Citi’s digital gamble will have to be weighed against customer preferences of wanting to walk into a brick-and-mortar branch and interact with an actual human being regarding their investments. The bank is short on deposits and is betting on its tech know-how to bridge the deposit gap with its peers.
Citigroup Inc, part of the big four banks in the U.S., has a unique dilemma: it is short on deposits from individuals which costs little to maintain and tends to stick around.
Following the 2007-2009 financial crisis, deposits garnered by its peers have shot up dramatically. In contrast, Citigroup closed one-third of its branches and has kept them open in just 6 U.S. cities.
So as to bridge the deposits gap with its peers, Citi has embraced digital technology. In the third quarter of this year, the bank plans on launching a new app, which it hopes will lure depositors without it having to open new branches.
“People are willing to switch to a bank that is able to provide this kind of mobile-first experience,” said David Chubak, Citi’s head of global retail banking and mortgage, citing customer research that Citigroup conducted.
He went on to add, the yet-to-be named app, will expand its wealth management business.
With rising interest rates, competing for deposits is important. With banks starting to report second-quarter results, investors will be closely watching deposit levels and what they cost.
For Citigroup, the stakes are high since it is less profitable than its peers and chasing elusive financial targets set by its CEO, Michael Corbat.
According to data compiled by S&P Global, Citigroup is the third largest U.S. bank by assets. In comparison to its rivals, Citigroup has 4% of U.S. deposits, in comparison to 11% at JPMorgan Chase & Co, Wells Fargo & Co and Bank of America Corp.
Furthermore, its deposits costs more since a large tranche comes from wealth customers and institutions who demand higher rates.
According to the annual filing of the four, JPMorgan Chase & Co, Wells Fargo & Co and Bank of America Corp paid only 0.30% on U.S. interest-bearing accounts in 2017 compared to Citigroup’s 0.81%.
Although Citigroup has more than enough to fund its loans, it earns only one-third as much revenue from U.S. consumer deposits as JPMorgan and Bank of America, said Peter Nerby, a bank analyst at Moody’s Investors Service.
This gap could widen in the coming days, as other banks expand their footprint by building branches in other cities along with their mobile banking apps. While Bank of America has 4400 branches and JPMorgan 5,100, Citigroup has only 700 branches.
“Digital offers can only get you so much,” said Dean Athanasia, co-head of Bank of America’s consumer banking division. Despite the fact that customers are increasingly going digital, they still want to walk into a local branch and see someone regarding their investment.
Given its tight budget, its unlikely that Citigroup will build any new brick-and-mortar locations. Its management has already vowed to cut $1.5 billion in expenses from its consumer bankubg division by 2020 so as to reach Corbat’s targets.
“We’re completely focused on the implementation and execution of our national digital banking platform,” said Corbat at a conference in May when asked about rivals’ branch-building plans.