Citi's head of global consumer banking, Stephen Bird, reflects on how the bank is embracing the digital revolution. His article is part of a series marking FinanceAsia's 20th anniversary.
As I reflect on my time in Asia, one trend dominates in relation to the business of banking the consumer. The adoption of smartphones and other mobile devices has fundamentally changed the way consumers interact with their bank today and credit cards are dematerialising into mobile wallets.
In Asia, around 90% of Citi’s consumer-banking transactions now happen outside a branch; if we look back just 10 years around half were in a branch. And we are seeing the same massive adoption of digital for basic banking services in our global consumer franchise. This trend has also helped create iconic new companies and business leaders in the last decade or two, many of whom I have had the privilege to work with in Asia.
Meeting Jack Ma and hearing first-hand over Chinese tea (which he brewed himself, rather well too) about Alibaba’s grand plan for the unconstrained matching of demand with supply in the e-commerce space is a memorable experience.
Fast-forward a few years and his vision has been realized – and all without a single physical branch. Today, Alibaba controls 50% of online and 75% of mobile payments in China. In 2014 Alibaba raised $25 billion via the world’s largest-ever initial public offering (IPO), which Citi was honoured to play a role in.
Alibaba is at the heart of digital disruption in China. “Singles day” on 11 November 2015 generated $14 billion of sales, dwarfing the US’s “Cyber Monday”. Almost 700 million people are online in China – about half of the country’s total population – and more than 90% of them also access the internet via mobile phone devices. Last year 358 million Chinese people made payments using their mobile devices – an increase of nearly two-thirds from the previous year.
Many of these payments are being made via two key digital ecosystems, WeChat and Alipay, which have 500 million active digital retail clients and 400 million registered users respectively.
In terms of our strategy, it is essential that we are relevant to where our clients are banking. You can have the best app in the world, but if it’s not in the relevant digital ecosystems, it doesn’t really matter – no one will use it. That is why in April we plugged our network deeper into these digital ecosystems in China to ensure we are relevant in the right channels.
Another eureka moment was meeting Michael Chiang, CEO of TPK in Taiwan, the first supplier of touch panels for the original iPhone. TPK stands for “Touch Point of Sale Kiosk” and that’s actually where touch technology was born; he adapted it when Apple called in 2005.
SMART DEVICES
Seeing the vast scale of his factories made me realise that the world was adopting touch at a massive rate. Smart devices would change everything. I knew then that a priority for Citi was to make all our services flow through smart devices. Now, the world has completed its systems conversion. Smart phones, fast networks, brilliant apps and cloud computing are tools for today’s commercial activities and the basis for innovation.
Everything must be designed to use this faster, better and vastly cheaper technology. Agile development of software changes how the entire creative process runs, and the adoption of an agile business model results in a more effective competitor as the needs, wants and aspirations of consumers shift.
This change in customer behaviour and the impact of financial technology (fintech) is making banks such as mine adapt our strategy to be relevant. The world has changed and large banks are running to catch up – and we are sprinting as fast as we can.
We know what the alternative is if we don’t. Time and again, we have seen digital disruption erode value across many industries, sending household names in music sales, video rentals, travel booking and newspapers out of business.
Clients will continue to move to mobile. Banks will increasingly look like Uber. Specifically, mobile distribution will be the main channel of interaction between bank and customer.
In fact, Uber is not really about cars. It created an entirely new user-experience, by tracking your transaction histories, driver ratings and so on. It created needs you never had. What the model means to banks is first and foremost that mobile is the main channel linking customers and the bank. Uber has even started a bank for its drivers. But, banks’ “Uber moment” will mean a disintermediation of branches rather than banks themselves.
This of course has implications for a bank’s network. The role of the branches is changing from transactional to advisory. Banks are re-sizing, re-positioning, and re-energizing branches to meet changing customer needs. Citi’s Smart Banking branches, which launched in Asia in 2009 and have been rolled out globally, are paperless and hi-tech and feel more like Apple Stores.
Certainly, physical interaction is still important to many consumers and we are mindful of that. Many people want the consultative experience when getting a mortgage product or receiving investment advice. So, although roboadvisors will play an increasing role, especially in the mass market, there will likely always be demand for human contact.
