Building a digital Citi

On 5 December, American bank Citigroup announced that it will cut 11,000 jobs from its global workforce over the next year. In his first significant act since taking over the running of the bank two months ago, new chief executive Michael Corbat wielded the axe over 84 of Citi’s 4,000 branches, slashed IT support staff and cut loose operations in five countries.

The majority of the job losses, 6,200, will fall on the less lucrative retail rather than the investment side of the business, and it was on the eve of the announcement that Marketing Week met the consumer bank’s chief marketing and digital officer Michelle Peluso. In a move said to be unrelated to the cuts, Peluso will leave Citi at the end of February, following three years at the bank, to become chief executive of online flash sales business Gilt Groupe. So what legacy is she leaving behind, and what’s next for Citi, a company that celebrated its 200th anniversary this year?

It is clear that Peluso’s tenure at the company has coincided with what she calls a “transformational time for banking, born from the financial crisis in large part, but also from a really rapidly moving technology scene and digitisation”. The latter is evidenced by the amount of new consumer banking technology that has been rolled out while she has been in her role.

Citi’s announcements don’t explicitly link its latest cuts in staff and branches to the strategy of focusing on digital channels, but in virtually all of the 150 markets where it competes, the bank has fewer bricks-and-mortar locations than its closest competitors, and more technologically literate customers, according to Peluso. In the UK it has just four branches, all in London.

“We’re a branch-light player and that is a tremendous asset,” she explains. “Others might say that convenience is defined by how many branches you have. We increasingly believe – given the customers we serve, who tend to be worldly, urban and digitally savvy – that the ability to have branches as an anchor point but use digital to create a wider nexus is a very powerful thing.”

The digital “nexus” that Peluso has helped to put in place at Citi includes an overhauled consumer website; iPad and Kindle Fire banking apps; mobile cheque depositing; a Facebook loyalty app; and customer service by video chat. Creating these has required the bank to turn its traditional development cycle on its head, moving from ‘waterfall’ development, where innovation cascades down through departments over 18 months with various legal checks along the way, to ‘agile’ development, which puts business and technology executives in a room together every two weeks and forces them to come up with new ideas.

Some might define convenience by brance numbers. We believe branches with digital to create a wider nexus is a powerful thing

It is an approach that’s more common in Silicon Valley than on Wall Street or in the City of London, and in some cases the right to do it has been hard won. Peluso gives the example of Citi’s first dip into social media, which she says “raised a lot of red flags internally” for reasons of reputational risk. So the company eased itself in gradually, initially through Peluso’s team agreeing to meet three times daily with legal counsel to confirm how the bank could respond to customers online, then by drafting formulaic responses so legal checks would only be necessary if the social media team stepped outside them.

The process was “cumbersome”, Peluso admits, and it took six months before a real-time customer feedback tool was finally added to Citi’s own back-end IT systems.

But as Peluso points out, the digital operation she will continue to oversee for the next two months is “arguably in some countries now the biggest business channel” for Citi’s retail bank, and so digital development must accordingly be a priority. This gives her role as chief marketing and digital officer “a pretty big seat at the table”, she says.

Peluso’s replacement has yet to be named and it isn’t yet clear that the job title would remain the same for her successor. But her colleague Dermot Boden, chief brand officer for the whole of Citigroup, says that in his view the marketing and digital operations are now inseparable.

“I don’t think you can possibly think of marketing without digital. If you do, you’re probably a couple of decades out; I don’t think you can divorce the two. The effort is to inculcate the consumer in the digital experience, not just from a marketing point of view but from a business point of view.”

He also claims that Citi’s focus on new technology has been integral to the branding job he was brought in to do in March 2011. As the company moves into its third century, Boden says it wants to be seen as “a premium, aspirational brand; a brand that is building towards being the world’s digital bank”. Part of that means developing new services and technologies that consumers don’t even realise they need yet.

The premise behind the digital shifts at Citi has been focused on a belief that more online points of access are what customers want. If this culture of customer-centric development sounds unlike a description of one of the world’s largest financial institutions, that’s because it is, Peluso admits. But she is less likely to compare the strategy she has been implementing at Citi to other banks than to technology businesses such as Apple and Amazon – or indeed Travelocity, the travel website where she served as chief executive for six years and which has influenced much of what she has tried to achieve in the banking industry.

“The benchmark is not other financial services companies,” she says. “If every morning you say ‘What’s Barclays doing?’ or ‘What’s Bank of America doing?’ and you get excited because you’re slightly better than them, you’re in the wrong business. Most customers are not thinking ‘Citi is slightly better than Chase and therefore I feel good about Citi’, they’re saying that getting a new product from Citi is so much harder than getting a new product from Apple.”

