It has been announced that Rogers intends to enter the financial services industry with various credit offerings including credit cards. The company plans to leverage its already extensive reach amongst consumers to extend its base of product offerings. The proposed banking arm of Rogers would apparently not enter the realm of deposit-taking, but details are not altogether clear at the moment.
One of the obvious advantages to this idea would be the added diversification into a financial services industry that, in Canada, has historically provided very solid returns to those involved. It gives Rogers a chance to branch out and reap some of the profits to be had among others extending credit to consumers.
Among the downsides, this does sound like it may be a case of classic “disworsification”. Rogers does telecommunications very well. One has to wonder whether branching out in this way will simply muddy the waters regarding Rogers’ overall strategy going forward. I am reminded of the GEICO example outlined in Warren Buffett’s 2009 Letter to Shareholders where he states that when GEICO offered credit cards it wound up incurring significant losses before jettisoning the offering outright. The risk is that the wrong type of consumer who has been turned down repeatedly elsewhere winds up trying again, and for the very reasons they were turned down elsewhere to begin with, they end up as a bad debt for their debt holder.
Overall I would prefer to see Rogers not enter this arena as I feel they do tremendously well already in the industry they are in, but I’m definitely going to watch this one play out as an interested observer.
Full Disclosure: No position in RCI.B and no intention to initiate one within the next 72 hours.
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