Case Study 3: Citibank Asia Pacific: Managing Information Technology

Consolidation, Change, and New Challenges

Christina Soh and Neo Boon Siong, Information Management Research Center

(IMARC), Nanyang Business School, Nanyang Technological University

(Singapore)

I. Citicorp

Citicorp in 1991 recorded a net loss of $457 million,1 suspended the dividend on its

common stock, and saw the price of that stock fall to a long-time low before rebounding

after year end. Nevertheless, and despite the magnitude of our problems, 1991 for

Citicorp was in key respects a transitional, turnaround year.

John Reed, Citicorps chairman, acknowledged Citicorps problems in his letter to stockholders in the 1991 annual report. The bank had been struggling with a large

Third World loan portfolio, as well as significant problems with its commercial property

loans, and with its financing of highly leveraged transactions in the U.S. The bank

needed more equity but Third World debt costs prevented Citicorp from increasing its

equity through retention of earnings.

The severe storms that Citicorp had been subjected to prompted significant

changes. To combat the slowdown in revenue growth, and the rise in consumer and

credit write-offs, Citicorp aggressively reduced expenses in order to improve the

operating margin, issued stock to improve their capital ratio, and made structural

changes at the senior executive level which were aimed at providing more focused

direction to the business. John Reed articulated three requirements for being a great bank in the 1990smeeting customer needs, having financial strength, and marshalling human and technological resources . . . more imaginative and cost-effectively than ones competitors (emphasis added).

In the midst of this organizational turbulence, one of Citicorps undisputed strengths was its global presence. It is unrivalled in its network of banks in more than 90

countries. Its overseas consumer banking operations in particular, were showing healthy

growth. Global consumer banking includes mortgage and insurance business and non-

U.S. credit card business. Citicorp only entered the field of consumer banking in the

mid-70s. John Reeds vision was to pursue growth in the consumer banking area, and to pursue it through global expansion and leveraging information technology.

The primary vision in consumer banking is Citibankingcombining relationship banking with technology that enables Citibank to serve its customers

anywhere anytime with the high standard of service that they receive in their home

countries. In the early 1990s, this involved technology-enabled innovations such as

having a one-stop account opening with paperless relationship opening, instant card and

check issuance, and instant account availability; having a customer relationship

database that supports cross-product relationships; creation of hybrid and customized

products; and relationship pricing that more closely matches the value to the customer.

The Citicard is the key to Citibanking services such as checking, money market, and bankcard accounts. Consumer banking products are distributed through bank branches,

Citicard centres, and Citiphone banking, which gives 24-hour, 7-day-a-week service.

The global services available to customers were augmented in 1991 when Citibank

joined the CIRRUS ATM network, allowing Citicard holders access to cash around the

world.

Today, the Internet provides another channel for delivery of Citibank services and

products, and the Citibanking strategy now includes ensuring that the bank is one mile, one phone call, or one click away from anyone on earth.2 The multiple delivery channels has also led Citibank to emphasize consistency of experience for all customers

by establishing design standards to ensure that every Citibank access point is instantly

recognizable.3 The Citibanking concept has also evolved to include building lifelong

relationships by providing product sets to match customers needs at each stage of their financial lives4offering all the banking products needed as young people complete their education, enter the workforce, establish a household, rear a family, and eventually

retire. . . .5

The results of operating and structural changes made in the early 1990s, as well as

the impact of the growing Asian consumer market, contributed to the turnaround at

Citicorp, where the 1992 net earning was $772 million. This earned it an A minus credit

rating from Standard and Poor, which also upgraded the banks outlook from negative to stable. Citicorp share price also moved up to $36.88 during 1993, from a low of $23

in 1990. In early 1994, the bank was also given permission by the U.S. regulatory

agency to resume issuing dividends. By the end of 1997, the share price had risen to

$126, and net income in 1998 was $5.8b.6

In 1998, Citicorp merged with Travelers to form Citigroup. Each brings to

Citigroup complementary products and servicesCiticorps strengths are in consumer and corporate banking, and Travelers strengths are in insurance, securities, and investment banking. Their combined customer list is 100m and the stretch target is 1 billion customers by 2010.7 In 1999, Citigroup had almost $10b in net incomes

worldwide, and its stock has risen 63%.8

II. Citibank in Asia Pacific

Citicorp has been in Asia since 1902 when it set up finance houses in a number of Asian

ports, such as Shanghai and Singapore. It has built up an understanding of the local

markets in which it operates. Citicorps major competitors in terms of established presence throughout Asia are Hong Kong and Shanghai Bank, and Standard Chartered

Bank, but neither has the global reach that Citicorp offers.

