case analysis

February 2012

This case was prepared by Professor Stefan Stremersch and Nuno Almeida Camacho, Professor at the Erasmus School of Economics, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. February 2012. The authors would like to thank Elio Keko for writing the case with them and providing invaluable help in data collection and preparation.

Copyright © 2012 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to [email protected], send a fax to +34 932 534 343 or call +34 932 534 200. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IESE.

Last edited: 2/15/13 2-512-071 1

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)1

It was late 2011 and the role of mobile channels in Rabobank’s future growth was still under debate. With a challenging year ahead, Michael Dooijes, head of Strategy & Innovation at Rabobank Financial Logistics, and Gertjan Rösken, senior business development manager at Rabobank Financial Logistics, were busy discussing new business ideas and possible courses of action. They had spent a whole day analyzing data, crunching numbers and mapping market opportunities for mobile services that Rabobank could offer in the Dutch corporate market. Their actions had a clear goal: to make Rabobank the leading Dutch player in mobile payment and mobile services by 2015. To achieve their mission, the first step was to map out the strategic opportunities clearly, within mobile payments and mobile services, in order to generate bottom-line growth for Rabobank Corporate Netherlands, the corporate branch within Rabobank in the Netherlands.

With two decades of experience in the financial services industry, primarily in sales functions, Michael Dooijes was no stranger to the dramatic changes that were capable of shaking the whole industry. He was well aware that disruptive change could result from both technological developments and changes in customer behavior. Now, with the industry still recovering from the unprecedented turmoil triggered by the 2008 subprime crisis and the recent sovereign debt crises across Europe, Michael and his team recognized that a new paradigm for financial services was dawning. Moreover, they were convinced that the smartphone could be the key to unlocking valuable opportunities in this new era. In fact, while most citizens, business people and politicians furrowed their brows when thinking about the gloomy prospects for 2012, Michael and Gertjan ended their meeting feeling optimistic about the near future. They viewed the ongoing economic crisis as an untapped source of business opportunities for Rabobank. Yet, not everyone shared their enthusiasm for smartphones as an engine of growth for the bank. Nevertheless, they were determined to persuade their peers.

1 This case study is the second of two cases on mobile payments. The first case study is M-1279-E, “Alcatel-Lucent: Marketing the Cell Phone as a Mobile Wallet (A)”.

IES2

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

2 IESE Business School-University of Navarra

Michael had recently been appointed head of Strategy & Innovation for Rabobank Financial Logistics and formed a new team of six talented professionals determined to bring disruptive innovation to Rabobank. This was the first and only team within Rabobank Corporate Netherlands that was dedicated to focusing primarily on innovation. Its goal was to predict future customer behavior and requirements, and apply such knowledge to the generation of new businesses for Rabobank. Michael decided to start by finding new businesses for corporate clients in the Netherlands. Michael had just called a meeting with Gertjan to analyze smartphone-driven business opportunities for such customers. Yet, both were aware that strategic change would require a deeper understanding of the behavior of the end consumer, irrespective of their current focus on the consumer or corporate side of the business.

Gertjan had vast experience in mobile banking and mobile payments, which was an invaluable asset for Michael’s team. Gertjan and Michael quickly found that they shared each other’s vision of the new banking world. They believed that m-commerce (business transactions conducted through a mobile electronic device),2 financial mobile transactions (such as person-to-person transactions and mobile payments) and even mobile marketing (such as couponing and loyalty card services) could soon become major drivers of bottom- line growth at Rabobank Corporate Netherlands. With Michael’s relationship management background and Gertjan’s knowledge of mobile technologies, they felt as though they had the potential to map out solutions that would directly add value to the bank and satisfy future customer needs. Their initial data indicated that consumers would soon be ready to ditch their cash and credit cards and rely on their smartphones for a better shopping experience. Yet, the path was not without its challenges.

They had several plans on the table, all of them seeming very appealing, but the general picture was still too broad and needed to be structured. Their ultimate goal was to persuade people throughout Rabobank of the need to act now and transform the mobile agenda into the central engine for the bank’s growth among corporate clients. Yet, for their call for action to be effective, the team needed a focused plan for growth. They needed to clarify the offering they would propose that Rabobank Corporate Netherlands should bring to market. This would entail a careful analysis of the market dynamics and uses of the available technology by their corporate customers, but also by these customers’ clients (i.e., the end consumer).

The team’s first task was to define a business model that, alongside Michael’s boss, Heijmert Rijken, managing director and head of product management, they could then propose to senior management (up to managing board level). They saw three possibilities: a purely transaction-based model (i.e., a focus on financial transactions and mobile payments), a model with a strong mobile marketing focus (i.e., a platform for payments but, significantly, for loyalty, couponing, advertising) or an information-based model, whereby they would offer B2B customers access to intelligence services on consumers’ shopping or spending habits. An important consideration to be taken into account when choosing a business model was how to extract value for Rabobank from such business ideas. They had to keep the revenues and costs generated by each model in mind and, consequently, the profitability of each approach. Besides choosing the business model, the team needed to consider how to

2 Merriam-Webster Dictionary, http://www.merriam-webster.com/dictionary/m-commerce, accessed December 27, 2001.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

3IESE Business School-University of Navarra

promote the adoption of these services, carefully choose potential partners and determine how to reach the end consumer, both in terms of guaranteeing efficient access to the market and optimal branding of their new business line. These decisions were all closely interrelated and the team needed to come up with a comprehensive plan before moving forward.

