Citi is among the world’s largest and most globally active financial “supermarkets”, offering a wide range of banking products to consumers and businesses. Across its business lines—from payments services to investment banking to household mortgage lending to traditional deposit-taking and cash management—new technologies have begun to emerge that challenge Citi’s position by offering cheaper, faster, or more convenient alternatives. In the consumer banking space, in particular, Citi has begun to develop responses to technological change that, if expanded and enhanced further, can avoid most of the major threats now seen.
In many cases—such as peer-to-peer lending platforms and some consumer payment platforms—the gains provided by FinTech challengers are from disintermediating, or eliminating the bank as the middleman at the heart of the financial system. In others—like anonymous virtual currencies and new remittance services—the improvements are generated by utilizing an entirely new technology or software to offer services that solve problems banks are not currently addressing. And in others, still, startups and established companies have managed to develop convenient applications that more accurately match consumer lifestyles and expectations.
Citi has responded to these challenges (and the opportunities underlying them) by altering both its business and operating models. The changes to the business model are readily apparent to consumers, who benefit from expanded services. Like all big banks, Citi has offered mobile banking via an app for several years; recently, with the creation of Citi Pay, they have introduced a mobile wallet that allows customers to make online and in-app purchases seamlessly, as well as in-store payments using Near Field Communication (i.e., tap and go).[i] Citi jointed the new clearXchange network earlier this year, which will enable its customers to transfer payments directly from their bank account to anyone, using the recipient’s phone number or email address.[ii]
In both these cases, Citi stands to benefit by expanding its services to match those offered by emerging competitors. Even though it is not the first mover, it has the advantage of an already large and relatively sticky client base, so adding comparable services should enable the bank to maintain customers who don’t want the friction of switching to entirely new providers just to gain access to these services.
At the intersection of business and operating models, Citi’s relatively advanced global technology infrastructure—rather than disparate regional or product-specific systems—enables it to achieve the kind of scale necessary to provide high-touch local services.[iii] Many of its competitors, including both smaller regional banks and global players whose regional or product operations are managed independently, lack the ability to cost-effectively provide such holistic, customer-centric service. In order to continue to differentiate on the basis of customer service, it must highlight the benefits of these services to customers, particularly the younger segment that may only derive value from digital/online services.
Also at the intersection of business and operating models is Citi’s November 2016 decision to launch a global API developer hub.[iv] This hub outsources innovation to the global community of software developers, as well as to the FinTech and consumer products industries. In doing so, it will likely bring new services to the bank’s current portfolio by leveraging these external parties’ desire to gain access to Citi customers. It is unlikely that such a large, regulated institution would be nimble enough to succeed at developing the kinds of new technology that push the industry forward, so this decision enables the bank to partner for the purpose of innovation.
One area where Citi risks going too far is in the transformation of physical branches. Like many banks, Citi has scaled back its branch network to focus on ‘smart branches’, which employ machines rather than tellers and bankers.[v] While this strategy is highly cost-effective, it risks weakening the bank’s customer-service value proposition and alienating older customers and others who are less enthusiastic about banking’s digital transformation.
The major non-competitive threats Citi faces from increased digitization are security and compliance risks. Cybersecurity is a major concern for financial institutions, especially given the sensitivity of their data. Citi’s $300 million annual spend and relatively advanced information security capabilities have kept it safe thus far, but adding additional digital and web-based products only increases the opportunity for cybercriminals to exploit vulnerabilities.[vi] In terms of compliance, additional digitization has the potential to enable criminal actors to gain access to Citi’s services, thereby violating anti-money laundering regulations. Citi must modernize its KYC (know your customer) processes to ensure that it can verify all its clients, possibly by utilizing biometric information.
Citi is well positioned to continue to take advantage of opportunities offered by digitalization. By updating its operating (and its innovation) model in key ways along with its business model, it can ensure further evolution to match emerging competitive threats.
[i] Christopher Brown, “Citibank launches Citi Pay mobile wallet and NFC payments service.” NFC World, 10 November 2016. <http://www.nfcworld.com/2016/11/10/348394/citibank-launches-citi-pay-mobile-wallet-nfc-payments-service/>.
[ii] Business Wire, “Citi Joins Early Warning’s clearXchange Network,” 28 September 2016. <http://www.businesswire.com/news/home/20160928006360/en/Citi-Joins-Early-Warning%E2%80%99s-clearXchange%C2%AE-Network>.
[iii] McKinsey & Company. “Citigroup on engaging the digital customer.” Interview, June 2015. <http://www.mckinsey.com/global-themes/leadership/citigroup-on-engaging-the-digital-customer>.
[iv] Citigroup, Inc. “Citi Launches Global API Developer Hub to Enable Open Banking.” Press Release, 10 November 2016. <http://citigroup.com/citi/news/2016/161110b.htm?linkId=31022950>.
[v] McKinsey & Company. “Citigroup on engaging the digital customer.” Interview, June 2015. <http://www.mckinsey.com/global-themes/leadership/citigroup-on-engaging-the-digital-customer>.
[vi] John Goff, “Can JPMorgan, Chase, Citi, others protect customer data from cybercriminals?” Crain’s New York Business, 20 April 2015. <http://www.crainsnewyork.com/article/20150420/TECHNOLOGY/150429994/can-jpmorgan-chase-citi-others-protect-customer-data-from-cybercriminals>.