A few months after KeyCorp announced last fall that it would offer USF&G Corp.'s small-business property and casualty insurance, the insurer announced it was being acquired and backed out of the deal.
KeyCorp's experience with USF&G illustrates the pitfalls that can result when banking companies form joint ventures to offer additional products to their customers, said Jackie Baer-Cowdery, a KeyCorp senior vice president who manages the bank's strategic alliances.
"We've gotten street smart since then, so we won't run into the same problems," Ms. Baer-Cowdery told a group of bankers here last week at a Consumer Bankers Association Small Business conference.
KeyCorp began forming outside alliances to expand its small-business product offerings two years ago, and it now has arrangements with eight companies that offer retirement plans, health insurance, leasing, PC banking, and quarterly publications for small-business customers.
In the last year, other banking companies have adopted similar tactics. Fleet Financial Group, First Union Corp., and National City Corp. offer small-business property and casualty insurance through the Hartford Financial Services Group. First Union also offers Fidelity Investments' retirement plans to its small-business customers.
Roger F. Dunker, president and chief executive officer of KeyCorp's insurance management group, said the company is negotiating with another insurer to offer property and casualty coverage for small businesses. But he would not say which company it is. A spokeswoman for USF&G declined to comment.
"Alliances can be a powerful tool for supporting your corporate goals, but that doesn't mean all alliances are successful," Ms. Baer-Cowdery said. "The benefits still outweigh the risks."
Steven Hickman, executive vice president for BankAtlantic Bancorp in Fort Lauderdale, Fla., said other banking companies will form alliances to expand their small-business product lines.
"Most banks, even very large banks, do not have the resources to offer all those products themselves," Mr. Hickman said.
To make the alliances work, Ms. Baer-Cowdery said, companies should choose their partners carefully, be aware of cultural issues when working with companies from different industries, and make sure small-business owners will appreciate the products being offered.
"When you spend a lot of time developing your corporate image, you would not want to work with someone who would contradict that," she said.
For example, KeyCorp executives visited Tokai Financial Services Inc.'s offices in Philadelphia and studied its operations before forming an alliance to offer Tokai's leasing services to its customers. The Philadelphia operation is a subsidiary of Tokai Bank Ltd., Nagoya, Japan.
"We could monitor the calls that come in and meet with the management, and that was very helpful," Ms. Baer-Cowdery said.
But KeyCorp ran into trouble when it first began negotiating with Office Max to set up photocopying centers in bank branches.
KeyCorp bankers worried that the retailer was not committed to the partnership because the bank would send five people to each meeting and Office Max sent only one or two, Ms. Baer-Cowdery recalled.
"We learned that bankers tend to travel in packs and retailers don't," she said.
Relations between the two companies improved once the bankers realized the attendance at meetings reflected cultural differences between the two industries, she said.
KeyCorp now shares two branches with Office Max copying centers.
In another early alliance, KeyCorp offered discounts on AT&T long- distance telephone service to the company's small-business customers.
But Ms. Baer-Cowdery said entrepreneurs already had other offers for telephone discounts and few were interested in the bank promotion.
"You have to make sure you provide something that is valuable to the customers," she said.