“We want real relationships, attracting customers with high rates is “the most commoditized business model on the planet.” David Chubak, head of global retail banking and mortgage at Citigroup, 2018 [1]
(Citi Branch of the Future in Japan. Img Src -The Financial Brand)
Key Lessons from a Bank Moving to a Digital Form…
I have frequently discussed the consumer banking industry’s move to digital channels over the last two years. A week after the last retail banking post was published in this blog, Citi’s transformation to a primarily Digital bank featured prominently across the Wall Street Journal on March 25,2018. [1]
Demystifying Digital – Why Customer 360 is the Foundational Digital Capability – ..(1/3)
While there have been fits and starts often from enlightened business units, this is probably the first documented bank-wide transformative approach by a Fortune 10 Bank. A bank that has been termed a financial supermarket due to the array of services it has offered in the past – consumer (savings accounts, credit cards, mortgages) accounts, wealth management services, trade finance & capital markets.
Let us see how Citi have executed on their digital strategy as contrasted with some of the recommendations from my earlier blog.
Lesson #1 Place the Customer at the Heart of the Channel Strategy…
We discussed how banks need to treat a variety of customer channels as equal citizens. What this means is that channels need to be unified from a User Experience, Analytics and Risk/Compliance standpoint. Thus every interaction with or derived insight about a customer on one channel needs to be visible across all the other channels. Unless this is done, the bank cannot claim that the customer is at the heart of everything they do. However, the mobile app is now Queen or King- as it provides a wealth of account & product functionality, relevant financial information over a few clicks/swipes.
In Citi’s case [1] –
Citigroup, meanwhile, would be the first among the country’s giant, full-service banks to pitch an entirely mobile relationship to a wide swath of consumers under its primary brand name. It calls the strategy “light bricks, heavy clicks,” said Stephen Bird, the bank’s global consumer banking head since 2015.
The end result is that the Bank no longer perceives a customer as an account holder but a live entity that demands personalized interactions targeted advice and products that cater to her or his financial situation & aspirations. Technology is thus used to provide Seamless and Easy Navigability between channels – customers should be able to start, pause & continue transactions from one channel to the other.
Lesson #2 Rethink Core Offerings & Rethink Them Around Ecosystems
No digital capability should stand alone. It should be part of or designed to be a part of a larger platform or ecosystem. Whether that ecosystem is internal to the different lines of business in a large bank or offered as part of a partnership with a FinTech doesn’t really vary the premise.
As in Citi’s case [1] –
For Citigroup, the effort is more of a reboot than a debut. In the second quarter, the bank—run by Chief Executive Michael Corbat —plans to add new features to its mobile application, which would offer a full suite of banking, credit-card, lending, and investment tools to all users, including holders of the banks over 120 million U.S. credit card accounts.
Once a core central platform has been built, different lines of business can use the inherent APIs to themselves develop an ecosystem of applications that can ultimately be offered as a SaaS (Software as a Service). The end state of the Digital Platform thus becomes a business system that is not only responsive to minute customer interactions but also supports massive scale in terms of data, customers, partners, and employees.
The two central ideas at the heart of a platform based approach are as follows –
- Create new customer revenue streams by reaching out to new customer segments across the globe or in new (and non-traditional) markets. Examples of these platforms abound in the business world. In financial services, Banks & Credit reporting agencies are able to monetize their assets of years of customer & product data by reselling them to interested third parties which use them either for new product creation or to offer services that simplify a pressing industry issue – Customer Onboarding.
- Reduce cost in current business models by extending core processes to business partners and also by automating manual communication steps (which are almost always higher cost and inefficient). For instance, Amazon has built their retail business using partner APIs to extend retailing provisioning, entitlement, enablement, and order fulfillment processes. >>
Again, Citi’s experience [1] –
Bank executives say that three years of investing in digital tools has laid a foundation for the rollout. New services will include virtually instant account opening and a so-called “aggregator” feature that lets users—even people who don’t have any Citigroup accounts—view data from their accounts at other banks, akin to services offered by startups such as Intuit Inc.’s Mint and Betterment LLC.
Later this year, Citigroup also plans to launch a series of new digital products in the U.S. via the app, such as “robo-advisor”-style automated investing and small credits to people buying goods at a retailer, known as a “point-of-sale” loan.
