Citibank’s myciti.com – Aggregation a strategic option for Retail Banks?

I had the great pleasure last week of running a workshop at E-Bank 2002 in Dubai. The workshop subject was how one could provide high-quality financial services across unified delivery channels. Given the conference title, we had a specific focus on the E-bank channel.

My top-level outline of the main strategic issues around the launch of an E-bank was as follows:

• The E-bank channel offers retail banks the opportunity to shift cost out of the bank and to the customer by moving to a self-service environment. If you don’t succeed in cutting out that cost, you will become uncompetitive.
• For the customer to be willing to accept that shift of cost, there have to be significant added value services which go beyond the convenience of being able to bank from home (or an Internet terminal anywhere in the world).
• To acquire and retain customers for that E-Bank, it would not be a bad idea to follow the strategies adopted by Dell, First Direct, and Egg, which can be summarized as follows:
  o Acquire customers by offering a significantly better value proposition than your competitors (i.e. a significant financial benefit for the customer).
  o Retain customers by offering significantly better service than your competitors.

Of course, the key issue is what sort of added value services the E-bank channel can offer. As part of my answer, I used Citibank’s MyCiti.com aggregation portal (www.myciti.com) as a case study, and going through it certainly stimulated interest and discussion amongst the delegates, and hence this editorial.

The MyCiti.com portal was launched in September 2001, and according to a recent Computerworld article, is causing a significant stir. Citibank are not releasing figures on how many visitors are using the site, other than saying that ‘thousands are signing up to use the service each week’, that ‘the rate of uptake is much higher than we expected’, and half the users are not Citibank customers. The service, perhaps unusually for Citibank, is free and though Citibank isn’t generating any revenue from the site it unsurprisingly has plans to cross-sell mutual funds and other products to existing customers and non-customers. In our view, as we outline below, the strategic opportunity for Citibank goes much further than this and we would be surprised if such opportunities are not already are in Citibank’s plans.

Certainly, other major banks are expected to offer similar services quickly. Wells Fargo has announced that its service will be available in 4Q02, and Chase Manhattan has recently launched Chase Online Plus, which offers similar aggregation services. According to TowerGroup, most of the top 50 US banks will announce their services within the next three to four months. In the U.K. both Egg already offer a consolidated view of Egg accounts, and they and other Internet banks are rumoured to be moving to providing aggregation.

So what’s all the excitement about? Let’s start by looking at some of the strategic issues facing retail banks. My proposition at E-bank 2002 outlined above complements, and is partially derived from, the Cap Gemini Ernst & Young (GGEY) report Paths to differentiation - 2001 special report on the Financial Services Industry, which I summarized in a recent editorial, CRM: The strategic challenge for Retail Financial Services. Let’s re-visit some of the top-level issues:

• The key issue facing retail banks is how they can differentiate themselves when virtually all their products are becoming commodities. How can they offer a unique value proposition to their customers?
• Addressing this issue is urgent, given the highly competitive environment: Internet companies continue to grow; new entrants come into the sector from retailers, telcos, and other industries; specialty players (e.g. MBNA & Countrywide) are picking off significant amounts of traditional business; consolidation continues across the industry.
• A number of trends are emerging: companies are balancing e-commerce, CRM, and branch initiatives – it’s a multi-channel future out there; there is a growing focus on aggregation of customer information; market leaders (e.g. Amex and Bradford & Bingley) are beginning to, perhaps nervously, sell competitors’ products – How can you claim to be customer-focused if you don’t offer them the best products?

So how does an aggregation portal help meet some of these issues? To understand that, we’d better outline what an aggregation portal does for the customer, and I’m going to use MyCiti.com (and Citibank’s UK offering) as an example.

(See www.myciti.com for details and to explore the site in detail).

