Simplii’s not-so-simple task: retain customers
PC Financial has base of 2 million current users
Canadian Imperial Bank of Commerce will t ake a $ 100- million charge in the fourth quarter as the lender adjusts to life after a split from longtime partner Loblaw Cos. Ltd. in retail banking venture PC Financial.
Most of the money will be spent to launch its new mobile and online banking brand Simplii Financial, and earmarked for incentives to retain some two million PC Financial banking customers with mortgage, savings accounts, and other banking services after Nov. 1.
A small portion of the funds will be used to pay a charge related to the termination of the agreement with Loblaws/ PC Financial, according to Doug Young, a bank analyst at Desjardins Capital Markets.
Officials at CIBC and Loblaw would not say why the split occurred in a partnership that lasted nearly 20 years. The timing suggests there may have been contract renewal talks, and industry sources have long suggested the venture was more lucrative for the grocery retailer than the bank. It was characterized as a revenue-splitting arrangement, with Loblaw handling the marketing and CIBC taking care of the back- office operations.
Young, the Desjardins analyst, says the existing arrangement was profitable for CIBC, and the bank will keep all the revenues going forward.
However, t he ongoing profitability “will depend on how many clients CIBC is able to hold on to” after the PC Financial arrangement ends, he said in a note to clients.
“There could be some earnings compression in 2018 due to incentive offerings at Simplii Financial beyond what is currently in the charge” for the fourth quarter, the analyst wrote. “This should all normalize by 2019.”
It is not clear whether CIBC intends to find another retail partner to offer loyalty points, which, along with nofee banking, was part of the value proposition at PC Financial.
PC Financial’s credit card business will remain with Loblaw. Credit cards tend to be a high- margin banking business, particularly in Canada.
Alyssa Furtado, chief exec- utive of RateHub.ca, said the breakup of the partnership will give CIBC more control over development of online and mobile banking products and services.
“As CIBC will no longer have a partner, it gives the bank greater control of Simplii Financial as well as the opportunity to grow and potentially enter new lines of businesses,” she said.
Loblaw, for its part, retains a credit card business that leads other offerings by retailers in online searches, according to RateHub.
Last year, PC Financial generated 320,000 monthly Google searches for its credit card products, compared to 158,000 for Canadian Tire, 88,000 for Hudson’s Bay, and 83,000 for Walmart, according to the financial services comparison website.
The CIBC- Loblaw move comes as more and more Canadians do their banking online, and low fees and convenience are an increasingly attractive proposition, rather than access to physical branches.
Nearly three- quarters of Canadians primarily do their banking online or on their mobile device, up from 52 per cent in 2012, according to a survey commissioned by the Canadian Bankers Association released in February.
Meanwhile, competition is heating up in the no- fee, online banking space.
Simplii will be up against Bank of Nova Scotia’s direct banking brand Tangerine ( formerly ING Direct) and Alterna Bank, as well as several credit unions.