CitiBank Online

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CitiBank Online

• Lee Dubois

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Overview

• CitiBank is one of the most popular international
  banks and credit card giants in the U.S.
• Headquartered and Founded in NYC, with their
  credit card dept. headquarters in South Dakota.
• As of 2007, it is the largest bank in the U.S. by
  holdings. Its largest sharedholder is Prince
  Al-Waleed bin Talal of Saudi Arabia.
• Founded in 1812

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Citibank Online

• CitiBank was interested in expanding into online
  banking, had many variants over the years.
• Direct Access vs. Citi F/I
• CitiBank F/I, championed by John Reed, was
  essentially a pure-play bank, owned by Citi but
  operated separately.
• Direct Access was basically the web-enabled
  version of their old dial-in PC banking system.

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Citi F/I

• Management envisioned a separate online
  organization that would eliminate the costs of
  having buildings with impressive lobbies and
  having to hire and pay personal attendants.
• Research firm Jupiter anticipated a 400 annual
  growth in online banking. Citi wanted to jump in
  on this.

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Citi F/I

• Started in 1997 by John Reed, alongside other
  competitors such as Wingspan.com, BankOne's
  pure-play internet bank.
• These founders were fueled by excessive optimism
  and nice predictions, but their services fell
  short.
• Both Citi F/I and Wingspan.com weren't doing too
  well, and were not gaining as many customers as
  anticipated.

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Citi F/I

• Mark Parsells, a former Wingspan.com key
  personnel, was hired by Citi in 2000, the same
  day that John Reed announced his resignation.
  This meant big changes to the Citi online
  experience.
• Seeing that the Citi F/I service was not meeting
  expectations and was costing too much for the
  company to continue, Parsells took over the helm
  to re-vamp the online experience.

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The Competitive Environment

• This era gave way to different competition
• Traditional banks offering online access to
  accounts and bank services
• New pure-play banks like E-Trade Bank and
  NetBank, and traditional banks that were starting
  separate pure-play banking systems like Citi and
  BankOne.

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Traditional Banks The Good Side

• Large established base of customers.
• Wide variety of products.
• Well established brick and motar presence.
• More percieved trust.
• Many of these larger banks had enrolled many
  account holders into online services.

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Pure-Play Banks The Good Side

• Little if any fees.
• Generous interest bearing checking
• Cutting edge technology service like account
  access on your phone.
• E-Trade bank, NetBank, Wingspan, Bank Direct, etc
  fall in this category.
• Internet banks were not able to attract the
  growth and volume they wanted, however, as
  e-trade bank had only 290,000 accounts.
  International Internet-only banks were doing
  better, such as Egg in the UK, with over 1.2
  million customers

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Houston, We Have A Problem

• Why was online banking flawed? Why was it not
  doing well?
• Research was gained from internet users of 1997
  and 1998 in developing online banking solutions.
• These people were early adopters of technology,
  people who were comfortable with technology and
  rarely doubted the net's security.
• They also did not like to go into branches and
  made choices primarily by price.
• Price-based shoppers are only looking for the
  best deal not much money to be made there.

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Houston, We Have A Problem

• Who they should have researched was the late
  adopters of 1999 and 2000.
• These customers wanted a trusted traditional
  brand that would keep their information secure,
  and deliver great service.
• They were less tolerant of glitches and less
  net-savvy.
• They were also more risk-adverse

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Houston, We Have A Solution!

• Scrap the pure-play citi FI and go with a more
  click-and-mortar approach to online banking.
• The new Citibank Online worked hand-in-hand with
  traditional methods of banking.
• Features of this service would include services
  similar to that of online banking now at the
  local banks, such as account summaries and
  detail, funds transfer, loan payment, and a lot
  more, including a fully customizable homepage and
  no additional fees.
• Citibank Online was planned to merge the existing
  online services, F/I and Direct Access. The
  product would be launched in 12 weeks. And it
  did, on Oct 12, 2000. It was a major success in
  its initial form, exceeding goals.

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Okay, Now How Are We Doing?

• Citibank Online would evaluate its performance in
  two ways
• Use data and ratings from an indipendent rating
  service, and they would also
• Figure out their contribution to return on
  invested capital by evaluating how Citibank
  Online customers were different from traditional
  customers, what they were doing, etc.
• They wanted to be the 3 online banking service
  as rated by the Gomez ratings by the end of 2001.

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Wow...

• After only 5 weeks on the market, the Citibank
  Online service was ranked number 1!
• Back when Parsells was first hired (when John
  Reed was in charge), Direct Access was number 9
  in the Gomez ratings, and Citi F/I was rated all
  the way down at number 17.
• By completely revamping, and combining these two
  services in different ways to form Citibank
  Online, operating costs were dropped by 50 and
  new account acquisition was up by 50 as compared
  to 1999.

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Again, How Are We Doing?

• Their ROI was measured using 4 metrics
• Improvement in Attrition (Account Cancellation)
  Rates Citibank Online had lower attrition rates
  than did the traditional users.
• Higher Balances The online users tended to have
  more money in their accounts.
• New Customers and Activations Citibank online
  motivated it's customers to actively attract new
  online customers, and tried to get it's
  traditional customers to sign up, making it easy
  for them to just enter their ATM card number and
  pin to activate the service.
• Cross-sell opportunities For different services
  like direct deposit and online bill pay.
  Incentives to sign up for these services.

