CitiBank Online

Emlyn Jacoby12 Dec 2008

A.Gauvin

Replaces the cost of handling paper checks an walk up retail services with that of low cost computer based services

Online banking touts no fees and charges higher interest rates on accounts

Convenient an efficient Immense opportunity for top line growth

amongst affluent professionals and exploiting the potential to create super financial services such as insurance and brokerage services

Creates increased customer loyalty with new earning streams that become available

Why Online Banking ???

Started in 1997 by John Reed whom was the chairman and co-CEO

Other Competitors included Wingspan.com and BankOne’s pure play internet banking

Citibank had tried several online strategies with multiple internet based products over 2 year period

Reed championed the creation of Citi F/I in 1997

Citibank was committed to developing an effective internet presence an wiling to experiment with internet strategy

CitiBank Online

Mark Parsells, former Wingspan.com employee became president an chief operating officer in 2000, Reed resigned the same day

Parsells knew he had to prepare a strategy for long term competitors that lacked short term profit expectations

He became responsible for the online retail strategy an implementation

CitiBank over the years, with their many strategies were very interested in growing into online banking

Citibank’s initial online consumer products took two forms, Direct Access an Citi F/I

CitiBank Online

Web based retrofit of Citibank’s old dial-up PC banking service

Primary purpose was to inform account holders with basic information regarding their accounts

Latest incarnation of Citibank’s long running effort to move customers to electronic banking

Direct Access positioned as a value added service for traditional retail banking

CitiBank Online: Direct access

John Reed the mastermind behind it Was the newly formed stand alone, internet only

banking unit Separate organization within Citibank and

competing wit its own traditional banking business Jupiter researched an predicted a 400% annual

growth in on-line banking that would attract large amounts of capital

Mr. Reed an others were filled by high expectations and false predictions that ultimately fell short

Competitor BankOne, headed by Parsells launched its Wingspan.com online banking unit in just 5months

CitiBank Online: Citi f/i

Both Citi F/I and Wingspan.com weren't doing as well as they were expecting to do and were not gaining as many customers

After more then 2years of product development Citibank launched Citi F/I to the public

Initial reception was lukewarm so hired Mark Parsells, Wingspan key employee to improve Citi F/I

Parsells became head of Citi F/I in February 2000 and faced difficult situation

Knowing that Citi F/I was trailing expectations as it had taken too long, cost to much money with little in return, Parsells took over

CitiBank Online: Citi f/i

When many were crafting their online banking initiatives the online banking industry took 2 forms:

Traditional Banks which would offer that of web access to existing retail accounts

Pure-play banks or Internet–only banks such as E-trade an Netbank whom only had few key selling points such as fees, access accounts through cell phones and PDA’s

Competitive Environment

Large establishment base of existing account holders

A wide variety of financial products A well established brick ‘n mortar

presence Generate greater trust among banking

clients Larger banks had successfully enrolled

several million account holders in their online services

Advantages of Traditional Banks

There were few or if any fees Generous interest-bearing checking

accounts Cutting-edge technology based services Internationally internet-only banks were

more successful. The British internet only bank, Egg had over 1.2million customers

Advantages of Internet-only Banks

Internet only banks were based on 97’ and 98’ research of on-line users

People of this day and age were referred to as the early adopters whom rarely doubted the internet’s security

They despised going into branches They disliked old-economy brand names Were named priced based customers as they

made choices primarily based on price Price based customers were always looking

for the best price therefore not loyalty an not profitable customers

Fatal flaws of on-line banking

Customers whom should have been targeted were online customers of 99’ and 00’ termed the late adopters

These new on-line customers wanted a trusted, traditional brand that would secure their personal information

Late adopters were less comfortable with technology an less tolerant of glitches

More risked averse making them more focused on usability and security

Fatal flaws of on-line banking

Parsell scraped the pure-play Citi F/I in favor of a new bricks-and-clicks strategy

Rather then working as a separate entity, would work within the traditional bank

Offer a new strategy which was a personal financial portal, which would include services similar to online banking now at local banks such as account summaries etc.

