The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘citibank

All banks have the same strategy | what happened to the Starbucks strategy?


It was refreshing to read this piece, and takes us exactly where innovation in financial services ought to be going – the new (old) grand ideas.

Starbucks should start banking | FT

What if Starbucks opened an online-only retail bank offering competitive deposit rates and a modest range of loans and mortgages? It could do that by partnering with a finance company such as ING, which has the appropriate banking licences.

All it would need to do is install ATM machines in its outlets, which would involve investing some money but would allow it to get more out of its existing branches.

National supermarkets in the UK, such as Sainsbury and Tesco, have opened retail banks and placed ATM machines in their branches, but there is no national grocery chain in the US with a comparable reach. Even Wal-Mart lacks outlets on most urban high streets.

I recall the brainstorming sessions in the 90’s at the bank, where the discussion about competition arose not from other banks but from:

  • Starbucks levering their distribution and cards as a bank
  • ebay or Amazon offerring a credit card
  • internet only banks – ING was on the horizon – mbanx and Wingspan already out there
  • whether to join the S1 online banking commoditised platform
  • offer an All in One account that pulled together lending and deposits into one account
  • how to deal with the role of aggregation- offer it, join it, or ignore it
  • bill presentment – same idea – offer, join or ignore
  • shift in business model from generalist to:
    • product (manufacturer) – offer loans and deposts through others channels
    • distribution (channel) – sell products & services of others – Open Finance (Forrester)
    • segmentation (customer type)  – focus on a niche market, although most interpreted as the generalist, all things to all market which is where most banks ended

Relevance to Bankwatch:

The problem today is that Banks are on strategy defined 6 – 8 years ago to bricks and clicks, focussed on customer retention and wallet growth.  Customer Relationship Management (CRM) became the strategy de jour.  Who would claim that has worked?  Seibel disappeared inside Oracle for a reason.

Banks are all on the same strategy, focussed on mortgage as the entree, and upsell with other services later.

There is nothing out there that aims at shifting the balance of share of market in a substantial way.  This is not about acquisition or mergers – we have done that, and “too big too fail” is too fixated in everyone’s radar now, or until capitalisation is fixed, in any event.

No, this is about business model shifts … shifts that would have a target of:

  • double digit percentage shift in share of payments,
  • extraction of share of deposits and payments from an existing industry (the Starbucks example),
  • exponential elimination of costs relative to competition
  • focus on what your are good at and eliminate the stuff you are not good at

Business models –

Mr Bank Chairman …  what is your business model, and how is it different than the competition?

Supplementary question –

Who is your competition?  Do you lost sleep over Citibank and Wells, or Tempo and Wesabe?  Does your answer worry you?

PS …  as I finish this post the most telling thing is something I have become acutely aware of.  The blog categories I set up 5 years ago no longer apply, until I do a retrospective post such as this.  Either those were really bad ideas, or ideas yet to come.

How can a bank with over 2 trillion in assets fail?


econnov20th1The headlines surrounding Citi are reminiscent of a wolf pack circling its prey. But how can a bank such as them fail? And how can it go from making a billion dollar offer to purchase Wachovia to failure?

Citigroup stock drops to 13-year low, fear grow | Reuters

NEW YORK (Reuters) – Citigroup Inc faced a crisis of confidence on Wednesday as investors questioned the survival prospects of the U.S. banking giant, and its shares tumbled 23 percent to a 13-year low.

The second-largest U.S. bank by assets has been reeling on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and add deposits. Last month, Wells Fargo & Co dealt a blow by derailing Citigroup’s bid to buy Wachovia Corp.

Some facts, and I go back to my earlier posts on bank leverage.

Total Assets: $ 2,050 Bn

Total Liabilities $ 1,924 bn

Equity $ 126 bn

Normal Net income (2006) $21 Bn

Lets do the math here:

debt to equity = 15 :1 – on the high side even for banks. Capital is 6.2% of assets. Basel 2 requires 9% + I believe so they are already on the wrong side of that barometer.

Scenario: if their losses are $50 bn or more then equity is reduced to $76 bn. Ratios become 25 :1 and 3.7%.

In any other industry, this is called bankrupt.

Relevance to Bankwatch:

Unfortunately this calculation could be performed with similar results on too many large banks.  The reality is that the government ownership of certain banks is the only way for them to make it through this crisis and have any opportunity to exist and plan on the other side.  This will also curtail innovation.

Perfect time for financial system alternatives, and I hope the banking regulators see the irony in that, and let it happen.

Written by Colin Henderson

November 21, 2008 at 13:37

Citi to develop a new integrated technology infrastructure


Another signal of big [and needed] changes at Citibank. Their old strategy was highly collegial and permissive of disparate groups autonomy and individual projects. That is changing reflecting the obvious that its hard to be customer centric to the external customer, if you are not aligned that way internally.

Finextra: Citi hires Lippert to overhaul IT operations

Kessinger says Citi is looking to Lippert re-engineer the bank’s creaking IT infrastructure “by developing technology and operational platforms that are robust, agile, and cost effective. His role will involve the design and deployment of globally integrated solutions that are client-centric, and will reclaim Citi’s position as an innovative leader in the financial services industry.”

Written by Colin Henderson

July 6, 2008 at 21:35

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