Rabobank Overview

Established in 1898 in the Netherlands, Rabobank Group is a financial services provider that operates on the basis of cooperative principles. Rabobank resulted from the merger of two agricultural cooperatives that had been founded by local Dutch entrepreneurs. Most small entrepreneurs had difficulties getting access to capital and, therefore, decided to help each other financially, joining forces in these cooperatives. The Rabobank brand resulted from the fusion of these original cooperative names (Utrecht-based Coöperatieve Centrale Raiffeisen- Bank and Eindhoven-based Coöperatieve Centrale Boerenleenbank). By 2011, the Rabobank Group had approximately 59,400 employees on its payroll and served approximately 10 million customers in 48 countries. In the Netherlands, Rabobank offered a broad range of financial services, while its international operations were mainly focused on the food and agribusiness sectors. In terms of Tier 1 capital, in 2011 Rabobank was among the world's 25 largest financial institutions and the bank’s motto was “to let people and businesses participate in the economy as free and equal agents.”

In the Netherlands, in 2011, Rabobank served 6.8 million retail clients and 800,000 corporate clients. With 892 branches belonging to the 141 local Rabobanks that formed the Rabobank Group’s cooperative core business (see Exhibit 1), Rabobank had the densest banking network in the Netherlands. Such a dense network allowed Rabobank to offer its clients a proximal service, providing them with 2,956 cash-dispensing machines and early access to newer channels such as online and telephone services. In addition, the cooperative nature of the bank meant, for example, that any client could become a member of their local Rabobank.

Rabobank Netherlands is the umbrella cooperative that was established to support the banking activities of Rabobank’s local affiliates, hence being the holder of a collective license and maintaining financial supervisory authority over these local banks (see Exhibit 1). With 6,800 FTEs on its payroll, Rabobank Netherlands is responsible for monitoring – on behalf of the Dutch Central Bank - the business practices, solvency and liquidity of local Rabobanks (which together employ 27,200 FTEs and are, in turn, members and shareholders of Rabobank Netherlands). It also acts as the holding company for a series of specialist subsidiaries and associates. These subsidiaries help in Rabobank’s mission to offer a comprehensive range of financial services that are capable of creating long-term value for the bank’s customers and their respective environments.

Proud of its cooperative roots, Rabobank is consistently considered to be one of the world’s top-rated banks, with several awards thanks to its economic, environmental and social sustainability, and top ratings from all the major rating agencies (Aaa from Moody’s, AA from S&P, AA from Fitch and AAA from DBRS; see Exhibit 2). In fact, although the 2008 subprime crisis hit the financial industry very hard and helped reshape the landscape of financial institutions worldwide, Rabobank actually strengthened its relative position in the

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

4 IESE Business School-University of Navarra

period. In 2011, despite the modest recovery of the global economy and the gloomy economic sentiment sparked by the European public debt crisis, Rabobank’s net profit was up 13.1% to €1.87 billion (see Exhibit 3).

Rabobank Corporate Netherlands in 2011

By 2011, Rabobank Corporate Netherlands had a strong reputation among its customers and partners. For three consecutive years, the bank had been ranked first in the Incompany 500 survey, 3 an independent ranking of different companies based on their reputations among partners and employees. The challenge was to leverage on this equity to combine existing and new relationships, and to grow while ensuring that the bank kept its leading image and position in the market. Rabobank Corporate Netherlands’ goals included becoming the clients’ principal bank in the mid-corporate segment; becoming the benchmark bank for specific products in the large corporate segment; and strengthening its role in connecting the entire food chain, from primary production to distribution and sales of food products.

The Strategy & Innovation team believed that a strategy focused on mobile payments and services would be the best way to provide Rabobank with steady, bottom-line growth and ensure that these goals would be achieved. The team’s guiding principle was relentless innovation as a strategy to outperform competition, requiring a proactive, industry-shaping approach. According to Michael Dooijes, this was the key for differentiation. Michael believed that Rabobank ought to be a front-runner when it came to the new, shifting paradigm in banking. Any new ideas for products or services, however, would need to be well-aligned with the company’s motto and values. The cooperative nature of the bank, and its values, always encouraged it to consider itself part of society and not everything it did had to be a profit-maximizing decision. In fact, the ultimate goal was to make sure that Rabobank made enough profit to help its communities flourish.

The Smartphone Revolution

If anyone still had any doubts about the capabilities and market penetration of mobile payments, they would have undoubtedly changed their minds in sight of the latest developments and what has been promised for the future. Once the technology is in place, customers will be able to pay for virtually everything with their smartphones. Shopping behavior promises to change drastically, with the ability to order, receive discounts via e-coupons and pay, all through your phone. While sitting comfortably at home or travelling on the train, you will be able to make a shopping list and receive directions once in the supermarket, or preorder and pay for a book and simply pick it up already wrapped to your specifications.