Improved Citibank online would merge the on-line services of Citi F/I and Direct Access in creating a new product in a time frame of less then 12 months

Citibank's Online Problem Solver

Citibank wanted to set performance goals for its on-line operations an did so in 2 ways:

Judging Citibank Online by ratings from independent rating services

Citibank Online’s goal was to be ranked number 3 by end of 01’ from the Gomez rankings

Measure Citibank’s Online’s contribution to return on the invested capital by assessing how their online customers differed to that of non-online customers

Performance Ratings

When Parsell was hired Citibank's product Direct Access was ranked number 9 and Citi F/I was ranked a lowly 17 in the Gomez rankings

14 months ahead of schedule and after being in the market for only 5 weeks, Citibank Online was ranked number 1

This was the first time a traditional bank had been ranked at number 1

In reaching their desired goals, expenses were cut by 50% and account acquiring in first quarter was up by 50% to that of last years

Impressive Work !!!

Improvement in Attrition rates- had lower account cancellation rates then the traditional

bank users Higher Balances- Online users tended to have higher balances and more

accounts New customers and Activations- Provided new ways of attracting customers, activate

existing off-line account holders making it easier for them just to enter their ATM card number

Cross sell opportunities- Offering incentives for users to expand their online usage

for services such as direct deposits

Return on Investment (4)

◦ The emergence of Hybird banks was on the rise. These internet-based banks had a very strong internet presence that was based out of non-traditional locations to do simple transactions.

◦ The hybrid banks were becoming so big so rapidly as 80% of their products sold by banks were done in person

◦ Pure-play banks were heading in the other direction an were establishing physical locations and ended up by acquiring many brick ‘n mortar organizations to suit their physical location need, such as NetBank.

Emerging Competition

Internet only bank Directbanking.com opened a physical branch in Boston, increased the bank's assets by 22 million in just 4.5 months compared to the same time it had been online

As of Aug 2001, Citibank Online had signed up 9 million new user accounts through its web portal

They were the first bank ever to offer aggregated account services, make credit card payments, loan payments and get information regarding life, auto, home insurance or track their portfolios as Salomon Smith Barney

The technical barriers of entry are very low so other firms might be able to move into similar territory as Citibank online, such as brokerage firms, insurance agencies, and credit card issuers

Emerging Competition

CitiBank are operating at a very good level but if they wanted to hang on to their number one ranking, they might want to re-access certain criteria's to keep them at the top and leaps ahead of their competitors

Value versus Price:

Trust:

Emerging Models:

Innovation:

Success Criteria

Value versus price:-CitiBank is considered a value play opposed

to a low cost (low fees)-More emphasis on their pricing structure as

the cheapest price is not always the best but you don’t want to over charge (visa versa)

-Differentiating their products/services from competitors and offering at a price that will be at a value for its customers

Recommendations

Trust:-First impressions last the longest. -CityBank has a good reputation as a bank that

has been around for a long time-People or late adopters still have a hard time

with technology and still prefer to actually walk into a bank and speak to representatives

-ATM’s are more commonly used now and online banking will take the same route and duration as ATM’s did

-What is your preference?

Recommendations

Emerging Models:-There are Hybird banks, but these are banks that are only

pure-play and exists on the web only-Hybird banks don’t posses the same presence as

CityBank does-CityBank is not rated number one for no reason, they

offer the same features and services as pure-play banks and have physical banking locations

-If you encounter a problematic situation that needs to be resolved, users can go to an actual teller at a physical CityBank where as if Hybirds only have on-line assistance and no one to personally speak too.

-Users only feel more secure in these instances

Recommendations

Innovations:-CityBank successfully exploited the multichannel link by

adding the clicks n’ mortar-City bank should think about adding more physical

locations so that it increases their public awareness therefore generating more customers

_ Notification via text message or an email regarding any movement pertaining to your account

-Occasional reminders to account holders pertaining to when next loan payments are due

-Next step could be similar to PayPal and partner with a big company so that payments can be made without having to deal with numbers, less confusion.

Recommendations