In fact, as bank interaction moves to mobile, the role of the banker (or relationship manger) becomes more important as the almost exclusive point of human interaction.
Digitisation brings speed and convenience and a good banker will adapt and use it alongside the personal touch – something that robots still have a lot to learn about.
NEW BANKS
Amid all this change, the key question is: Are we a future compatible competitor? It’s neither the fastest nor the strongest that survive, but the most adaptable to the new world that’s upon us.
Challengers are coming in all shapes and sizes – from digital giants like Apple, Google, Alibaba and Facebook – to smaller, fleet-of-foot start-ups from all corners of the world.
And they are unbundling pieces of the traditional banking model – whether it is lending, wealth management or payments – using new technologies that enable phenomenal speed and simplicity. The comparatives are changing too. Best-in-class service leaders like Uber, Virgin and Amazon are defining customer expectations, not other banks. And the bar rises every day.
Even before I left Asia I knew that I needed to know more about fintech and the new breed of competitors coming out of Silicon Valley and elsewhere. The huge sums of capital that fintech was raising were eye-popping. In 2012 it was less than $2 billion and by 2015 had increased ten-fold to $20 billion.
I decided to hold my first Global Consumer Executive Committee meeting in Palo Alto and structure it around a two-day technology summit that asked our executives: If you had no constraints and you really were a fintech start-up trying to destroy Citibank, what would you do?
The plan that came out of that meeting led to an acceleration of our existing tech projects and the establishment of Citi Fintech.
Citi Fintech is now up and running in New York under Heather Cox’s leadership. It is charged with speeding the digitization of Citi and the further development of a smartphone centric bank.
There are signs of progress already. In some markets, 50% of new credit cards acquired so far in 2016 were bought digitally. But, innovation in a company that’s 204 years old doesn’t happen at a constant rate over its lifetime. What actually happens is that when the environment starts to change rapidly as it is today, great teams raise their game and use change to create new value. We see the threat and feel the fear, but we can control our own destiny. Clearly for Citi and all banks the stakes are high.
COMPLEMENTARY STRENGTHS
Although fintech start-ups bring superior agility, focus, cost efficiency, and a disruptor’s mindset, incumbents still have the upper hand in terms of scale, brand, balance sheet and, perhaps most of all, the ability to deal with regulation.
As this new ecosystem develops, regulators have a major enabling role, and it is imperative to understand the role and responsibilities of governments. As disruptors move into the space it is only right that they are subject to the same level of supervision as banks. Data and access controls are becoming disseminated and distributed. These trends create new risks including security, privacy, money laundering and fraud. A constructive regulatory environment that induces a consensus view of common standards will play an important role in standardising regulation to help keep consumers safe.
Pitting incumbent banks against start-up fintechs in a winner-take-all competition is appealing to many – especially in the media – but is not an accurate view of the current or future landscape.
Fintech start-ups cannot easily build the secure and sizable infrastructure of large banks, and no single bank could consistently produce the latest digital processes that would be better than the best emerging out of the fintech ecosystem.
Indeed, the strengths of fintech firms and of banks can complement each other.
The key is for banks to become extraordinarily adept at integrating the best fintech innovations – a process and skill we call “Fintegration” at Citi. This is why we organised a global mobile challenge to find and use smart and creative apps to run on our digital banking platforms.
Fintech also has important implications for financial inclusion. Citi partnered with Imperial College London to examine this and key findings from our third annual symposium in 2016 show that a 10% increase in digital money adoption could lead to 220 million people coming into the formal financial sector.
We believe fintech is one of the best things to come along in decades, for consumers and the financial services industry. There will be more creative destruction over the next decade. Those that don’t adopt and adapt will fall by the wayside to be overrun or replaced by more agile, innovative and flexible players.
Ultimately, I believe it will be a vastly better future for consumers and I hope vastly better for our industry as we recraft strategy, structure, processes and culture to fully realize the power and potential of new technology, in whatever shape.
While there are many unknowns, one thing is sure: the pace of change will remain blistering. We are not even at “the end of the beginning”.