Following the previously established successes of NTT DoCoMo in Japan (using Sony’s FeliCa contactless IC card technology) and M-Pesa in Kenya (in collaboration with Vodafone), mobile payments were expected to boom in the United States during 2012. Several companies were adopting positions in this market space. The best-known initiatives, in the United States, were Google Wallet (a partnership with Google and MasterCard, Citibank and

3 2011 Interim Report, “Wholesale Banking and International Retail Banking,” p. 21.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

5IESE Business School-University of Navarra

Sprint’s Nexus S 4G phone), ISIS (a Verizon, AT&T and T-Mobile wallet with Visa, American Express, Discover and MasterCard partnerships) and Square (backed by Visa and promoted in Apple stores).4 Despite the number of companies and initiatives already present or entering the market for mobile payments, space still seemed to exist for companies such as Visa or Apple to introduce their own virtual wallets. Such generalized interest is understandable given the sheer size of the opportunities within mobile financial services. Gertjan had found that, in mobile payments alone, Square was already processing over $3 million per day in transaction revenues while PayPal had grown from $24 million in 2008 to over $2 billion in 2011 and was expecting a turnover amounting to $7.5 billion by 2013.5

Even though mobile operators (such as Vodafone), banks, payment card networks (such as Visa and MasterCard) and over-the-top players (such as Google and PayPal) were the most visible players fighting for the driver’s seat in mobile payment businesses, other players were also moving into the mobile services arena. For instance, leading merchants in the United States had already implemented mobile payment solutions in their stores. Starbucks, for instance, had already announced, in January 2011, that it would implement mobile payment solutions in all of its U.S. company-operated stores. For 2011 this meant that customers would be able to pay for in-store purchases in 6,800 company-operated stores and 1,000 Starbucks establishments in U.S. Target locations. 6 OfficeMax had also introduced mobile payment in 100 locations via a partnership with Google Wallet, with the goal of providing customers with faster service and a personalized in-store shopping experience. The benefits of these mobile payment systems were not limited to offering convenience in payment. Starbucks’ application, for example, offered customers information about the closest Starbucks store based on their current location, the ability to explore characteristics of different coffee beans, nutritional information, the ability to share their location and choices through Facebook or Twitter, and even the possibility of building their own perfect drinks. At the same time, the application also allowed customers to collect points for Starbucks’ reward program.7 By the end of 2011, Starbucks had already processed 26 million payments, accounting for $110 million in revenue.8

Despite the somewhat later arrival of mobile payments and mobile solutions in Europe, the continent seemed finally ready to embrace the revolution. With an already expanding customer base in countries such as the UK, France and Germany, mobile payments would soon conquer the rest of Europe. In France’s case, the mobile payment platform (Cityzi) had been available since 2010 with a pilot scheme in Nice and was set to gain popularity with a government grant of €20 million to expand the technology to 17 additional cities.9 Peter Ayliffe, president and CEO of Visa Europe, had announced, in April 2011, that Visa had plans to invest €100 million annually in the development of mobile payments within Europe.

4 http://www.time.com/time/magazine/article/0%2c9171%2c2103289%2c00.html?artId=2103289?contType=article?chn=bizTech.

5 http://www.slideshare.net/space150/mobile-trends-june-2011.

6 http://news.starbucks.com/article_display.cfm?article_id=490.

7 http://www.starbucks.com/coffeehouse/mobile-apps/starbucks-card-mobile.

8 http://www.theverge.com/2011/12/6/2614978/starbucks-mobile-app-110-million-revenue.

9 http://www.nfcworld.com/2012/01/03/312152/seventeen-cities-shortlisted-for-20m-euro-french-government-nfc-grant/.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

6 IESE Business School-University of Navarra

In the UK, the three major carriers (Everything Everywhere – a joint venture between T-Mobile & Orange – Vodafone and Telefónica-O2) had joined forces to push the adoption of mobile payment services. Their goal was to bring together retailers, banks and advertisers. Other major players such as Samsung and Visa were also joining forces to promote NFC mobile payment during London’s 2012 Olympics, and McDonalds had the goal of making mobile payments available in 1,200 locations nationwide.

Although at a later stage in development, Vodafone and Telefónica-O2 had recently teamed up with Deutsche Telekom to create a joint venture in order to develop mobile payments in Germany. Other initiatives included 5,000 Coca-Cola vending machines in Belgium and Luxembourg, allowing customers to pay for drinks with mobile phones using PingPing, a mobile micropayment system originally developed by a Brussels-based start-up called Tunz, which was now managed by Belgacom, the largest telecommunications operator in Belgium.10

Thus, there were already several players taking action to gain their share of the mobile commerce and mobile payment value chains. Rabobank’s Strategy & Innovation team knew that it would need to move fast to avoid sizeable threats to its mobile strategy. Even though its first idea was to build on Rabobank’s expertise and image to conquer its space in mobile payments, Gertjan was concerned that, in the future, mobile payments would become a commodity. Michael and Gertjan wanted to consider solutions that went beyond the obvious and were capable of providing long-term value to their corporate customers.

Rabobank’s Early Moves in the Mobile Space

Rabobank was one of Europe’s early movers in the mobile space, which could bring various advantages for the bank’s future ventures. In the Netherlands, Rabobank’s first move into the mobile space began in mid-2005 with Rabo Mobiel, a virtual mobile network operator that differentiated itself from the competition by offering not only postpaid and prepaid telecommunication services, but also mobile banking and select payment services (see Exhibit 4 for an ad by Rabo Mobiel). With its market launch in late 2006, Rabo Mobiel focused both on B2C and B2B customers, and tried to leverage on Rabobank’s expertise and image to satisfy the growing need for secure mobile banking. It offered several payment- related services such as mobile banking (money transfer but also easy-access to data from check or credit accounts via mobile phone), mobile parking (a service that allows customers to conveniently pay parking fees) and SMS payment (a service that allows customers to transfer money to any holder of a Dutch mobile number using short messaging service).

Between May 2007 and June 2008, Rabo Mobiel started conducting several experiments with selected partners, such as NFC-payment vending trials with Coca-Cola and FEBO (a company with fast-food vending machines throughout the Netherlands, typically found in train stations), an NFC mobile ticketing trial with Rotterdam Zoo and trials with large retailers operating in the Dutch market, such as C1000 and Ahold’s convenience stores, Albert Heijn To Go. Rabobank kept innovating within the mobile arena by conducting trials and expanding the scope of its operations in this space. Subsequent initiatives focused on broader markets and used new brands such as Rabo SMS Payment (Rabo SMS Betalen), Cashless Payment (Cashless Betalen), 10 http://images.businessweek.com/slideshows/20110103/companies-lead-the-way-in-mobile-payments/slides/3.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

7IESE Business School-University of Navarra

MyID NFC sticker and MyOrder in combination with MiniTix (a brand that had already been introduced in 2003 and that by 2010 had provided consumers with a complete virtual wallet). In the period between 2007 and 2010, the bank continuously expanded its business propositions through trials and the development of new initiatives focused on different partners, customer segments and catering for different needs. Such trials included the use of NFC stickers in Albert Heijn To Go, hospitals, school cafeterias and sports clubs (see Exhibit 5 for a summary of trials and projects launched by Rabo Mobiel and Exhibit 6 for a timeline). More recently, the bank had expanded its reach again through collaborations with online players, such as bol.com (the largest online retailer in the Netherlands), and through the launch of iDEAL, an Internet payment method based on online banking.

Besides their experiences in the Netherlands, Rabobank had also started key international initiatives, in particular in developing countries where, via its Rabo Development Department, it had established several pilot schemes targeted at African communities. These initiatives came about in an attempt to “bank the unbanked” and develop the industry in countries where mobile phones are far more widely available than bank accounts or Internet connections. In other developing countries, such as Brazil, India, Russia and China, there was also a steady increase in noncash transactions (see Exhibit 7). Rabobank already offered mobile solutions in countries such as Tanzania, Zambia, Mozambique and Rwanda, where their initiatives were contributing to the development of local economies, which fit well with the company’s values. In Zambia, for example, Rabobank played a pivotal role in developing Xapit in 2008, a mobile platform from Zanaco (Zambia National Commercial Bank, one of the largest financial service providers in the country), where Rabobank already had a 49% stake. By mid-2010 the initiative already had 130,000 active customers serving 1.56 million monthly transactions.

Rabobank also had a 35% interest in Tanzania’s NMB (National Microfinance Bank, one of the country’s largest banks, with $1.41 billion in asset valuation, serving both corporate and end consumers) that it aided in launching its mobile initiative in 2009. The initiative now reached over 300,000 customers and served 1.86 million monthly transactions within one year of operation. Despite the significant differences between developing and developed markets, the Strategy & Innovation team had gained important knowledge from these success stories and needed to transform and adapt these initiatives to the Dutch market, with a special focus on B2B interactions.

The Need for Convenience, Simplicity and Transparency

Despite the impressive expansion into the mobile arena, by 2010 the bank realized that, in order to attain mass appeal, it needed to make choices, focus its mobile businesses and consolidate. Such moves would also enable the bank to simplify its operations and become more transparent for the end consumer. Piet Moerland, chairman of Rabobank Netherlands’ executive board, had recently embraced such consolidation efforts and praised all attempts to adapt Rabobank’s product portfolio to address the customer’s need for convenience, simplicity and transparency. The consolidation had already started in the local banks. In May 2010, they had launched Rabo Savings Account (Rabo SpaarRekening), a simple product for traditional savings customers combining Rabo Telesavings (Rabo TeleSparen) and Rabo Account Yield (Rabo RendementRekening) savings accounts. Rabobank Netherlands, in February 2011, had

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

8 IESE Business School-University of Navarra

also merged Rabo Internet Bonus Savings (Rabo InternetBonusSparen) and Rabo Internet Loyal Savings (Rabo InternetLoyaalSparen) online savings accounts into Rabo Internet Savings (Rabo InternetSparen). Finally, during the spring of 2011 the bank launched Rabo Savings Guide (Rabo SpaarWijzer), an online tool developed by Rabobank to help customers understand which savings product best suits their goals and needs. According to Piet Moerland, such simplifying initiatives guaranteed that “customers are now better placed to achieve their personal savings ambitions.”

The time was ripe for Rabobank Corporate Netherlands to also offer consolidated services to selected segments within the corporate customer population in the Netherlands. Recent evidence showed that mobile payments were increasing at a very fast pace (see Exhibit 8). To circumvent the somewhat slow diffusion of NFC-enabled phones, Michael and Gertjan believed that until the NFC technology was widely available, the best step to take would be to teach both merchants and consumers the advantages of this platform through a sticker method. The opportunity was considerable and Rabobank was clearly departing from a strong position, given the vast experience it had accumulated in the mobile arena and the steps it had already taken. These efforts had recently been recognized by the Banking & Finance ICT Innovation Award, given to Rabobank in collaboration with Service2Media on December 6, 2011. The key factors that drove the panel’s decision were the collaborative efforts to simultaneously bring about innovation in mobile apps for SMS payments, banking and bill sharing, and the recently-launched iDEAL mobile payment app. While the acknowledgment of mobile payments is of great importance, it will also signify a rapid growth in competition, simultaneously placing pressure on Rabobank to optimally exploit its first-mover advantage in order to create a position of power in the market.

The Challenges Ahead

While mobile technology is revolutionizing the way business is conducted, putting the smartphone at the center of Rabobank’s growth strategy for corporate customers was still frowned upon by some executives. The Strategy & Innovation team needed to clearly define what Rabobank Corporate Netherlands was offering in the mobile space. The bank’s internal strengths and weaknesses needed to be considered and the capacity of each offering to drive bottom-line growth clarified, if its aspirations were to be achieved. There were several critical choices to be made.

First, many executives saw online services, rather than mobile channels, as the growth engine for Rabobank. Their main concern was whether the technologies available for mobile transactions were mature enough to offer reliable and secure services. They believed that it would be necessary to keep online services as the focus of Rabobank’s strategy for corporate customers, at least until improvements in transaction security were widely available. For Rabobank, security was indeed a top concern as the bank had to protect its worldwide reputation as a trustworthy and safe bank.

Moreover, the bank was still reaping the benefits of its online-based expertise, network and content. Many believed that, before going mobile, the company should leverage on this expertise and grow within social media channels for example. Nevertheless, mobile Internet

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

9IESE Business School-University of Navarra

was growing at a faster rate than any previous technology, allowing companies to stay connected with their consumers wherever they may be, a trend that could not be ignored. For example, a recent survey conducted among executives by Google and Forbes indicated that, by 2013, smartphones would become the second most preferred device for business-related Internet usage (with 26% of respondents referring to them as the primary device, compared with 28% for laptops; see Exhibit 9). More generally, mobile technology was viewed by business analysts as the engine of growth of the Internet and computing in general (see Exhibit 10). To win in this new world, Rabobank would need to balance security concerns with consumers’ requirements for better shopping experiences through aspects such as convenience, context and fun, while allowing for greater interactivity. Would that be better achieved through online initiatives or directly from mobile technology?

Although one could be inclined to propose that the use of both is the simple way out, it becomes clear that this entails considerable resources and requires a decision on how to prioritize channels and subsequently implement new initiatives throughout the company.

A second major decision on Michael and Gertjan’s agenda was the choice of strategic partners for future mobile initiatives. A partnership could bring benefits such as further investment of capital, broader product offering, unique knowledge or expertise, as well as greater appeal and access to the market. The three possibilities considered by the Strategy & Innovation team were (1) a full bank-centric model (branded and managed by Rabobank or through partnership with other banks), (2) a partnership (sim-based) model (where Rabobank would possibly partner with one or several mobile network operators) or (3) an app-based model with a strong web component (where Rabobank could actually consider partnering with over-the-top players such as Google or PayPal).

Rabobank’s own initiatives in African countries had shown that a bank-centric approach can be highly successful under appropriate conditions. Having a strong foothold in the Netherlands and the necessary experience in the mobile world suggested that a bank-centric model would open sufficient possibilities for bottom-line growth while retaining control. At the same time, examples from Asia and across Europe demonstrated the strength and importance of mobile operators. They have a strong presence and ability to influence consumers, while being able to push the NFC technology by implementing it in their product offering. Finally, experiences in the United States had shown that over-the-top players such as Google and PayPal could become leading players in this market. They could also provide a bridge between the mobile and online worlds. Considering Rabobank’s strengths and weaknesses in the Dutch market, as well as emerging threats and opportunities, which partnership model would make more sense?

Furthermore, besides the choice of partners, what type of relationship should Rabobank establish with selected partners? Would it be preferable to adopt a collaborative partnership, whereby Rabobank would need to develop a close relationship with its partners in order to achieve mutually beneficial synergies? Or would it be preferable to adopt a transaction-based partnership, where Rabobank would simply outsource specific tasks to key strategic suppliers?

A third key decision concerned which corporate customers to target first in the Netherlands. Customer choice had to take into account the need to convince customers of the benefits of mobile services and foster the adoption of these services. Thus, the Strategy & Innovation

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

10 IESE Business School-University of Navarra

team needed to clarify the value proposition for different customer segments and choose which corporate customer segments to target in the first years of operation. Customer segmentation and selection was the first step in early market definition. The positioning of the new mobile services would have to emerge from such a choice.

Michael and Gertjan knew that they had to leverage on Rabobank’s vast expertise and close relationship with Dutch merchants. For example, after several years of partnering with large retailers such as Ahold’s Albert Heijn, focusing on large retailers could be seen to be the natural choice. On the other hand, the vast network offered by local Rabobanks meant that they could have privileged access to thousands of small and medium enterprises (SME’s) that could help push their mobile platforms in the market while keeping control of the platform. Targeting SME’s, such as independently-owned stores, could also allow Rabobank to make smaller, less risky investments and offer the possibility of customizing services to the needs of specific consumers. It would, however, take longer to reach mass-market aspirations given the need to overcome an initial resistance to change from smaller merchants (see Exhibit 11).

Besides deciding between large and small customers, the bank would need to further improve its focus by selecting which type of merchants to target first. In particular, should Rabobank mainly focus on food or nonfood retailers? Besides large food retailers such as Albert Heijn, C1000 and Jumbo, leading franchising brands such as McDonalds and Burger King could also be considered. Among large nonfood establishments there were attractive options such as Shell, urban transportation companies, electronic retailers (MediaMarkt), department stores (H&M and De Bijenkorf, a leading Dutch chain of upscale department stores), movie theater chains and online retailers (such as bol.com). In many of these shopping contexts, namely transportation and gas retailing, end consumers were already used to paying with special- purpose cards such as OV Chip Card, a contactless smart card for all public transport in the Netherlands, including train, metro, tram and bus services. This had been in implementation since 2005 and, by November 2011, had completely replaced the paper-based tickets used in the past in the Netherlands’ national ticketing system (see Exhibit 12).

Another important initiative in the Netherlands was the Chipknip, a prepaid card or electronic cash system introduced in 1996, that makes use of a chip embedded in a customer’s general bank card for small transactions. The popularity of Chipknip, in the Netherlands, was reasonably high for very small retail transactions and specific outlets such as office canteens and parking fees in particular, where Chipknip or SMS payment were the main methods of paying. Despite intense campaigns to push prepaid cards, the inconvenience of a constant need to recharge the card in special-purpose terminals (typically placed close to ATMs) meant that, by 2012, the overall popularity of Chipknip was still limited (see Exhibit 13a and Exhibit 13b).

Fourth, the team needed to clarify their offering, i.e., which type of services should they focus on? A first option would be to focus their businesses on a financial-based model whereby mobile payments would be the key component of their mobile strategy. In 2009, transactions with a value of €3.9 billion and a worth of €76.8 billion were made with the Netherlands (see Exhibit 13b). Yet, besides market size, it would also be important to understand different merchants’ sensitivity and willingness to pay for transaction costs (see Exhibit 14), and end consumers’ patterns of usage regarding smartphones (see Exhibit 15 for information on usage of smartphones for shopping purposes by U.S. consumers).

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

11IESE Business School-University of Navarra

Besides mobile payments, the bank could also offer mobile credit services that would allow consumers to purchase products or services for which the merchant would be directly paid, but the consumer would keep paying over time, generating interest for the bank. A third possibility would be to offer mobile marketing services such as mobile phone-based coupons, loyalty cards and advertising services. Adopting such an approach could open the door to a whole new set of business opportunities with great appeal to consumers and merchants alike. However, it would also force the bank to navigate further away from its core businesses. Finally, a fourth strategy could emphasize an information-based model offering corporate consumers access to intelligence services such as spending data of end consumers using Rabobank’s payment systems. Such a business model could also be extended to end consumers who could benefit from applications based on their location or from those allowing them to monitor their expenses more closely.

Fifth, having decided whom to partner and which customers to target, the team needed to plan market access. In particular, they would have to decide whether Rabobank would partner with its target customers (merchants), and together push mobile payment to end consumers (a B2B/push approach), or whether it should focus its marketing activities on convincing the end consumer of the need and benefits of mobile payments and mobile services (a B2C/pull approach). Such a strategy, while more costly, would help keep market power on Rabobank’s side and force merchants to follow end consumers’ demand for mobile services.

Another important decision in terms of market access was how to brand Rabobank’s mobile services. The team’s goal was to leverage on Rabobank’s strengths, in terms of consumer trust, image and cooperative values, in order to build a strong brand capable of satisfying Rabobank’s aspirations of becoming a leader in mobile solutions. The key question was whether or not to use the Rabobank brand for the services that were selected for marketing. On the one hand, a common brand would guarantee efficient usage of assets and synergies among the different initiatives. On the other hand, separate brands for different solutions would limit the effect of any disastrous scenario (e.g., involving security risks) on the bank’s brand equity, which took decades to acquire. A hybrid model could also be a possibility. In such a model the word Rabo would be combined with another word to identify the specific service being offered. This type of hybrid model, which Rabobank was accustomed to using, allows for greater flexibility but leads to difficulties in management. The team knew that their decision was functional to the message that they intended to send and its connection to the Rabobank brand.

