The conventional wisdom about Citigroup's recent decision to sell its Travelers Life Insurance operations to MetLife was that Sandy Weill's grand plan for converged financial services had fizzled. And it's true that, in the U.S., convergence has not lived up to its promise - not in terms of cross-industry deals (e.g., banks buying insurance companies) and definitely not in actual sales. While the cross-selling of non-bank products and services has increased, it still represents a small part of most banks' revenue mixes.
But to write off convergence as "Sandy's Folly" would be a mistake. The key, though, is to think about it differently - not as something that is going to occur among different types of financial institutions, but between banks and other kinds of service providers and retailers.
In recent years I have heard many industry experts suggest that the real future competitor in retail banking could be Starbucks, which has an incredibly strong brand, a ubiquitous physical presence (think: branches), and a sophisticated payment and transaction processing machinery; knows a lot about its customers; and has the resources AND creativity to act on that knowledge with new products and offerings - all geared toward a) strengthening loyalty, and b) capturing the customer's money.
The latest example of how Starbucks is becoming your competitor - or at least a partner that knows your business as well as you do - was last month's announcement that Toronto-based RBC Royal Bank and Starbucks have introduced a hybrid card that blends an RBC Visa Card with the reloadable Starbucks Card. The new Starbucks Duetto Visa Card will enable Starbucks customers to pay, reload, earn and redeem rewards with one card. Or, as Dave McKay, RBC's SVP, credit cards and financing products in Canada, said, "Having one multipurpose card is going to make it easier and more convenient to pick up that morning coffee or afternoon beverage, and it's also going to change the way we use the plastic in our wallets."
Although RBC recognizes the power of Starbucks, many other banks might not think this partnership is such a big deal. But consider the headline on the announcement: "RBC Royal Bank & Starbucks Coffee Co. Change the Canadian Credit Card Rewards World." Your world is changing, too.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio