Royal Bank of Canada has aligned itself with a Montreal-based provider of electronic commerce software to create a $20 million joint venture that will build industry-specific digital marketplaces for Royal Bank's corporate customers.
Royal will also invest $15 million in the company, Mediagrif Interactive Technologies, as the first step in a four-pronged electronic-commerce strategy.
Royal's 430,000 corporate customers will be able to buy and sell corporate supplies on marketplaces operated by Mediagrif. The four-year-old company, which plans to go public this year, already runs four marketplaces that are used by 5,100 businesses in 37 countries.
Mediagrif "not only has experience on the technology support side, but also on how to start and manage vertical markets," said Tom Wolf, senior vice president of e-business for Royal Bank of Canada. As part of its overall electronic commerce strategy, Royal Bank also plans to develop online payment and ancillary services. But "we are initially focused on payments for marketplaces," Mr. Wolf said.
In a move that goes toward meeting this goal, Royal Bank announced in April it would provide letters of credit to participants in Vancouver-based VLINX, a site that offers online trading, auctions, payments, appraisals, inspections, insurance, and logistics for international trading. Other banks, including HSBC Group, Lloyd's, and Wells Fargo & Co., also are participating in VLINX.
Another element of Royal Bank's e-commerce strategy will focus on developing marketplaces for its small business customers. "Only 10% of our small- and medium-business customer base is online and we would like to get more online by leveraging the success of our consumer side, which has 900,000 customers online," Mr. Wolf said.
The final component of Royal's plan is to automate its own internal procurement and ultimately, pass on those savings to customers. A Royal Bank rival, Canadian Imperial Bank of Commerce, linked up with Ariba Inc. in May 1998 to develop an internal procurement system called eSource. The bank aims to offer the service to its business customers, but has not yet started the process.
Royal is following the lead of several of its big-bank counterparts in the U.S., including Bank of America, which has created a separate electronic commerce company with Ariba, and Citigroup, which has allied with Commerce One. Chase Manhattan has created a separate subsidiary with Deloitte Consulting LLC to provide marketplace services.
Wachovia is using software from Clarus Corp., and U.S. Bancorp is using Ariba's procurement software.