Citi’s own fintech upstart disrupts from the inside

On December 7 last year, Citi rolled out an upgrade of its mobile banking app, version 8.0.2. Apple shows on its iTunes app store 42,000 ratings for the Citi mobile app that give it a satisfactory if unremarkable average rating of three and a half stars.

A new update for an app designed to let customers check their balances, make payments and transfer money between accounts would not normally merit notice. But Citi was taking particular care with this one. This upgrade is the tip of an iceberg. Beneath it lies not just the full embrace of digital technology but also a new approach to development that promises a near re-invention of consumer banking at one of the world’s largest banks.

Originally slated for late November, the update was delayed to avoid a change in the bank’s highest-use digital channel coinciding with the unusual levels of payments following busy pre-Christmas shopping online on cyber Monday.

When users did get to download the upgrade onto their phones they were greeted by an unusual welcome screen. 'In this together,' it said in upper case, adding in lower case: 'Your feedback helped us create an app with the features you want most. Have more to add? Let us know how we can continue to improve through the app’s feedback features.'

What the millions of customers installing the upgrade did not know is that this welcome screen was a late addition suggested in the final week of testing by Stephen Bird, chief executive of global consumer banking at Citi and the man now responsible for the roughly $33 billion-a-year revenue division that employs 110,000 staff and accounts for half of the entire group.

“I was very surprised at just how willing so many customers were to co-create this app with us. We talked and tested one-to-one with 2,500 clients who designed it as much as we did. We learned just how much time customers are prepared to put into designing bespoke services and how they want to be engaged in a more conversational, less formal manner,” Bird tells Euromoney.

This, at first glance, standard upgrade was a labour of love for Bird: a culmination of his first 18 months running the global consumer business. It is an indication of ambitious plans to revive mass-affluent banking in the US; the first tangible product from a fintech team he has assembled from veterans of firms like Amazon and PayPal and the first evidence of a new way of managing the consumer bank that could transform it in the years ahead.

“My sense when I took this job is that we have three years to nail this because consumers are already using brilliant apps in many aspects of their lives and this industry has been late to focus on mobile. This is absolutely mission critical for us. You don’t outsource mission critical to third parties,” Bird says, after the app’s successful launch.

One month on from the upgrade and version 8.0.2 has over 2,000 customer reviews of its own, attracting a much more impressive aggregate rating of four and a half stars. Bird must be relieved that customers appreciate the efforts of Citi FinTech to build it. His boss, Citi chief executive Mike Corbat, Bird’s executive committee peers and members of the bank board all had it on their smartphones in the first hours.

“This app just keeps getting better and better,” says one customer. “The functionality is so good for my day-to-day tasks that I don’t even need to go to the full site. Good job guys, put as many features as you can into the app without making it too complicated.”

Another says: “This bank app is one of the only ones that actually improves with every update. It’s come such a long way for the better and you can get just about everything done with ease. The layout and users terrace is beautiful and easy to navigate. Love everything about this app.”

Even these glowing reviews don’t fully capture the advance in digital banking that Citi achieves with this latest version of its app. While it is a nice improvement for standard banking customers, the real breakthrough is for Citigold customers, those with investable assets of $200,000 to $1 million, an important segment that, due to the fraught history of Citi’s creation through pre-crisis mergers and its post-crisis restructuring, had been strangely neglected in its home market.

These affluent customers are an important and profitable group for Citi everywhere else around the world, but in North America they had often been dealt with by brokers at Smith Barney, which Citi had to sell in pieces to Morgan Stanley after the financial crisis, to raise capital. The consumer bank that remained inside Citi offered them little more than a standard checking account.

The cutting-edge features of mobile upgrade 8.0.2 mark a new effort to re-launch coverage of these Citigold customers in the US, home to 60% of Citi’s consumer clients and a rich source of these affluent customers.

The app allows three biometric methods of identity confirmation – touch, face and voice – while most competitors still only offer touch. Citigold clients can buy and sell equities, exchange-traded and mutual funds on the app, which is due to deliver a new and much quicker way to open a brokerage account filling in far fewer fields.

While the app also has many attractive features for regular customers – such as the ability to suspend temporarily a mislaid credit card and then quickly re-activate the card once it is found – Citigold customers get much more, such as a click-to-call feature that instantly puts them in touch with their relationship manager or financial adviser.

Euromoney wonders if it is a source of irritation to some of those relationship managers that, thanks to their new colleagues in Citi FinTech, customers can now reach them at any time of day or night.

