25 Jan 2011

Previous Blogs

• Citi Bundle
• Intuit Acquires Mint
• Analysis of Aggregation Biz Case

Not much new information here.. just restating from previous blogs. I just don’t see how services like Blippy are getting funded, and why issuers/banks continue to allow access to card data.  What is Blippy?

A) The ultimate in sharing and social networking

B) A group of users that seeks the opposite of privacy (?publicity?)

Analysis

As I stated previously, a central challenge to all aggregation services is moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. In the US, MSFT, Mint.com and INTU had trouble getting customers engaged separate from their Banks.   in 2009, Mint had over 400,000 customers and VERY high customer satisfaction, yet this did not translate into revenue (below $5M).  This month will be a very big test for loyalty as Intuit attempts to move legacy MINT customers off of the Yodlee service and re-aggregate (enroll) all of their accounts in the Intuit service.. loosing most history.  

There is a very poor history of services/software in financial planning, a dynamic which drove Microsoft out of financial planning software (MS Money). Why would Citi (bundle) or Blippy be getting into this business? Investment hypothesis must fit into one of the following “buckets”:

A)    Customer feeder to core products, or “sales lead generator”

B)     Advertising

C)    Revenue generating service(s) for new customers (think advisory), or

D)    Build in hope big name partner will take you out (Intuit)

My guess is A and D. Fortunately for banks, customer data shows that consumers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce and was a key reason why banks invested in online infrastructure. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention.

With regard to aggregation and budgeting, they are great tools to build closer relationships to consumers. As a consumer, why would you want to go to bundle when the only products it recommends are those of Citi? Lets assume the Bundle signs up all of the major banks to also offer their “retirement services” products. This form of competition aligns with Citi’s new retail distribution strategy (reduced branches), but DOES NOT align with any of it’s product pricing competencies. Are Citi’s products capable of competing on price? How does this align with Citi’s current Affluent customer base and product mix? Citi has a tremendous brand, and in 2006/2007 Citi’s brand proved it was capable of competing online with a price driven product in Citi Direct growing $8B in deposits in 6months. However what Citi’s management team (at the time) also learned was that “most” of this growth in liabilities came from existing customers (read cannibalization). Outside of brokerage, few online channels have proven an ability to acquire (or cross sell) affluent customers.  So is Bundle a mass market acquisition play? What products will they offer and at what price point?

In the UK, customers select their bank savings account through leading comparison sites like www.moneysupermarket.com. In the US, mass market retail customers select their bank based upon the proximity to their house. The business premise with Mint.com, Bundle, and Intuit  is that customers will start with budgeting, and then move to select financial products (no retention play as these are not necessarily Citi Customers) or transact. The UK online bank Egg was successful in online acquisition because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it.

Globally, the only success model for aggregation and comparison that I am aware of is Egg.com, which my team at Citi acquired May 2007 for just over $1B.  If you sit down with Paul Gratton, Egg’s first CEO he will tell you that their success was driven by a complete focus on delivering value to the customer, both in product and online services. In other words, aggregation was part of a larger product value proposition. It is the coupling of product and service value that creates challenges for large companies to replicate, particularly with respect to cannibalization of existing products. For Bankers.. this is why the Egg model is so difficult to replicate (or acquire), it takes alignment of a value proposition across product, services and channels. A challenge which is even greater for an innovation team, hence Citi’s attempt to decouple the “idea” from the “business”.

Can these “social” sites like blippy deliver on a new value proposition? 

How should Banks respond?

There are 2 central issues for banks to consider: Customer data and customer relationship. Having your customers manage their finances outside of your financial institution is a lost opportunity to add value to your existing relationship. Banks need to decide what services and tools their customers WANT through customer engagement and advocacy. Mint’s demographic seems to indicate that there is a minimal business case for bank investment here. Banks may want to consider “good enough” services for budgeting such as what Wells Fargo provides online (https://www.wellsfargo.com/wfonline/spending).

If consumer surveys point to need for a comprehensive view and portfolio management the vendors such as Yodlee and Cashedge offer these services to banks today. Of specific focus should be small business and wealth. Banks should carefully track trends in these segment as needs are greater (as is customer profitability).

Banks have substantial control over Mint/Intuit success by controlling access to data. Many leading financial institutions have altered there hands off approach to allowing 3rd parties ad-hoc access to customer account information. Banks should require formal agreements with Intuit over data access, and shift costs to Intuit for managing the activities associated with allowing this access. During my time as head of Online and Payment services with Wachovia, over 40% of all ‘Internet’ help desk calls were related to Quicken/Money and a further 30% were related to aggregation. Banks should strategically manage access to their data from a cost, privacy and consumer perspective

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).

I was in Orlando 2 years ago at what use to be retail banking seminal event: BAI. It wasn’t what it use to be… One speaker stood far above the crowd, it was Michael Porter the preeminent strategist from Harvard. For those not familiar with Porter, his books include “Competitive Strategy” the reference book which defines the subject. I was fortunate to hear him speak at the large forum, and at the round table following. His words have stuck with me for 2 years: ‘The time that you (bankers) spend trying to figure out how to make your products sticky, and increase your switching costs, is that much more time a competitor is going to develop a model that delivers value to your customers’.

Banks don’t spend enough time thinking about how to deliver value. Let me give another example of a “value” bank that probably has one of the better reputations in the US: ING Direct. I was with Arkadi Kullman (CEO ING Direct) in Oct 2004, he said his “model” wasn’t for everyone (customers or competitors). From a customer perspective according to Arkadi ‘if you want a relationship then go somewhere else, ING’s goal is to deliver value with minimal interaction’. Following this comment he continued ‘if you (customer) call me more the 3 times a year, I will cancel your account’. This is obviously not a customer centered message. Even banks known for delivering value are more focused internally (low cost in ING’s example) then on the customer. I believe that most successful large banks actually started with a strong customer focus; after all how can any company be successful without making customers happy?

Perhaps customer expectations of financial service providers has gotten so low that the industry needs a face lift. As the former CEO of Egg said to me (Egg has the highest customer satisfaction in the UK) “we are the best of the rats.. customers hate banks”. Most customers in the US choose their primary bank based upon its proximity to their home.

Is there another way? What are the keys to a successful financial services relationship? Lets explore this over the next few days.