Royal Bank of Canadas deal to invest in an e-marketplace for the automobile parts industry is its latest step in a strategy to build a diverse group of electronic marketplaces and sell payment-related services through them.
Last week Royal Bank announced that B2B Vertical Markets, its joint venture with Mediagrif Interactive Technologies Inc. of Quebec, will invest $1.3 million to acquire a controlling interest in NET3F, a Montreal company that runs a procurement site for auto parts suppliers and customers.
This year Royal Bank began testing with its customers a cobranded version of a multi-industry procurement site established in 1999 by IBM and Fluor Corp., a Canadian consulting and construction management company. The site lets Royal Banks customers take advantage of purchasing power on goods ranging from office supplies to large machinery.
Tom Wolf, senior vice president of e-business at $183 billion-asset Royal Bank, said the procurement sites are a key component of the banks e-commerce strategy: to market financial services offerings to businesses online.
Companies are starting to migrate their business processes to the Web, and theres a place to integrate financial services into that, Mr. Wolf said.
The NET3F deal is B2B Vertical Markets first and Royals first venture into sector-specific, or vertical, marketplaces.
Mediagrif, a veteran of vertical-site building for the electronics, telecommunications, and computer parts industries, started its first e-marketplace in 1996 and now runs seven in addition to NET3F, which was begun last November. Jupiter Media Matrix named two Mediagrif sites last year among the top 25 revenue-producing e-marketplaces in North America.
Mr. Wolf said that Royal evaluated several sectors, including agriculture, medical, and computer components, before settling on automotive parts. It considered the volume of transactions in each industry and the number of suppliers involved, he said; a deciding factor in favor of NET3F was that Royal has 10,000 customers in the automotive industry.
NET3F has up to now targeted Canadian suppliers and buyers, but Royal says it plans to expand the marketplace to U.S. companies.
Royals move into vertical marketplaces is unusual for a bank, Mr. Wolf said. More are involved in horizontal marketplaces, which link suppliers and customers across industries.
We think theres a lot of value in vertical marketplaces, Mr. Wolf said. They create stickiness with those vertical customers because youre getting more integrated with critical aspects of their businesses. Ordering office supplies, for example, is not quite as critical as, if youre a repair shop, getting the car parts for your customers.
Russell J. Wehrlin, senior vice president of Speer & Associates Inc., said vertical marketplaces also mean more risk, since the types of purchases being made are often essential to the businesses. If fulfillment problems occur, a banks reputation might be tarnished, he said.
But vertical marketplaces enable banks to establish relationships throughout the chain of sellers and buyers, Mr. Wehrlin said, and offer valuable opportunities to market financial products at every level, from consumer loans to inventory financing.