No Branch, No Problem. Citigroup Bets Big on Digital Banking.

No Branch, No Problem. Citigroup Bets Big on Digital Banking.

Executives are convinced many U.S. consumers are finally ready to abandon brick and mortar

By Telis Demos Updated May 12, 2019 5:01 p.m. ET

In the lean years following the financial crisis, Citigroup Inc. made an unintentional bet on the future of banking, and it is starting to pay off.

While Bank of America Corp. and JPMorgan Chase & Co. were gobbling up cheap deposits at their thousands of branches around the U.S., Citigroup was shrinking its footprint, focusing on a handful of big cities to right itself after its near-collapse.

Now the bank’s executives are convinced that many U.S. consumers are finally ready to leave the branch behind and fully embrace digital banking. Citigroup added roughly $1 billion in digital deposits in the first quarter, more than all of last year. About two-thirds of that total came from new customers, and a little more than half came from people who don’t live near any of the bank’s roughly 700 branches.

In recent months, the bank has reorganized its consumer unit, knocking down walls between banking and cards. It rolled out a new account through its mobile app aimed at credit-card customers. And it is targeting potential customers with mobile-banking offers tied to the rewards they get for cards.

“For the 21st century, we are glad we never got the ballast of an extra 4,000 branches,” said Stephen Bird, the bank’s chief executive of global consumer banking. “I’m certain it’s going to turn out to be a very fortuitous thing.”

Other big banks are ramping up their digital offerings too, but they are doing it alongside their giant branch networks. Citigroup is wagering that many of those locations—more than 4,000 each for JPMorgan and Bank of America—will become burdensome.

Still, Citigroup has a lot of ground to cover to reach its rivals. JPMorgan and Bank of America last year far exceeded Citigroup’s return on equity, a key measure of bank profitability, in consumer banking. Banks have had some success attracting savers with high-yield online accounts but still find it difficult to establish traditional banking relationships with customers who don’t have access to branches.

A mid-2018 survey by the consulting firm Accenture found that 84% of U.S. banking customers still visit branches at least once a year, though less than half of people go weekly or monthly. Meanwhile, some 44% of customers said they never use their bank’s mobile application.

Citigroup’s outposts in New York, San Francisco and other major cities are among the largest and most profitable bank branches in the U.S., but that hasn’t translated into broad deposit growth. Its U.S. consumer deposits are flat since the end of 2015, compared with double-digit gains at Bank of America, JPMorgan and Wells Fargo & Co.

Citigroup’s status in retail banking reflects its history. The company was created in 1998 through the merger of Citicorp, a global bank with a strong urban presence, and the insurance company Travelers. JPMorgan and Bank of America, by contrast, built up their retail networks through a flurry of regional-bank deals.

In 2008, Citigroup tried and failed to buy Wachovia, and even considered a bid for Washington Mutual. Those deals would have more than doubled its U.S. branch count. It was beat out by Wells Fargo and JPMorgan, respectively.

A massive government bailout saved Citigroup from collapse during the financial crisis, but the bank was in no position to grow for several years. Around 2010, it started opening new branches in its core cities and debated expanding even more, according to people familiar with the matter. But cost cuts won the day, and the bank continued to pare its U.S. retail network.

Yet, unlike its peers, Citigroup had a strong overseas retail network. As it was slimming down in the U.S., it was growing in places including Hong Kong and Singapore, providing a variety of digital banking and card services as well as partnering with social-media platforms such as WeChat.

For the past several years, Citigroup has been importing lessons learned from Asian consumers to its U.S. retail business, which is now focused on six major cities: Chicago, Los Angeles, Miami, New York, San Francisco and Washington, D.C.

Mr. Bird, Citigroup’s head of consumer banking, was previously the bank’s Asia-Pacific chief. Last year, the bank shifted its Asian regional-consumer-banking head, Anand Selva, to the U.S. Mr. Selva, who joined Citigroup in India in 1991, had never lived in the U.S. before the move.

Citigroup’s revamped U.S. retail strategy hinges on wringing more business out of its 28 million credit-card customers, two-thirds of whom don’t live in a branch market.

The idea of cross-selling banking services to card customers isn’t new. But until last year, U.S. cards and U.S. retail banking at Citigroup were housed in separate units with different customer strategies and leadership teams.

Last year, Citigroup changed that structure. The longtime global cards head, Jud Linville, retired, paving the way for Mr. Selva to take control of both retail banking and cards in the U.S.

This year, Citigroup began targeting credit-card holders outside its branch markets with bundle offers for banking services. For example, customers with a 2% cash-back card might be targeted with an offer of raising that to 2.5% if they also open a bank account.

It introduced a high-yield savings account, known as Citi Accelerate, for places beyond its branch network. The Dallas-Fort Worth region, for example, is home to card partner American Airlines Group Inc. and many card customers.

Citigroup’s mobile app pre-populates much of the new-account application with what the bank already knows about the customer. In the first quarter, Citigroup said that its active mobile U.S. consumers jumped 12% from a year earlier, to 11 million.

The bank also moved unsecured personal lending into its card unit, reducing internal competition for borrowers. Mr. Selva is also bringing more products from Asia, such as Flex Loan, which can convert card credit lines into fixed-interest loans without a new credit check. A new tool, Flex Pay, allows customers to pay off individual purchases in installments.

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