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Again, How Are We Doing?

• Their ROI was measured using 4 metrics
• Improvement in Attrition (Account Cancellation)
  Rates Citibank Online had lower attrition rates
  than did the traditional users.
• Higher Balances The online users tended to have
  more money in their accounts.
• New Customers and Activations Citibank online
  motivated it's customers to actively attract new
  online customers, and tried to get it's
  traditional customers to sign up, making it easy
  for them to just enter their ATM card number and
  pin to activate the service.
• Cross-sell opportunities For different services
  like direct deposit and online bill pay.
  Incentives to sign up for these services.

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Just When They Thought it was Safe

• So Citibank Online is rated 1 by the Gomez
  ratings, but there is always opportunity for
  someone else to step in.
• Hybrid banks were emerging. These were mostly
  internet-based banks (or banks with a very strong
  internet presence) that had nontraditional
  locations/branches to do simple transactions.
• Juniper, for example, mostly online, using the
  existing ATM network, and allowing for simple
  transactions to be done at certain Mailboxes, Etc
  locations.
• Also, many pure-play banks were establishing
  physical locations and/or acquiring many
  brick-and-mortar organizations to suit their
  needs for physical locations, such as NetBank did
  with Market Street Mortgage.

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Just When They Thought it was Safe

• 80 of new products sold by banks are done in
  person. That's why hybrid banks were becoming so
  big.
• Directbanking.com opened a physical branch in
  Boston, growing the bank's assets by 22 million
  in just 4.5 months.
• Other firms might be able to move into similar
  territory as Citibank online, such as brokerage
  firms, insurance agencies, and credit card
  issuers. With the low cost of technology they
  could do many things.

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Just When They Thought it was Safe

• Since Aug 2001 (until book publish date),
  Citibank Online has signed up 9 million new user
  accounts.
• They were the first bank ever to offer aggregated
  account services (letting consumers consolidate
  their banking tasks and services online) and
  doing things like getting insurance quotes or
  tracking their portfolios as Salomon Smith
  Barney.
• Even though they're number one and are doing
  well, they could perhaps do a few things to help
  them keep this position and ensure that
  competitors don't overtake them.

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Any Suggestions?

• Value vs. Price
• Citibank Online has traditionally used the value
  play model more than the lowest cost provider
  model offered by other internet only banks.
• They should continue to do so, but in doing that
  they also need to distinguish their products and
  services from everyone else's who might have a
  lower price.
• If Citibank Online wants to have the best
  product/service and keep their 1 rating, they'll
  need to have a good price to charge and justify
  that price by providing superior product and
  customer service.
• Lowest price does not mean best deal.
• However, they do not want to over-charge either.

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Any Suggestions?

• Trust
• How do they get trust from their customers, and
  more importantly, how do they maintain it? It's
  not hard for them.
• They've got a reputation as a bank that's been
  around for a while with many customers, and they
  also have the physical presence to back them up.
  People nowadays still like to have a building
  they can go to where their money is at, and have
  an actual personality (teller) behind the
  counter.
• Eventually I believe online banking will become
  as commonly accepted as the ATM is today, and it
  is already starting to be come commonplace.
• Who would you rather bank with?
• Do it right, the first time. That's when trust
  comes about

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Any Suggestions?

• Emerging Models Hybrid Banks
• In my opinion, hybrid banks do not pose as much
  of a threat to Citibank Online. Citi has a
  reputation as a great bank both traditionally,
  and online.
• Hybrid banks are basically just pure-plays who
  are trying to meet customer needs for a physical
  presence. This is great, and I'm sure it will
  probably work well, but not to compete with Citi.
• Let's say you need access to a physical location,
  who do you go to? A teller / officer at Citibank
  who knows about the business, or some average Joe
  at the UPS store?
• Plus, Citibank Online is rated number 1, and has
  the same features and benefits that rival that of
  the pure-plays. So really, there might not be
  much competition.

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Any Suggestions?

• Innovation
• I can see traditional banks with a strong online
  presence growing rapidly.
• Citi could do a few things to successfully
  continue to grow, from small to big.
• A new innovation Citibank could start up its own
  online funds transfer site to compete with
  PayPal.
• This service would not be tied to any Citi
  account or account holder. This would be
  something that would make it easy for people to
  move money around, transferring funds in and out
  of accounts with other banks to different people,
  doing credit card transactions, etc, the same way
  as PayPal.
• Citi could partner with big companies such as
  PayPal did with eBay, to provide secure
  payment/money receipt methods without having to
  give out any numbers.

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Big to Small

• Innovation
• Other ways Citi could grow is by opening more
  physical branches. More physical branches means
  more Citibank Online customers more growth.
• Even something as simple as online E-statements
  sent right to customers email. This way, lots of
  money can be saved on paper, postage, and office
  supplies. Citi could use this extra money to
  expand even more.

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THE END!

• Let's high-tail it out of here