Rogers Communications has applied to become a bank under the Canadian federal Bank Act. If approved, the proposed “Rogers Bank” will focus mainly on credit, payment and charge card services.
“We have no plans to become a full-service deposit-taking financial institution,” Rogers Public Affairs Manager Carly Suppa said. “The license, if granted, would give us the flexibility to pursue a niche credit card opportunity to our customers should this make sense at a future date.”
The federal Bank Act license would allow Rogers to create an in-house bank, which is the first step to offering retail credit cards in Canada. The move is more common among retailers such as Wal-Mart, which applied last year for bank status so that it could offer credit cards, but is rare for a phone company.
That said, credit cards present a distinct opportunity for Rogers to expand its reach. The media, cable and wireless giant, which also owns the Toronto Blue Jays, has direct relationships with millions of customers, including many who pay bills using credit or direct-deposit accounts.
Analysts say the company can build a card business by leveraging those relationships to market its brand of cards, especially by reaching out to customers who have good credit standing in its database.Rogers to become a bank
Rogers could also compete with credit card distributors by providing perks related to its products, such as discounts, similar to the loyalty rewards cards that many banks offer.
The move by Rogers is highly significant, as it illustrates an important point about where large tier-one providers must look for revenue growth. For an organization such as Rogers, which might book $12 billion in 2011 revenue, even interesting new lines of business that produce scores of millions to hundreds of millions worth of new revenue are too small to “move the needle” overall.
The problem is even worse for organizations such as AT&T or Verizon that book $30 billion to $40 billion a year in revenue. Simply put, there are few realistic new lines of business large enough to matter. That is why you hear so much about machine-to-machine communications, mobile advertising, mobile banking and enterprise-oriented cloud services. Each of those businesses could, in principle, produce $1 billion a year in incremental revenue for any single contestant in a national market.
Keep in mind the scale requirements. A business has to be big enough to produce $1 billion in incremental revenue for each contestant that wishes to compete in the business. By definition, any new line of business must be capable of generating global revenue in the scores of billions of dollars.
To repeat, Rogers will become a bank. It will do so because even “mobile payments” might not produce enough incremental revenue to be interesting. Instead, Rogers will have to explore ways to earn incremental revenue in a range of traditional banking services that match its capabilities in mobile services.
There are some obvious implications. Isis, the joint venture between AT&T, Verizon Wireless and T-Mobile USA, has shifted from a “mobile payments” to a “mobile wallet” focus. The implication is that Isis has decided it does not have time nor money to challenge Visa and MasterCard directly, which it was its original plan.
Even though that is an arguably wise move, the point remains that even a mobile wallet model might not produce revenue large enough to matter. That is not to say a wallet effort could not do so, but that it would have to create a huge advertising ecosystem.
At some point, even Isis might have to consider whether it must become a bank, or that its partners separately might have to become banks. That would still leave them as partners with Visa and MasterCard. But it would not allow Isis to completely avoid all conflict with banks.
Many service providers outside the United States probably are “running the numbers” and coming to similar conclusions.