The last step to be taken was to devise a revenue model which allowed Rabobank to extract significant value from its mobile service offerings. In particular, the team would deliberate on whether Rabobank was better positioned to offer mobile payment services for free and profit by offering other value-added services, or to offer a fee-based model for its services. Within these models Rabobank could then opt for fees coming from usage, subscription, intermediary position, advertising/referral or intelligence services, to mention just a few possibilities. How could Rabobank earn money from these mobile services?

In fact, were profits the only goal of mobile initiatives? Michael and Gertjan were busy trying to gather evidence that offering innovative – and often fun – services, such as mobile payments, has strong potential to improve key performance indicators such as the Net Promoter Score, particularly among corporate customers. It could also allow Rabobank to

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

12 IESE Business School-University of Navarra

offer a vast array of services and options that could allow merchants – traditionally key customers of Rabobank in the Netherlands – to fight the threat posed by more convenient forms of shopping, such as online shopping, and keep their stores open. Avoiding the weakening of its customer base would not only bring about better relationships but, significantly, avoid profit erosion and thus contribute to Rabobank’s bottom line in years to come. Yet, to convince senior managers within the organization to accept this path towards growth, the team needed clear answers for all the enumerated challenges.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

13IESE Business School-University of Navarra

Exhibit 1 Rabobank Group Organization Chart (Situation on June 30, 2011)

Source: Rabobank Group, 2011 Interim Report.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

14 IESE Business School-University of Navarra

Exhibit 2 World’s 50 Safest Banks in 2010

Bank(Country) 1 KfW

(Germany) 2 Caisse desDepotsetConsignations(CDC)

(France) 3 BankNederlandse Gemeenten

(Netherlands) 4 ZuercherKantonalbank

(Switzerland) 5 Landwirtschaftliche Rentenbank

(Germany) 6 RabobankGroup

(Netherlands) 7 LandeskreditbankBaden Wuerttemberg– Foerderbank

(Germany) 8 Nederlandse Waterschapsbank

(Netherlands) 9 NRW.Bank

(Germany) 10 RoyalBank of Canada

(Canada)

Note: The World’s 50 Safest Banks is a ranking published for the last two decades by Global Finance, a U.S. monthly financial magazine. The positions in the ranking were determined by comparing the long-term credit ratings from Moody’s, Standard & Poor’s and Fitch and the total assets of the 500 largest banks around the world.

Source: Global Finance, http://www.gfmag.com/tools/best-banks/10533-worlds-50-safest-banks-2010.html, accessed January 5, 2011.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

15IESE Business School-University of Navarra

Exhibit 3 Key Figures Rabobank Group

Update on Ratings: Due to concerns regarding the economic situation in Europe, some of the ratings were revised between November 2011 and January 2012, namely: S&P now rated Rabobank with AA (outlook negative), Moody’s kept the Aaa rating (but outlook also negative), Fitch decreased Rabobank’s rating to AA (outlook stable) and DBRS kept the AAA rating (outlook stable). Source: http://www.rabobank.com/content/investor_relations/ratings/index.jsp.

Source: Rabobank Group, 2011 Interim Report.

Net profit in millions of euros

Loan portfolio in billions of euros

Amounts due to customers in billions of euros

Return on equity in %

Tier 1 ratio in %

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

16 IESE Business School-University of Navarra

Exhibit 4 An Ad for Rabobank Mobiel, 2008

Text: Take the bank with you wherever you go.

Source: http://www.finalist.nl/content/migratietraject-voor-rabo-mobiel-0.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

17IESE Business School-University of Navarra

Exhibit 5 Innovation Projects Launched Under Rabo Mobiel Brand (2007 – 2009)

Source: http://www.slideshare.net/danarmstrong/rabo-mobiel-product-development-overview.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

18 IESE Business School-University of Navarra

Exhibit 6 Rabobank’s Innovations in Payments Over Time

Source: http://www.slideshare.net/danarmstrong/rabo-mobiel-product-development-overview.

Postpaid Launch Launch of Segment Packages

NFC Trials: Coca-Cola, FEBO

Prepaid Launch 30 Banks Online

C1000 NFC Trial

Retail Launch Senioren 100k + customers

MIB 4.1 (RR)

Diergarde Blijdorp NFC Ticketing Postpaid Retail Launch

Orange KPN SMS Betalen Launch

120 Banks Online MIB 6.0 (OMI)

MKB/ZZP MyOrder Terrace Betalen Youth AH To-Go Trial 180k + customers

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

19IESE Business School-University of Navarra

Exhibit 7 Noncash Transactions Increased in BRIC Countries Between 2001 and 2009

Source: http://gbm.rbs.com/docs/gbm/insight/gts/perspectives/WPR_2011.pdf.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

20 IESE Business School-University of Navarra

Exhibit 8 Growth in Mobile Payments per Type of Service Between 2008 and 2012

Telco related (top-up+VAS) Retail purchase

Remittance M-ticketing (parching+ticketing)

Utility bills payment

Source: D. Arthur, “Little Analysis,” http://www.aicto.org/fileadmin/medias/Seminars/M_payment/presentations/100223_MPayment_Tunis_Karim-Taga.pdf.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