“No, because it’s about more than just click-to-call,” replies Carey Kolaja, global head of product at Citi FinTech who joined in November 2015 from PayPal, where she spent 13 years establishing PayPal’s global product vision for hundreds of millions of consumers around the world.

Kolaja ran a series of two-week development sprints to design and test key features with customers. “Now our bankers’ pictures, names and credentials are in the palm of their clients’ hands. If anything, it makes the bankers feel like rock stars.”

While Citi has been careful that customers should be able to complete transactions entirely on the app, such as transferring payments globally as well as within the US between Citibank accounts, without having to come out of it and go onto their desktop or, worse, phone a help-line, the app does not operate in isolation.

Bird says: “We have re-engineered some 160 separate business processes behind the app. To build ‘the new,’ we completely transformed ‘the how.’”

This is important, partly because building the app was initially a defensive move to protect Citi from fintech disruptors. But it also has the potential to monetize in new ways durable assets such as a big existing customer franchise and established know-your-customer and anti-money laundering compliance capability that start-ups with better tech simply lack.

“In general, the past years have seen the explosion of online banking services, many of which are completed without any human interaction,” points out Bhupender Singh, CEO of Intelenet Global Services, the business processing outsource player. "Unfortunately, some customer segments are being left behind by this shift. The majority of consumers, ranging across demographics, still crave a face-to-face service when making major financial decisions."

The launch of the app and the promotion of Citi FinTech – which employs no more than 100 people, assisted by another 150 mostly new software engineers – as a centre for reinvention of the whole business, stems from Bird’s key thought as he came into his new position in 2015 after six years running Citi in Asia.

“I realized ‘mobile first’ had to be the crux of our strategy. Mobile isn’t where the world is going, it is where it already is. I kept thinking of Mark Zuckerberg’s comments about Facebook being dead in the water until it fixed mobile. We needed new solutions that were personal, one-to-one, real time and always on,” says Bird.

While it would be easy to lose the press release of Citi’s new app amid a blizzard of daily notes from banks hurrahing their latest digital moves, Bird says: “I believe banks still underestimate just how monumental the shift will be to high-powered direct connection to customers.

“While the team is developing very detailed plans of what successful first, second and third months will look like and next steps, we still need to really understand how the new capabilities will change customer behaviour.”

That method of designing, testing and delivering app features in two week-sprints, through scrum teams of people from the business, compliance, risk and tech all working closely with users, is intended to deliver features that both exactly match customer requirements today and which can be modified quickly in response to feedback and the bank’s own analysis of the data generated.

Citi is fortunate to have a very large number of existing customers it can turn to to help devise new digital offerings, which pure technology start-ups hoping to disintermediate the banks do not. Bird explains his effort to bring that same start-up mentality inside an established and, by necessity, bureaucratic, large financial institution.

Bird decided to hold his first executive committee meeting as head of Citi’s global consumer bank in Silicon Valley in June 2015. The first day reviewed the existing technology plan, which was then due to bring the many divisions of the consumer bank – banking, credit cards, Citi online, mobile and more – onto a common back- and middle-office platform in the next three to four years. The talk was of expensive, legacy technology – all mainframes and data centres – that, even after it had been overhauled, would make the bank more efficient behind the scenes but leave customers feeling little difference.

“We realized that the pace of change internally had to match and even exceed the rapid pace of change externally,” says Bird. "We decided to accelerate and adapt the existing plan to get us where we wanted to go which is an always-on, touch-and-respond, life-partner for our customers."

Day two took a different tack into role play: the Citibankers imagined they were now running a Silicon Valley start-up whose mission was to destroy Citi.

Bird recalls: “Suddenly everyone was saying: ‘We’ll be all mobile, with brilliant apps that extract all the data from every transaction. We will be cloud-based, scalable and we will transform the customer experience at a technology cost 80% less than we are already running.”

From that meeting a re-invention of consumer banking at Citi began that is just now becoming visible. Bird decided that the existing technology plan, called Project Rainbow, had to be rapidly speeded up: achieving in one year what had been scheduled to take three by concentrating first on a few core areas. By July 2016 Rainbow had delivered common middle- and back-end platforms in the US that allow the consumer bank to focus on direct-to-consumer front-end capabilities.

Citi FinTech was set up in November 2015 to accelerate speed to market with next-generation banking capabilities. The challenge for any such group inside a big incumbent is how to retain a distinct start-up culture and yet still add value to existing legacy businesses managed in different styles.

