In April, David McKay, group head of
Canadian banking at Royal Bank of Canada, told RBI of
the
bank’s plans to extend its RBC Rewards loyalty programme to all its
consumer banking products. The launch was such a hit it helped RBC
to a record retail performance. Douglas Blakey
reports.
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Few
banks can look back on 2009 with quite the satisfaction of Canada’s
biggest retail bank, Royal Bank of Canada (RBC), arguably the most
successful retail bank during the economic crisis in perhaps the
world’s most resilient market.
Certainly very few banks outside the emerging
markets in fiscal 2009 will match RBC’s double whammy: an increase
in net retail earnings combined with market share gains across
every business category.
“In Canada, I believe we are the only bank
that has managed that. Our market shares were up in consumer
lending, retail deposits, business lending and business deposits.
Looking back on 2009, I would say it is the success of which we are
most proud,” David McKay, group head of Canadian banking at Royal
Bank of Canada told RBI.
Highlights included: an increase in total
lending and deposits of 5 percent and 11 percent respectively;
retail deposits up 19 percent; personal lending up 21 percent,
while total balances of its online eSavings product rocketed by 83
percent year-on-year.
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By GlobalDataOperating expenses were also cut in fiscal
2009, as higher sales and service expenses in its branch network,
in support of business growth and project spending, were largely
offset by lower operational support and infrastructure costs.
When he last spoke to RBI in April,
McKay was putting the finishing touches to a planned expansion of
the bank’s RBC Rewards loyalty programme to all its product
categories, an initiative of which he held high hopes (see RBI 610). Given the results to date,
such confidence was well-founded.
RBC has four core packaged current accounts
ranging from basic to VIP at the top end of the scale. And in
common with many rival banks’ product line-ups, RBC experiences an
ascending rate of customer retention all the way up the scale of
the four packaged accounts. Few banks, however, will report a 120
percent increase in up-sell for its top of the range packaged
account as RBC has achieved, to McKay’s evident delight.
“It is awfully satisfying and we are
absolutely thrilled with its success. We witnessed two things in
particular: a record number of net new account openings and a
record up-sell of existing clients into higher-end, premium
packaged accounts which of course offer a greater margin and higher
profit,” he said.
So in 2010 the bank will extend the loyalty
scheme and ramp up its marketing efforts to promote the
initiative.
Caught off-guard
If there was one disappointment for
McKay in the last fiscal year, it was the threat by the country’s
finance minister to prevent banks marketing insurance products via
their main websites. Given the outstanding performance of the RBC
insurance business unit in 2009 – net profits soared by more than
27 percent from C$389 million ($366.3 million) in 2008 to C$496
million representing almost 13 percent of group earnings -–McKay’s
alarm at any possible government interference is
understandable.
“It would be an understatement to say how
disappointed we were with the proposed regulation. The government
caught us off guard. It is hard to describe the frustration we feel
but we have a multi-pronged strategy,” he said.
That includes the bank’s insurance offices
situated next to bank branches – a network which expanded from 35
offices to 49 during 2009 – and the bank’s separate insurance
website.
On distribution generally, McKay could barely
be more bullish: “This is a time to accelerate our investment. We
will expand our physical footprint by almost 10 percent over the
next five years; expand our mobile sales force both on the mortgage
and investment side; expand our ATM network and grow our online
capability.”
In the short-term, he has high hopes of
improving RBC’s competitive position from an ongoing project
focused on end-to-end process re-engineering. In the first quarter
of 2010 the bank will launch the first phase of a redesign of its
consumer lending platform.
Similar enthusiasm extends to the bank’s most
recent high-profile product launch, a travel rewards credit card in
partnership with the country’s second-largest airline, Westjet,
designed to boost its card portfolio comprising 6 million
cardholders and 20 percent market share.
The cards sector, argues McKay, serves as one
of the most striking examples of the diametrically-opposed business
strategies Canadian banks and lenders in the US in the period
leading to global economic crisis.
“In Canada, we did not go downmarket like some
issuers in the US and UK,” he said. “I would think that every card
issuer this year in Canada will make money – in the US every issuer
will probably lose money. Our sector card charge-off rates are
about 4 percent – in the US it is closer to 12 percent. The
difference [with the US] is we are building a business with the
full economic cycle in mind. We do have a culture of building for
the long-term.”
Looking ahead, McKay is quick to jump on any
notion that complacency could creep in after such a strong
performance in 2009.
“We cannot afford to be complacent. There is
always a healthy dose of paranoia here – starting with me,” he
explained.
More feasible is the possibility that the
success of the country’s leading banks, could lead to banks outside
Canada looking to recruit senior colleagues.
“Certainly, from what I am hearing, the number
of headhunting calls, both from Europe and the US, has increased,
but I think there is still a lot of concern about the stability of
some of the banks that have been calling,” he concluded.