Lesson #3 Overcome Inertia and Experiment Incrementally
Going fully digital also means rethinking through core products and services. And really what brings a bank closer to a FinTech is there a culture that can not only tolerate but also encourage what for a traditional enterprise is a large amount of experimentation with uncertain results.The leading Banks recognize this and for their IT teams – digital transformation and cloud have been a multi-year journey often leading to one or two failures before they finally get it right.
For instance,
- Can a retail bank based in NYC, Chicago & Wash DC upsell prosperous retail customers in certain zip codes in Florida services such as Robo- advisors & do so by providing them with compelling real-time offers?
- How can a front office digital platform create and launch value-added services commonly offered by FinTechs – e.g. peer to peer lending for consumer loans, real-time payments from consumer accounts and crowdfunding?
- One of the things I have highlighted in Customer Onboarding which is a major source of pain for new customers and dissatisfaction for internal ops. Banks need to enable painless Account Opening for a range of loans & services – this includes real-time or instant (and entirely digital) prequalification for simple products such as checkings/savings accounts and credit cards. While it is understood that more complex products mortgages will take more time than opening a new savings account, however, these should be granted in a matter of days instead of weeks & months.
Lesson #4 Use Data to target the Right Branch/Clicks Business Mix
The key part of ensuring that customer interactions are infused with insights is Data. Banks need to arrive at a careful and well thought out Data architecture. Datalakes or warehouses need to be remodeled around the usecases.
From [1],
Citigroup has closed or sold branches across the U.S., even in large cities such as Philadelphia, Boston, and Houston. With those cuts, Citi has sacrificed some of the scale that has helped rivals such as JPMorgan Chase, Wells Fargo & Co., and Bank of America Corp.
While those three banks have dominated deposits, Citigroup’s North American consumer deposits fell from $185 billion at the end of 2016 to $182.5 billion at the end of last year.
By concentrating branches in New York, Los Angeles, Chicago, Washington, Miami and San Francisco, Citigroup has reduced its U.S. branch network by more than 300 locations since 2009 while refocusing on customers with big balances, encouraging them to move some money from deposits into wealth-management products. U.S. retail investment assets under management rose 14% last year, to $60 billion.
Citi’s experience illustrates that retail banks need to get creative with where they place their branches. The new distribution model includes three new realities –
- Move customers in underserved areas to digital channels
- Places branches strategically in cities or towns with high needs for face to face interaction
- Invest in sophisticated marketing capabilities to drive product adoption
Big Data and AI can drive six critical business capabilities across Banking
Lesson #5 Learn Globally but Implement Learning Locally
Over the decade, growth in the retail banking industry will now take place in emerging economies of Asia and Africa. These consumers are in some sense digital natives as they have access to the internet and have leapfrogged decades of branch banking.
As such, they can serve as the ideal ground for global banks to experiment, test and offer new services that can provide feedback for their efforts across the globe.
- Increase customer acquisition and delivery of commodity services via digital channels
- Invest in customer journey mapping
- Invest in sophisticated marketing capabilities to drive product adoption
- Value-added services such as mortgages, wealth management services etc will be driven using a mix of both digital and human interfaces. From [2],
Citigroup acknowledges that revenue has been weak in this business for years but notes it has risen 4% over the past 12 months. To keep this growth spurt going for years, the key drivers will be credit-card lending in the U.S., 10% annual growth for its Mexico business, and expansion of wealth-management services in markets across Asia.
In Asia, Citigroup’s plan to court on wealthy clients is similar to that of many competitors, including Swiss private banks, other global commercial banks, and ambitious local lenders in Singapore and Hong Kong. Not everyone will succeed.
Conclusion
At some level, Digital is a useful reason to rewire stovepiped internal processes that have been built up over the years. Banks need to arrive at a concrete understanding of the target state, current pain points and waste along the customer value chain. Funded initiatives then need to be built which target these key challenges. While departmental level tasks can be left loosely defined, it is important to arrive at a high-level roadmap that delivers wins – both quick ones and over the long term. If megabanks such as Citi can embark on such programs, their peers and mid-level players do not have the luxury of avoiding change.
References…
[1] WSJ “Citigroup to Again Be a Nationwide Bank, but in Digital Form” –https://www.wsj.com/articles/citigroup-to-again-be-a-nationwide-bank-but-in-digital-form-1521975601
[2] WSJ “Citigroup sets a High Bar for Itself”
https://www.wsj.com/articles/citigroup-sets-high-bar-for-itself-1501014211