This week, CIBC and Loblaw’s PC Financial put an end to their 20-year partnership. Since PC Financials’ launch in 1997, CIBC has been servicing the backend of all banking services for PC Financial clients. Beginning in November, CIBC will be taking over the 2 million mortgage and banking clients from PC Financial and leveraging the opportunity to build out their newly launched banking brand, Simplii Financial.
Simplii will go up against Tangerine and EQ Bank in running no or low-fee banking services on a primarily digital banking platform. With a smooth transition, Simplii will acquire approximately 2 million clients and take on a strong position in this sector of the industry.
Mike Boluch, Executive Vice President of Direct Banking at CIBC stated, “The time to build [digital banking] is now, so as that segment matures and grows in wealth, CIBC’s going to be well positioned to take advantage of it.”
“CIBC has seen more people move online – across generational lines – and the company will be investing more in Simplii Financial.”
Loblaws will maintain its line of PC Financial MasterCard credit cards and their PC Points loyalty program but will no longer offer banking machines at any retail stores. Debate has begun around whether PC Financial customers will be happy switching to a new bank brand and whether the transition will be smooth and streamlined.
By selling their everyday banking clients to CIBC for approximately $100M in pre-tax fees, Loblaws will be able to focus their efforts on the their Mastercard credit card and PC Plus Products. But Simplii banking clients will no longer be able to automatically accumulate PC Points, causing grumbles from many PC Financial customers who relied on buying groceries with PC points through their bank account.
It appears that CIBC and Loblaws have shifted away from diversification back to a heavy emphasis on their core business: CIBC building out an innovative digital banking brand to connect with younger consumers who prefer low-fees and user-friendly online services, and Loblaws focusing all efforts on their PC Points loyalty program, which has been named as a leading loyalty program in Canada.
Diversified product and services that extend into multiple industries can be superbly profitable and provide extended value for businesses especially through partnership. They can also be very costly to companies whose core business does not directly correlate to the product or service of the product extension. Despite having 2 million banking clients, it appears that it was time to pivot for PC Financial.
We look forward to seeing the move to digital banking for many Canadian consumers.