“What we learned is that you must have the highest possible level of senior executive engagement. My leadership team and I deployed a lot of our own blood, sweat and tears to ensure that the whole organization understood how mission-critical this is for us. Compliance, risk, the business units all have to work on developments as fast as, and in lock step with, the fintech unit,” says Bird.

After just over a year, the first answer to cynical Citibanker question: ‘What can these guys actually do for us?’ now comes into view: they can deliver on mobile phones complete coverage of previously underserved affluent customers in North America.

As Citi re-segments customers in its home market and notifies qualifying accounts that they are eligible for the preferential mortgage pricing, free-of-charge access to any ATM in the world, connection to a relationship manager, concert tickets and other perks that come with Citigold, agile scrum-team developers hold out a new promise to the established businesses.

“Citi is the number-one credit card company in the world, a leading retail bank and premier private wealth manager,” says Bird. But in the US it had shrunk back, with branches being the bedrock for serving wealthy customers from just six large cities in the US.

“In our home market, the business has effectively repositioned itself over the past several years to establish a lower cost base,” Bird says. “Now we are better positioned to deliver sharper value propositions and aspire to grow again."

The re-invention of nationwide retail banking at Citi proceeds on several fronts. In January, Citi announced an agreement with Cardtronics that nearly doubles its ATM network, giving customers access to 30,000 more surcharge-free ATMs inside retailers such as Costco, CVS/pharmacy and Target and that will roll out in Duane Reade and Walgreen stores.

Bird has high hopes that all this will benefit shareholders as well as customers. “Deliver a world-class Citigold offering and you now have the chance to gather deposits and serve clients nationwide with flagship branches serving as the physical manifestation of a digital promise to all our customers. We believe the benefits of all this will begin to materialize in 2017 and 2018.”

He stresses that in a little over six months of intense development work, Citi FinTech delivered an offering that would previously have taken three years to build.

The Citi FinTech team has embedded a whole new approach to product and service development. Two-week sprints sound to the outsider far too chaotic a way to build new offerings in a heavily regulated banking market, but Yolande Piazza, chief operating officer at Citi FinTech, swears by them.

“To me, these two-week sprints are the only way I would build anything now," she says. "But there are two crucial components to that. First, only build what you have to. So, break projects down into small constituent pieces. For example, we had one group just working on brokerage account opening. We co-created with customers, testing every two weeks to quickly incorporate their feedback and improve. Second, everyone has to come together in a scrum team, from the business, legal, risk, tech to walk through each test. By doing that on this project, by the time we got to user-acceptance testing, the quality of the code was already 75% better than on a typical major tech development.”

But the Citi FinTech team may now have to come down after the heady rush of this first success.

“Rather than immediately build the next new, sexy thing, the priority now becomes nourishing what we have just built and delivered into customers’ hands,” explains Bird. "We are getting feedback and data from it every minute of the day. We now have to apply real-time agile development to adjusting and fine-tuning it."

Not all of those refinements need come from Citi FinTech’s own engineers or even from within the bank. Last November Citi announced the opening of a global application programming interface (API) developer hub, granting registered outside developers from fintech companies and consumer brands access to its APIs across eight categories, including account management, peer-to-peer payments, money transfer to institutions, Citi rewards, investment purchases and account authorization.

Right now upgrade 8.0.2 allows speedy, low-cost payment transfers domestically and internationally but just between Citibank accounts. It does not allow the same between a Citibank account and a Chase or Barclays account. That is an obvious next step; but it is as likely to come later this year from inclusion within the app of a link to a new person-to-person payments platform as from anything built in-house at Citi.

In the analogue world, customers have long been used to taking posted bank statements to prove their identity and address to businesses or governments. It seems inevitable, given the onerous checks banks conduct on initial identity authentication, that some substantial value will eventually be gained from providing this digitally through an API so that customers do not have to repeatedly submit the same original documents. Could this be a big new source of revenue for a large, global, tech savvy bank? Time will tell.

Embracing new technology and new approaches to development is the only way for any leading bank to compete beyond being the dumb rails on which money moves. In the battle to do that and to win new revenue streams against other banks and against non-bank rivals Citi’s small fintech unit is its new secret weapon.

In some ways this looks a little like the kind of reverse takeover of the bank that Francisco Gonzaléz engineered at BBVA, where he ended arguments between established businesses and new recruits to his digital team by simply by putting the tech team in charge of the whole bank.

“We are striving to create a future-compatible competitor,” says Bird. "We set up a spearhead inside the bank to run at the speed of Silicon Valley, which is now super-energized and raising the game of the entire organization."

If members of that team are promoted to run whole divisions of Citi, then that reverse takeover will become irreversible.