News

Amicus seeks capital to stay afloat; 'clicks and mortar' approach sinks in U.S.

October 13, 2002

TORONTO -- It may be do-or-die time for the financially troubled Amicus Bank, the Canadian Imperial Bank of Commerce's plan to expand into the U.S. largely by offering online financial services and using minimally staffed supermarket branches for a "clicks and mortar" approach.

According to a report in the National Post, CIBC Chairman and Chief Executive Officer John Hunkin has set a deadline of Oct. 31 to find a partner to help finance Amicus, which has lost $600 million in the past three years. With no deal yet and the self-imposed deadline approaching, Canadian analysts are wondering if Hunkin might shut Amicus down instead and take a writeoff.

When he became the bank's CEO in June of 1999, Hunkin vowed to increase retail operations and make CIBC's earnings less volatile, according to the Post. President's Choice Financial, CIBC's pre-Hunkin experiment in grocery-store banking with branches at Loblaws stores, was showing promise. Hunkin and his executives decided the same concept might work in the U.S.

According to the Post report, one mistake was underestimating how different U.S. consumers are from Canadians.

According to the Post, Americans don't use technology the way Canadians do. The Amicus business model was based on keeping costs low by installing kiosks in Safeway and Winn-Dixie stores. An ATM, networked PC workstation and phone were provided for customers, with minimal staff on hand to offer assistance.

However, just 20 percent of U.S. consumers use online banking, according to the Post, compared to 34 percent in Canada. Canadians also lead the world in both ATM and debit usage, according to a 2001 Bank for International Settlements (BIS) report.

In 1999, according to the BIS report, there were 54.3 debit transactions per Canadian compared to 27.5 in the U.S. There were 53.4 ATM transactions per inhabitant in Canada in 1999, compared to 39.9 in the U.S. When the BIS report was released in the spring of 2001, Canada had been number one in ATM usage on a per-capita basis for the previous five years. (See related story Canadians lead in ATM, debit transactions)

Also, the Post report said, most Americans don't want to get a mortgage at the same place they buy tomatoes. Many U.S. banks that have tried a similar retail-store approach have failed.

Four years ago -- just before CIBC launched its U.S. expansion -- Raleigh, N.C.-based consulting firm Marketech Systems International did a study to find out why. It concluded grocery stores and other retail chains don't have enough traffic to generate a large number of bank customers. The customers who sign up tend to keep less money in their accounts.

"You basically get 60 percent of the revenue [of a regular bank branch] "and 70 percent of the cost," said Jim Burson, a Marketech senior vice-president.

Worse, growth prospects are poor. While a new street-level branch will still be gaining customers seven years after it opens, according to Marketech's study, in-store branches generally plateau in three to five years.

But CIBC's biggest misstep, according to the Post, might have been in underestimating its competition. For Amicus to work, it had to take the customers who opened checking accounts and sell them mortgages, personal loans and other services. CIBC considered buying U.S. discount brokerage Ameritrade to add to Amicus, but ultimately did not.

Canada's "Big Five" banks -- Royal Bank, Toronto-Dominion, CIBC, Scotiabank and Bank of Montreal -- dominate the country's financial services world, selling more mortgages, credit cards and brokerage accounts than any other companies.

In contrast, Americans have hundreds of choices for their financial services and don't mind dealing with several financial institutions at once, according to the Post. So in brokerage, Merrill Lynch, Morgan Stanley and Charles Schwab rule. In mutual funds, it's Fidelity, Vanguard and Capital Group. Even in mortgages, U.S. banks must compete with specialized lenders like Countrywide Credit.

The Post summed up its report by calling Amicus "a lesson to all Canadian bankers who dream of riches in the United States"  and "one of the worst business decisions in recent memory by a Canadian bank."