Investment firm Citigroup Inc. intends to market a new app in the third quarter, as the third-biggest U.S. bank by assets seeks to digitally grow its deposits from individuals.
The unnamed app according to the head of global retail banking and mortgage David Chubak, should be able to help drive the company’s wealth management business higher.
People are willing to switch to a bank that can provide this kind of mobile-first experience, he said, citing customer research conducted by Citigroup.
The New York-based company is relying on its technology, brand name, and outreaches to its 120 million US credit card accounts to help it attract customers. Citigroup might also offer rewards for new deposit accounts to some card customers.
However, Bank of America (BofA) consumer banking division co-head Dean Athanasia stated that digital offers can only get someone so much, which means that even as customers embrace digital apps, they would still want a local branch where they can see someone.
Citigroup is not the first bank to try and raise deposits without branches. Several companies have gone after deposits through mailings, call centers, and digital tools. Data from a consulting firm showed that those efforts, some going back decades, have acquired around 5 percent of US deposits.
Citigroup Vying for Deposits
As Citigroup faces lighter deposits than its rivals, executives hope the new app will be able to collect deposits without the firm establishing new branches, gaining a competitor, or outperforming rivals’ rates, as these methods come with their own costs and risks.
Vying for deposits is vital as interest rates rise. Investors will be keeping a close watch on banks’ deposit levels and what they cost during second-quarter reports on Friday.
Compared with about 11 percent US deposits of its major rivals, including JPMorgan Chase & Co., BofA, and Wells Fargo & Co., Citigroup only has 4 percent of US deposits.
Its deposits also cost more, as the larger portion comes from businesses and affluent customers, who demand higher rates. Last year, Citigroup paid 0.81 percent on US interest-bearing accounts, while the other three banks paid less than 0.30 percent.
Bank analyst Peter Nerby stated that Citigroup has more than enough to finance its loans, but it only generates one-third as much revenue from US consumer deposits as JPMorgan and BofA do.
Moreover, competition for Citigroup is expected to expand, as other banks plans to set up hundreds of branches go along with their own apps in new locations. Citigroup currently has 700 branches, while BofA and JPMorgan have 4,400 and 5,100 branches respectively.
When asked about rivals’ branch-building plans in May, Citigroup Chief Executive Michael Corbat said they are completely focused on the implementations and execution of their national digital banking platform.
The bank may build new brick-and-mortar locations selectively over time in cities that could help bolster its wealth business, but now might not be the right time, partly because the company is on a tight budget.
Citigroup’s management announced that it will trim $1.5 billion of expenses from its consumer bank by 2020 to meet financial targets set by Corbat.
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