Firstly, and probably most importantly, the myciti portal allows visitors to get a consolidated view of all their financial accounts (including check accounts, savings, loans, credit-cards, investments, insurance and others) regardless of supplier. Of course to achieve this, you have to provide the details of those accounts to the myciti portal, including access codes and account numbers. Through this the customer can get a consolidated view of their financial position at one site, and go on to access any of those online accounts. In addition, financial news, market prices, email accounts, bulletin boards, download sites, and a host of other sites can be built into the customer’s view, in effect creating a ‘personal portal’ to the Internet. The most significant benefit for the customers of course, is to get the aggregated view of their own financial position. The approach recognizes that most customers have multiple financial relationships and so can only track their personal financial situation by consolidating information from many suppliers – a buyer-centric view where the customers can manage their relationship with their suppliers.

Secondly, the portal provides access to considerable support (for US members), based on Life Event data, including help with becoming a student, getting married, starting a family, buying a home, and planning retirement. Currently this help seems to be restricted to the financial aspects of these events, but there is an opportunity here for Citibank to act on the customer’s behalf in negotiating with other suppliers who support such life events, again supporting a move to buyer-centric commerce.

Thirdly, the site offers a series of calculators aimed at helping the customer plan for life events and other financially related matters (e.g. debt consolidation and home equity).

So why are customers joining by the thousand every week? The key benefits from a customer viewpoint are:

• the ability to manage all financial accounts from one site, and obtain a consolidated view of those accounts
• significant support in dealing with the financial impact of forthcoming life events
• practical help in understanding many of the financial issues that they need to address through the use of calculators.

From a Citibank perspective, there are obvious immediate benefits from a customer acquisition and cross-sales perspective, though there must be some very interesting issues from a data protection perspective, at least in the U.K. environment, though I have not worked those through. One can certainly see why other financial services might be a little bit interested in the availability of ‘their’ account information through the myciti.com portal.

So if we go back to our strategic issues, myciti.com certainly seems to provide Citibank, at least in the short-term, with both good customer acquisition and retention possibilities, at least until other banks catch up.

However, in our view, the opportunity goes much further than that. We have talked for some time about the likely emergence of ‘customer-managed relationships’ also known as ‘buyer-centric commerce’, where a trusted intermediary can act on behalf of a set of customers, and deliver them high-quality, good price deals from suppliers, rather as the retailers have aggregated customer demand for FMCG goods, and used that to drive hard bargains with suppliers on price and quality.

Where is such an intermediary likely to come from? In our view they are likely to be companies significantly involved in many transactions, but independent of the end-supplier. This makes the communication distribution channels (interactive TV, mobile phone operators, telcos, and perhaps retailers) or companies involved in the payment mechanism (banks, credit-card processors, or charge cards), and probably Microsoft, as the most likely candidates. The involvement of the RFS companies in both the e-commerce and traditional markets providing payment mechanisms is one of a number of strategic advantages they have in the forthcoming struggle.

What does a company need to execute that role? Amongst other things: the trust of the customers to act on their behalf; significant volumes of information about their customers; and an understanding of the events occurring in their customers’ lives. It seems as if the myciti.com portal provides Citibank with a means to build towards that strategic aim, as well as providing short-term gain on the way through.

So what does this mean for other financial services companies? The CGEY report sees two main alternatives: become a commodity product provider through scale and ‘best-practice’ operational processes, or offer a full range of products (best for customers) from a variety of sources to a niche market in which you have specialized to be able to offer superior customer experience. CGEY also say ‘Very large players, (e.g. Citibank) may be able to do both.’ The myciti.com looks part of a strategy to do just that.

For smaller RFS companies it surely becomes urgent to start to think through how they offer a superior customer service to a niche market through a buyer-centric commerce approach, and which products they should provide themselves, and which they should source, on the buyers’ behalf, from elsewhere.

Expect the interest in buyer-centric commerce (or CMR) to grow rapidly in retail financial services, and in those communication channels.

As, always, we’re interested in your views on this subject, so please make them below or email me at mailto:[email protected]

Regards,

Richard Forsyth