21IESE Business School-University of Navarra

Exhibit 9 Smartphone Usage by Business Executives Will Grow at the Expense of Computers (2010)

1%

18%

26%

6%

21%

28%

0%

2%

12%

4%

37%

45%

WAPPhone

Internet Enabled Tablet

Smartphone

NetbookComputer

DesktopComputer

LaptopComputer

Within3 Years,44% of executivesexpectasmartphone or tablet tobe theirprimary device for business related Internetuse

Today InThree Years

Source: Google/Forbes Insight, http://www.thinkwithgoogle.com/insights/library/studies/b2b-trends-in-mobile-and-online-video/.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

22 IESE Business School-University of Navarra

Exhibit 10 Explosion of Internet Access Using Mobiles (2009)

Source: http://www.morganstanley.com/institutional/techresearch/pdfs/2SETUP_12142009_RI.pdf .

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

23IESE Business School-University of Navarra

Exhibit 11 Acceptance Rate of Different Payment Methods per Merchant Type

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Small & Medium Enterprise

LargeEnterprises Street/Ambulatory Merchants

Hospitality& Catering

Gas/fuelStations

DebitCard (Pinpas) Chip Payment Card (Chipknip) CredidtCard Card from Lease Company Card from Gas/Oil Company Local Service Card International Trucker Card (DKV, UTA)

Source: Frans Pleijster and Arjan Ruis, “Toonbankbetalingsverkeer in 2009” (EIM onderdeel van Panteia, 2011).

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

24 IESE Business School-University of Navarra

Exhibit 12 OV-Chipkaart – A Dutch Card That Allows Users to Pay for Metro, Tram and Train Rides

Source: http://www.ov-chipkaart.nl.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

25IESE Business School-University of Navarra

Exhibit 13a Composition of Incoming Transactions in the Netherlands (2009 vs. 2006)

2009 2006

Number of transactions towards x 1 million % x 1 million % Cash 2,486 64% 2,955 72% Debit Card 1,241 32% 1,067 26% Pre-Paid Card (Chipknip) 10 0% 16 0% Credit Card 26 1% 21 1% Other 117 3% 45 1% Total 3,880 100% 4,104 100%

Worth of transactions towards (in euros) x 1 million % x 1 million % Cash 31,540 41% 28,424 38% Debit Card 40,312 52% 41,888 56% Pre-Paid Card (Chipknip) 32 0% 150 0% Credit Card 1,609 2% 1,496 2% Other 3,336 4% 2,842 4% Total 76,830 100% 74,800 100%

Exhibit 13b Median Payment Time in Seconds per Transaction for Different Sectors and Payment Methods (January 2011, the Netherlands)

Larger Merchants (Establish.

Retail)

Smaller Merchants (Ambulatory/

Street) Hospitality/

Catering Gas/Fuel stations All retailers

Cash 15 18 15 15 15.1 Debit Card 19 20 17 21 19.1 Pre-Paid Card (Chipknip) 15 15 15 15 15.0 Credit Card 37.5 35 46.5 30 37.0 Fuel/Gas Card 0 0 0 22.5 22.5

Source: Frans Pleijster and Arjan Ruis, “Toonbankbetalingsverkeer in 2009” (EIM onderdeel van Panteia, 2011).

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

M-1286-E Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B)

26 IESE Business School-University of Navarra

Exhibit 14 Transaction Costs and Average Transaction Value per Type of Merchant in the Netherlands (in euros)

Larger Merchants (Establish.

Retail)

Smaller Merchants

(Ambulatory/Street) Hospitality/

Catering Gas/Fuel stations

All retailers

Cash 0.21 0.22 0.28 0.16 0.23 Debit Card 0.16 0.26 0.22 0.14 0.16 Pre-Paid Card (Chipknip) 0.15 0.25 0.15 0.13 0.15 Credit Card 0.99 0.59 0.76 0.49 0.79 Fuel Card - - - 0.20 0.20 Average Transaction Value 19.80 10.23 16.34 23.34 19.33

Source: Frans Pleijster and Arjan Ruis, “Toonbankbetalingsverkeer in 2009” (EIM onderdeel van Panteia, 2011).

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.

Rabobank Corporate Netherlands: Turning the Smartphone Into an Engine of Bottom-line Growth (B) M-1286-E

27IESE Business School-University of Navarra

Exhibit 15 Smartphone Usage for Shopping in the United States (2011)

Located a retailer

Compared prices to decide

Searched store’s inventory

Read product information and reviews

Compared features of a product

Used barcode scanner

Watched online video

Called a retalier

Contacted retailer in another way

Loocked for promotions and coupons

Used discount coupon on phone

54%

49%

34%

44%

40%

26%

21%

46%

22%22%

40%

26%

Source: Google/IPSOS OTX Media CT, http://www.thinkwithgoogle.com/insights/library/studies/the-mobile-movement/.

For the exclusive use of S. Zhao, 2016.

This document is authorized for use only by Shanshan Zhao in Business to Business Marketing taught by Dhiren Patel, California State University - Northridge from August 2016 to December 2016.