Amicus Retreats From U.S.

Canadian Imperial Bank of Commerce has shut down the U.S. operations of Amicus, its private-label banking venture, and has also scaled back e-banking operations in Canada.

About 1,100 employees, most of them in the U.S., will lose their jobs in the restructuring, which has resulted in a pre-tax loss of C$375 million. The bank was unable to find an American partner to help grow Amicus, which provided banking services to two major food chains: Winn-Dixie and Safeway. Winn-Dixie's Marketplace Bank had grown to 185 outlets and Safeway's Safeway Select to 161.

CIBC has arranged to transfer customer deposits with balances exceeding $1,000 to E*Trade Bank and has paid a termination fee to Winn-Dixie of $60 million. Safeway also received an undisclosed termination fee.

Weaker demand for online banking services in the U.S. relative to Canada was the main reason for Amicus' downfall.

"The market for Internet-based services didn't grow as fast as we anticipated," said Rob Waite, senior vice president of corporate communications at CIBC.

Introduced during the heady e-commerce days of the 1990s, Amicus powered the highly successful President's Choice Financial, a banking service provided by Loblaw, Canada's largest supermarket chain. CIBC then decided to extend the Amicus concept to North America. Its goal was to attract 750,000 customers by the end of fiscal 2001, with all U.S. customers and 80 per cent of Canadian customers new to CIBC.

By partnering with leading companies, CIBC hoped to capitalize on its well-established brands and strong customer relationships, enabling it to efficiently deliver high quality e-banking services.

"We avoid the high marketing costs of creating brand awareness and the high costs of building a branch network. We can pass the savings on to customers by offering no-fee banking and great rates on products such as savings accounts, GICs, loans and mortgages," said a company spokesman at the time.

But neither Safeway nor Winn-Dixie had the market reach of President's Choice.

Hobbled by a lack of brand awareness and slow sales, Amicus became a drag on the bank's earnings, driving down earnings-per-share by as much as 47 cents in 2001 and 37 cents in the first three quarters of this year. Thus its fate was sealed.

The move into the U.S. market was poorly timed, observers noted. Unlike Canadians, Americans still prefer paper checks and branches to telephone and Internet banking.

"Canadians are more open and willing to try new technologies and use self-service and electronic channels," said Jim Eckenrode, group research director of consumer banking at TowerGroup. "In the U.S., we've seen a slower adoption of electronic payment capabilities."

He cited a recent survey showing 85 percent of consumers who considered themselves active online bankers still visit a branch regularly.

Amicus was also a victim of a "crisis in confidence," said Eckenrode, as consumers seek safety in names they know and trust in the post-Enron environment. That, he said, "argues against the private-label strategy succeeding in this country."

The notion that financial services can be peddled like soap is flawed, according to Alenka Grealish, a San Francisco-based analyst with Celent Communications.

"The biggest thing lacking was a sense of trust, because the brand that works well on the supermarket shelf doesn't work well with banking," Grealish said.

"It's hard to sell 'lite' or generic banking" in the U.S., added Grealish. "Consumers have a trust threshold when it comes to financial services providers on the Internet. They're wary of who they're dealing with."

In Canada, CIBC also shut down bizSmart, a no-fee Internet, telephone and kiosk banking program for small business launched two-and-a-half years ago. Outlets were located in 60 Business Depot stores.

The President's Choice banner remains successful and will be continued, according to Tom Woods, chief financial officer at CIBC. "The U.S. operations have not been successful, particularly in building the loan side of the business."