But convenience and customer satisfaction aren’t attributes that financial brands are particularly well known for on either side of the Atlantic, compared with the brands that Peluso cites as yardsticks. As Marketing Week reported on 31 October, research from ICM shows that 85 per cent of UK consumers feel that financial institutions do not reward their loyalty and less than 10 per cent would recommend any particular brand to friends. Yet they also feel trapped, as only 15 per cent of consumers would consider changing to a different provider.

You can’t think of marketing without digital. If you do, you’re a couple of decades out

Lack of competition and high barriers to switching mean that retail banks still have to do very little in order to keep hold of customers. But that is something that will change for all financial brands in the near future, according to Richard Doe, chief executive at ING Direct, a bank that customers can access only through telephone and internet channels, and which is in the process of being bought by Barclays. The disruptive influence of new technologies such as mobile payments are likely to be the catalyst for ending banks’ complacency, Doe argues.

“The interesting thing about the payment space is that banks are no longer competing just with each other, they are competing with other operators – PayPal, eBay and so on. There are other brands that are interfacing with the customer that are potentially providing that payment service.

Banks need to make sure they retain that customer interface and can provide similar services. In other parts of the world the mobile space is also more developed. It’s often quoted that Africa effectively skipped the desktop internet phase and went straight to mobile.”

But Doe cautions that “organisations need to be careful they are not adding functionality for the sake of it. It shouldn’t be gimmicky”. At ING Direct, he says the priority for innovation is always improving the key transactions that must work flawlessly every time and with the minimum of effort for the customer. Money transfers and applications to open accounts are two examples he gives (see Viewpoint).

“We’ve spent a lot of time and effort developing the account opening process. It doesn’t look like we’ve invented something fantastic and new, but there is actually a lot of innovation behind the scenes to make that process easy and quick for the customer. That sort of incremental innovation can deliver more value than something that looks really interesting but is not actually delivering an enormous amount of value to the customer.”

Peluso, for her part, gives plenty of instances of her own where customer data has been used at Citi to improve existing practice, delivering the kind of “incremental innovation” that Doe advocates. They include display ads, search optimisation and landing page design.

But it is also this data that allows her to argue that however fast Citi comes up with new ideas and brings them to market, the bank will be moving behind, not ahead of, consumer attitudes – especially given the urban-dwelling, technologically advanced demographic that it targets. To make her case, she points to online acquisitions of credit card customers, which have risen over just two years from around 10 per cent to between 40 and 50 per cent across its markets. That figure includes only the customers that started their applications after seeing a piece of online marketing. For Peluso, this is indicative of a rapid movement towards online interaction.

She does, however, admit that the security of digital banking tools – such as mobile wallets, where customers can transfer funds and pay for goods online and in-store with their smartphones – remains not just a concern for consumers but also a largely unsolved technical puzzle. “How it evolves and how authentication evolves is still a question mark,” she says.

Ever the futurist, she predicts that fingerprint, voice or facial recognition could be the eventual answer. Though she won’t be around at Citi to see such developments through, for Peluso creating more ways of banking without having to go into a branch represents an unequivocal improvement in service. In fact, she couches all her arguments about aspects of the strategy she leaves in place at Citi – whether digitally focused or not – in terms of enhancing the customer experience.

And yet, while the changes she has effected at Citi could be seen as both fundamental and influential, Peluso gives the impression of someone whose innate impulses have been fettered by a highly regulated banking industry. On the cusp of her departure, testing and prototyping is still something she confesses “we’re not good enough at”, while the work being done to help simplify customers’ lives through banking technology is “never enough and never fast enough for my taste”.

In moving to Gilt Groupe as chief executive, she says she is returning to to her ecommerce roots, in a market not far removed from the online travel industry where she spent a decade, first starting her own company and then at Travelocity. She also knows Gilt well, having been a board member for three years while at Citi. According to chairman and founder Kevin Ryan, in Peluso Gilt is getting someone “who has entrepreneurial spirit but who can manage at scale too”. Trading in a purely online environment, reacting rapidly to technological change is the lifeblood of the business.

As for Citi, financial markets have reacted positively to news of its restructure, as they often do when costs are taken out of a business, and at the time of writing its share price has risen 10 per cent on its pre-announcement level before falling back. Indeed, many analysts expect more change next year, including a potential break-up of business divisions in order to shed the unprofitable parts. But as far as marketing at Citi’s consumer bank is concerned, the job cuts are unlikely to check its progress in the new directions that have been charted by Peluso, even as she leaves an unknown successor to take the helm.