Citi: Banking on a digital future for financial services

Despite having been transformed by technology over the past half-century, the banking industry is threatened by increased digitalization, particularly the rise of start-ups that utilize technological solutions to provide better services at lower costs. Nevertheless, most large banks are uniquely situated to take advantage of the opportunities posed by advanced technologies. Citi, in particular, has transformed both its operating and business models in exciting ways; by continuing to lead in the industry, it will ensure its role at the center of the global financial system for another 200 years.

Citi is among the world’s largest and most globally active financial “supermarkets”, offering a wide range of banking products to consumers and businesses. Across its business lines—from payments services to investment banking to household mortgage lending to traditional deposit-taking and cash management—new technologies have begun to emerge that challenge Citi’s position by offering cheaper, faster, or more convenient alternatives. In the consumer banking space, in particular, Citi has begun to develop responses to technological change that, if expanded and enhanced further, can avoid most of the major threats now seen.

In many cases—such as peer-to-peer lending platforms and some consumer payment platforms—the gains provided by FinTech challengers are from disintermediating, or eliminating the bank as the middleman at the heart of the financial system. In others—like anonymous virtual currencies and new remittance services—the improvements are generated by utilizing an entirely new technology or software to offer services that solve problems banks are not currently addressing.  And in others, still, startups and established companies have managed to develop convenient applications that more accurately match consumer lifestyles and expectations.

Citi has responded to these challenges (and the opportunities underlying them) by altering both its business and operating models. The changes to the business model are readily apparent to consumers, who benefit from expanded services. Like all big banks, Citi has offered mobile banking via an app for several years; recently, with the creation of Citi Pay, they have introduced a mobile wallet that allows customers to make online and in-app purchases seamlessly, as well as in-store payments using Near Field Communication (i.e., tap and go).[i] Citi jointed the new clearXchange network earlier this year, which will enable its customers to transfer payments  directly from their bank account to anyone, using the recipient’s phone number or email address.[ii]


In both these cases, Citi stands to benefit by expanding its services to match those offered by emerging competitors. Even though it is not the first mover, it has the advantage of an already large and relatively sticky client base, so adding comparable services should enable the bank to maintain customers who don’t want the friction of switching to entirely new providers just to gain access to these services.

At the intersection of business and operating models, Citi’s relatively advanced global technology infrastructure—rather than disparate regional or product-specific systems—enables it to achieve the kind of scale necessary to provide high-touch local services.[iii] Many of its competitors, including both smaller regional banks and global players whose regional or product operations are managed independently, lack the ability to cost-effectively provide such holistic, customer-centric service. In order to continue to differentiate on the basis of customer service, it must highlight the benefits of these services to customers, particularly the younger segment that may only derive value from digital/online services.

Also at the intersection of business and operating models is Citi’s November 2016 decision to launch a global API developer hub.[iv] This hub outsources innovation to the global community of software developers, as well as to the FinTech and consumer products industries. In doing so, it will likely bring new services to the bank’s current portfolio by leveraging these external parties’ desire to gain access to Citi customers. It is unlikely that such a large, regulated institution would be nimble enough to succeed at developing the kinds of new technology that push the industry forward, so this decision enables the bank to partner for the purpose of innovation.

One area where Citi risks going too far is in the transformation of physical branches. Like many banks, Citi has scaled back its branch network to focus on ‘smart branches’, which employ machines rather than tellers and bankers.[v] While this strategy is highly cost-effective, it risks weakening the bank’s customer-service value proposition and alienating older customers and others who are less enthusiastic about banking’s digital transformation.

The major non-competitive threats Citi faces from increased digitization are security and compliance risks. Cybersecurity is a major concern for financial institutions, especially given the sensitivity of their data. Citi’s $300 million annual spend and relatively advanced information security capabilities have kept it safe thus far, but adding additional digital and web-based products only increases the opportunity for cybercriminals to exploit vulnerabilities.[vi] In terms of compliance, additional digitization has the potential to enable criminal actors to gain access to Citi’s services, thereby violating anti-money laundering regulations. Citi must modernize its KYC (know your customer) processes to ensure that it can verify all its clients, possibly by utilizing biometric information.

Citi is well positioned to continue to take advantage of opportunities offered by digitalization. By updating its operating (and its innovation) model in key ways along with its business model, it can ensure further evolution to match emerging competitive threats.

(792 words)

[i] Christopher Brown, “Citibank launches Citi Pay mobile wallet and NFC payments service.” NFC World, 10 November 2016. <>.

[ii] Business Wire, “Citi Joins Early Warning’s clearXchange Network,” 28 September 2016.  <>.

[iii] McKinsey & Company. “Citigroup on engaging the digital customer.” Interview, June 2015. <>.

[iv] Citigroup, Inc. “Citi Launches Global API Developer Hub to Enable Open Banking.” Press Release, 10 November  2016. <>.

[v] McKinsey & Company. “Citigroup on engaging the digital customer.” Interview, June 2015. <>.

