will enable it to create a nightly financial statement looking at all a customer's assets with the bank, as well as his or her assets and liabilities with 3,100 other financial providers.
Commerce, a $38 billion-asset banking company in Cherry Hill, N.J., also intends to offer virtual private banker to a select number of banks on an exclusive basis, Mr. Hill said.
"All of us in the banking business are looking for ways to tie ourselves closer to the higher-end client," he said. "We want to develop a bank version of eMoney Advisor's tools that we can then offer to our commercial and high-net-worth client and then down the road to our consumer clients."
eMoney Advisors already has Massachusetts Mutual Life Insurance Co., MetLife Inc., and PricewaterhouseCoopers among its customers.
Edmond Walters, its founder, chairman, and chief executive officer, said eMoney plans to build a product for the banking industry and distribute it to other banks. Small, midsize, and regional banks would be the distribution targets, he said, because most large banks will build their own product.
"I have gotten calls already [on Wednesday] from midsize banks with interest because Vernon [Hill] is involved," Mr. Walter said. "When banks found out that he was involved, they wanted to know how they could be a part of this because of Commerce's strong customer focus."
Analysts said the deal could be a way for the fast-growing New Jersey bank to test the outsourcing business.
Mark Fitzgibbons, an analyst at Sandler O'Neill & Partners LP who covers Commerce, said the deal enhances the bank's prospects for expanding fee-based revenue, which currently is about 21% of its revenues.
"Commerce can use this service to generate revenue in a lot ways," he said. "They can start just by selling it to existing clients. … But private-labeling this to other banks could be very powerful."
The purchase gives Commerce interesting opportunities, Mr. Fitzgibbon said, because "not enough banks are providing mass-market private banking services that consumers want."
"Commerce has built its business by finding good ways to provide banking products to customers conveniently," he said. "If they can do that on the private banking side, this can be powerful. Not just in their footprint but beyond, to other banks."
Mr. Fitzgibbon said Commerce might look to outsource additional services. "This could be a potential step, but I think they will be cautious," he said. "Given their explosive growth, I think they'd tend to not want to compete against their own services. They may look to outsource these services and others in other parts of the country."
David Flaherty, Commerce's vice president of corporate communications, said it is a possibility that Commerce will look to outsource other products and services.
Meredith Whitney, an analyst at CIBC World Markets who covers Commerce, was skeptical that such a retail-oriented bank would want to get into outsourcing.
"This is a very, very small deal for this company," she said. "They made the deal to get exclusive rights on this software. … Commerce prides itself on superior service. If they begin outsourcing this service to other banks, they are going to give away their competitive advantage."
Jacqueline Reeves, an analyst at Ryan, Beck & Co. who covers Commerce, said it holds exclusive rights to the new software. "They are not going to sell this to banks within their competing footprint," she said. "We are looking at this at its very early stages. Right now, the bank is still considering how to distribute this. But offering it alone could potentially recoup the entire investment."
In addition to the potential that exists for outsourcing, Mr. Hill said the product would help Commerce develop its private bank. The company already has developed a private banking presence in New York and Philadelphia and is working to do so in the Washington area and in southeastern Florida.
"This is an ideal private banking product, and no other bank has this right now," Mr. Hill said. "Some banks may charge for this kind of service, but this will be part of our focus on convenience. We wanted to find another way to deliver convenience."
Commerce opened branches in 2005 in Washington and in Alexandria and Manassas, Va. It has said it plans to open as many as 10 branches a year in the Washington and Baltimore markets until it has about 200 in the region.
Mr. Walter said eMoney would continue to increase distribution through insurance companies.
With the financial backing of a publicly held company, he said, eMoney will look to increase its payroll from 53 to 80 and its product roster from 60 software items to 150.
"Like all software companies, we can only grow so fast organically," he said. "Through this deal we know we can substantially increase distribution."
Mr. Hill said a lack of financial strength had limited eMoney in making some big corporate deals. "For a company at this stage," he said, "to get bigger, [eMoney] needed deep pockets and a parent company committed to growth."
