CitiGold in NA – Kudos to Manuel

27 July 2010

• Financial Times – July 27
• Business Week – July 27
• Previous Blog – Citi “Bank of the future”
• Previous Blog: Citi – Branch Strategy and Bundle
• WSJ – Citi to cut back to 6 Metro Regions

Admittedly I’ve been critical of Citi’s recent NA efforts (Bank of the Future, Bundle, …), but I’m a big fan of Manuel and the new Citigold strategy described in the FT Article above. This blog is addressed to companies looking to partner w/ Citi (insight into the labyrinth), as it is one of the most complex organizations to understand globally. If it makes you feel any better, its hard for people inside the organization as well.

For you outsiders.. Banamex is not a poor stepsister to anyone in retail. As a proof point, in Citi’s most recent quarter (2Q10) LATAM alone provided 2x the earnings of Citi North America. The BOD (and most in Citi) consider Manuel to be a banker’s banker, and in Citi’s Banamex franchise excellence attracts excellence. Over the last 3 years retail strategy has been stunted by the churn of executives in its top ranks, the loss of Ajay Banga was a particularly hard blow. Manuel’s experience combined with that of the LATAM team (and BOD support) position him well to “turn around” Citi NA; an audacious goal that will enhance Manuel’s position as successor to Vikram.

Under Teri Dial, thousands of man hours were spent by every Citi retail (and card) executive planning for “bank of the future”. While customer servicing, touch screens and iPhone apps are important.. you first need to get the customer into the store and sold on your products (in person or remotely).  Bank of the Future was an effort that frustrated Citi’s cadre of excellent business leaders; an empty strategy that gave no near term focus to BAU.. nor a “profitability” for the “future” end state.

Citi’s international retail franchise is a star globally: an affluent bank strategy with minimal branch footprint. Citi’s breadth of products and expertise was an original goal of the Sandy Weill’s supermarket. While loosing significant wealth talent and capability at the top end (with SSB’s $2.7 spin out), Citi still retains products and capabilities globally to serve the affluent segment in the US (just as it does internationally).

Manuel’s US CitiGold strategy is an excellent approach.  Citi is already an affluent bank (as shown in 2006 Comscore data below), maintaining average balances twice that of their nearest competitor (my rule of thumb is that the average BAC customer has twice the products, and the average Citi customer has twice the balances).

Re: US CitiGold, the international team has long questioned why the US continued to push sand up hill in a mass market focus given its minimal branch footprint (#9 as stated in WSJ article above). A new affluent focus will drive marketing, product and most importantly sales.. Citi DOES have unique capability, internationally it also maintains a great brand, let’s see if it can dust itself off for a premium US debut.

This new affluent US focus will not be without challenges, from both existing banks and new start ups (like Bill Harris’ SafeCorp Financial).  However, Citi’s capabilities uniquely resonate with several high end demographics that are already customers of its other lines of business (CEOs, Investment bankers, hedge fund managers, expats/international executives, CFOs, …). Internationally CitiGold services normally started with clients of the institutional side and expanded to the expat community. My guess is that Citi’s decision management team would say that the ability to sell CitiGold in the US (absent these connections) is not well established. On the execution side we will probably see many more relationship managers (wealth lite) pop up in the branches that do exist, and focused marketing efforts outside of mass media. Affluent is about brand and service.. which does align with a few of the CitiForward initiatives.

On the innovation side the “Citi Forward” concept has been around the table for quite some time. Evolving over the last 4 years and piloting itself in Citi Australia.  This is all good stuff: integrated financial management tools, comparison and cross selling. However all of this servicing will not bring you customers if the products are not competitively priced, limited marketing and no sales team (discussed in my previous post – Citi/Bundle). Hope to see Manuel empower a strong US retail head with a focused strategy that will empower them to take the reins of all technology and innovation activity. Citi has fantastic technical capability, but the business needs to focus it (particularly after the bank of the future mess).