[vi] John Goff, “Can JPMorgan, Chase, Citi, others protect customer data from cybercriminals?”  Crain’s New York Business, 20 April 2015. <>.



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Student comments on Citi: Banking on a digital future for financial services

  1. Great post Ben! I never thought about how the opportunities that FinTech provides to consumers threaten the big bank operating models through disintermediation. I think Citi’s efforts to remain relevant in the face of FinTech innovation is impressive, but I wonder if it is enough. It seems as though their efforts significantly lag the industry. I think big banks are positioned well to offer advanced FinTech solutions to consumers given their experience in the banking field and their considerable balance sheet to finance such innovation. Additionally, Citi’s efforts to scale back their physical consumer bank presence is interesting. USAA, a consumer bank that does not even come close to the size and scope of services that Citi has, actually does not have any physical bank locations. They do all banking online and they provide outstanding service and security-so I think it can be done by Citi. However, as you mention in your post, the conversion from physical locations to online will likely disenfranchise a large number of Citi customers which will provide a tough challenge for them to tackle. I think it is the right move, if done carefully and slowly. Thanks for the great insight!

  2. Thank you for your great post, Ben! You speak about the competitive threat of complete online banks (no brick and mortar). Historically (in the last 10 years) these banks have not caught on as quickly as I think most people believed they would. There is a Chinese bank out of California called Tomato Bank that comes to mind- The firm I was with previously made a private placement investment in the company at its conception. The bank was able to gain investor traction early on due to a thesis based on digitization and the ability for small internet banks to disrupt large players like Citi. After three years, the bank nearly crumbled as consumers were not as excited about complete digitization of banking. The firm was able to recover and is still in existence but it was not the homerun everyone thought it would be. I still believe fully digitized banks will have the ability to capture a large share of the market in the future. I continue to believe that Tomatobank was 20 years too early to the game. As Millennials begin to make more money and represent more total bank deposits, internet banking will become more popular. As banks cut operating expenses by closing down more of their brick and mortar (Citi approach), they will be able to offer higher rates to clients- a huge value proposition[1]. The key for larger banks will be balancing their online presence for a younger generation with the brick and mortar stores for older generation clients. I believe that finding that perfect balance and adjusting accordingly will be a huge challenge for Citi going forward. Although I believe the balance will be necessary, because of the nature of banking, I do not believe our world will ever move to a completely digital banking industry. The industry still requires personal touch points. For example, when getting a mortgage for a house, customers still want very specialized personal attention. I believe that taking someone through the process of getting a loan would be very difficult to do online or over the phone. On the banking side, I would imagine that managers would want to meet clients face to face in order to get a good judgement of credit worthiness.

    Billy brings up a very interesting point (comment above). He states that in his experience he has seen great customer service as a client of the USAA completely digital banking system. I would love to speak further with him and you as I believe this is online banking’s biggest challenge. It takes tremendous trust for customers to give an organization their money. I personally believe it is nice to know there is a brick and mortar store that I can go to if for some reason something happens and I have a question, concern, etc… The customer psychology behind this will be very difficult to change going forward. I believe that banking is one industry that still requires human touch points and I don’t see it ever becoming completely digitalized in our lifetime.


  3. Interesting post Ben! I had the opportunity to attend a presentation with head of marketing from Citi earlier this year. She fully admitted that the bank was behind in terms of using technology in the services they provide to customers. I remember her speaking about loan applications specifically and she said that there was still no way to apply online. I thought that was pretty unbelievable in 2016. However, it does seem like Citi is taking steps to remedy that. In particular, I found the new branch models and payments to be interesting. I agree with you that they are well positioned, as long as they start to focus on what’s next rather than playing catch up.

  4. Ben — First, incredible title. Loving the pun. Second, I wanted to comment on a few specific points you made that really resonated with me.

    You write: “At the intersection of business and operating models, Citi’s relatively advanced global technology infrastructure—rather than disparate regional or product-specific systems—enables it to achieve the kind of scale necessary to provide high-touch local services.”

    I find this point intriguing, especially as we learn about supply chain management. If I understand you correctly, it sounds like Citi has more control over the banking supply chain and is thus able to use “vertical integration” to its advantage. This is a very salient point and one I haven’t heard discussed much in the conversation on traditional banking and threats posed by fintech companies. I wonder how traditional banks can use this attribute to their advantage when competing for consumers.

    In addition, I think it’s fascinating that Citi is launching a global API developer hub. I’m not entirely sure what this means from a data security perspective (what data would be available?), but it’s something I’ve seen done among private sector companies and government when trying to outsource innovation. I think it’s really brilliant and reminds me somewhat of the “Netflix Prize,” where Netflix outsourced the development of a new algorithm that predicts a consumer’s movie preferences with a higher level of accuracy ( It would be really cool if Citi could leverage being tech-forward (and do something that engages the public and stirs up conversation.

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