Chase QuickPay and Quick Deposit

25 July 2010 (Updated 20 Aug)

• Netbanker on Chase iPhone App
• Previous post on USAA’s Deposit@mobile
• American Banker
• ApStore – Chase iPhone App
• Chase QuickPay
• Mitek Systems Product Page

Chase has a stellar eCommerce and mobile team in both their retail and cards organization, and they are poised to deliver tremendous payment innovation across both of these business units. This innovation has been “in the works” over the last few years, and Jack Stephenson (PayPal’s former head of strategy) is fortunate to have  joined at a time where both the payment platform and team is gaining traction. This month the JPM retail team has delivered new capability in its iPhone versions of QuickPay and Quick Deposit products.

QuickPay Overview:

QuickPay is a JPM’s money movement “pay anyone” service that provides registration for both Chase and non Chase customers. Chase was very late to the money movement game, rolling out its first QuickPay service in 2008 (whereas Bank of America and Citi have been providing this since 2002  through CashEdge). From a strategy and organizational perspective, JPM is well known for their “preference” to develop applications internally. It may have taken some time for JPM to complete the QuickPay internal build, but in the current release it has surpassed the domestic capability (and usability) of all other banks. JPM is now the leader in retail online payments.

Non-Chase customers can register for QuickPay before or after receiving funds. For non customers, registration for QuickPay is similar to PayPal (or CashEdge’s PopMoney), with the QuickPay wallet currently constrained to single linked checking account. Chase customers have a streamlined enrollment process and the QuickPay functionality is integrated into their existing online experience (demo above). This differs substantially from BAC, where the same capability to transfer funds exists but the usability is very poor. BAC is missing a substantial opportunity to capture beneficiary phone/e-mail information, an unnecessary miss since the capability exists (BAC is Cashedge’s largest US customer but has not yet signed on with CashEdge’s mobile POP money service).  Beneficiary information is critical to maintaining an accurate directory.. the key element in any payment system. Chase’s QuickPay maintains e-mail, phone and other information which gives it a head start in the directory battle (subject of future blog).  Given Chase Paymentech’s role in acquisition (for card, paypal, …) you can see potential for further directory synergies internally.

Quick Deposit

The articles above provide a great overview of the new iPhone App, with Chase following in the footsteps of USAA’s Deposit@Mobile. Application is from Mitek Systems and it is just super, and for small merchants this may become the payment method of choice (when compared to card):

Merchant benefits:

• No transaction costs (savings of 150-350bps)
• Usability and simplified enrollment
• Same day availability of funds
• Fits existing consumer behavior pattern (checks)
• Legal protections/enforceability (paper checks vs. electronic signature)
• Instant verification, risk and fraud management
• Leverages bank imaging systems and processes (regulatory and consumer receipt)
• Notification/receipt to consumers

JPM Business Case

• Check imaging (op expense)
• Small business acquisition (Customer Net Revenue for SME = $3-$5k)
• NRFF for non-customers (NIM on settlement funds held)
• Future “directory” business case, cards growth
• Prevention of DDA Account Number Breach

The JPM Quick Deposit application was reportedly built in-house, other Vendors such as EasCorp’s Depozip provide similar functionality. As for the success of this application, NetBanker reported USAA’s recent numbers for Deposit@Mobile. (update 20 Aug, my friends at BAC tell me that they have been trialing the Mitek application for almost 3 years now, fine tuning the app and the support process and are set for launch any day) .

Given that the audience for this blog (investors, start ups and innovators), you might ask why it takes 2 years for a bank to roll out this type of innovation. An excellent question! The iPhone app itself is the easy part, perhaps consisting of less then 20% of the overall budget. The “hard work” is in integrating it into existing systems and risk controls. For example, the primary value proposition, for QuickDeposit, is improving check acceptance and funds availability. At the teller line, banks have tools like DepositChek which allows the bank to determine if information on the check is correct and the account is in good standing (stopping check fraud before the check image gets into the system). These same tools must be integrated into the online and mobile process to reduce risk. I’ve picked this particular example because it is a tool unique to bank entities (not available to non-banks). In addition to the technical integration costs, banks have become very prudent in testing, and accessing impact of new functionality to call center support costs. Given the wide availability of both of these applications, it is essential that they are intuitive to JPM customers.

These applications are a great retail success. I understand that the JPM cards team is also poised for a major release in mobile soon (with multiple alliance partners). Well done JPM!

Enroll for QuickPay - www.chase.com/QuickPay

Overview of Quick Deposit  – www.chase.com/quickdeposit

Thoughts appreciated