Citibank began pursuing consumer banking in earnest in 1986, and since then

Asian accounts have increased from 1 million to 6 million in 1997. Asian consumer

deposits grew sixfold to $13.6 billion between 1983 and 1992, while loans grew

seventeenfold to $10.8 billion over the same period.9 This growth is a reflection of the

regions high gross savings rate (about 35%), and high GNP growth. Critics had suggested that Citicorp may run into credit problems because Asians had little

experience with personal debt. Although revenue decreased between 1996 and 1997 due

to the Asian financial crisis, there has been strong growth in the customer deposits and

accounts.10 In 1998, accounts increased 19%, and customer deposits 18%.11 Since then

accounts and customer deposits have grown by more than 20% across the Asia Pacific

region,12 continuing to fuel the growth in consumer banking in Citibank.

Citibank made significant innovations in packaging financial services for the

relatively rich customer, and has managed to cream the Asian market. They pioneered

the concept of consumer credit in Asia, with then innovative offerings such as round-

the-clock phone banking and automated teller cards. Interestingly, some innovations

such as phone-banking, were motivated by local regulations that severely restricted the

number of branches that it may operate. More recent innovations include International

Personal Banking, which offers a broad and flexible range of investment opportunities,

time deposits, overdraft facilities, and the ability to trade and deposit in any of 18

international currencies. This is to tap the fast-growing offshore banking component of

Asian consumer banking.13

III. Previous Technology Infrastructure

In the early 1990s, each of Citibanks Asia Pacific countries belonged to one of three automation platformsMVS, AS/400, or Unixand had one of two consumer banking applicationsCOSMOS or CORE. COSMOS was the earlier set of applications, and was fairly typical of most U.S. banks offshore banking applications. It was written in COBOL in order to provide flexibility in complying with varying regulatory reporting

formats, and it provided backroom support for standard areas such as current accounts,

general ledger, and some loans processing. Subsequently, Citibank began to replace

COSMOS with CORE, which was to provide an all encompassing system to run on

IBMs minicomputers, the AS/400s. CORE was used in a number of countries with smaller operations, like Indonesia. It was not suitable for countries, such as India, where

IBM did not have a presence, and in countries with high volumes, like Hong Kong.

Both COSMOS and CORE were subject to many country- specific modifications over

time, as the local banks responded to varying regulatory and business requirements. The

wholesale banking division also used COSMOS, and it ran on large IBM mainframes.

Over time, the wholesale banking version of COSMOS has also proliferated. The result

is significant differences in each countrys basic banking software.

The underlying philosophy of customizing to meet local customer needs resulted

in each country having its own IT infrastructure and unique applications. While it

worked adequately in the past, the local-markets approach did not allow Citibank to

integrate its products, services, and information to serve its highly sophisticated, mobile

and increasingly demanding global customers. Further, there are substantial economies

of scale that may be gained from standardizing and consolidating bank products and

processing across the diverse countries of the Asia Pacific region. The key to achieving

these goals lay in re-architecting the technology infrastructure that enables the consumer

banking business.

IV. Regional Card Centre as Prototype of the New Strategy

A significant piece of Citibanks Asian Pacific IT infrastructure that provided the prototype for subsequent consolidation in consumer banking is the Regional Card

Centre. The RCC was set up in Singapore in 1989 to support start-up credit card

businesses in South East Asia. Country managers whose credit card data processing was

to be centralized demanded exacting performance standards from the centre because of

its direct impact on their operating performance. Ajit Kanagasundram, who used to run

the data centre for Citibank Singapore, was given the mandate to set up and run the

centre. He explained the rationale for the centre:

The purpose of the RCC was to jump-start the credit card businesses in Citibank

countries in South East Asia. Setting up the processing infrastructure before offering

credit card services in each country would take too long and be too costly for start-up

businesses. The time constraint to make the RCC operational also dictated our

approach, which was to get the operational software requirements from a couple of lead

businesses, in this case, Citibank Hong Kong and Singapore. Trying to get requirements

from all countries would be too time consuming and result in missed market

opportunities. Further, 80% of credit card operational requirements are stipulated by the

card associations and were common across countries. We recruited a few staff

experienced in credit card operations, used our own production experience, plus on-site

consultants to modify the package software, CARDPAC, and got the RCC operational

in eight months.

By 1990, we had reduced the processing cost per credit card by 45% and we were

given the mandate to extend our operations to cover the Middle East and North Asia,

excluding Hong Kong. By 1994, in the midst of heightened cost consciousness because

of corporate financial troubles, our cost per card was down to 32% of the 1989 cost.

None of the country managers asked for decentralization of the credit card operationswho wants cost per card to triple overnight?

In 1993, Citibank beat out other regional rivals to become the issuer of affinity

Visa and Mastercard for Passages, a joint frequent-flyer program of 15 Asian airlines.

Citibank credits its ability to launch and support the cards regionally, enabled by the

RCC, as being a key factor for being selected. By 1999, the RCC was processing credit

cards for 27 countries12 countries in Asia, 7 in Central Europe and the Middle East, and 8 in Latin America. The cost economies offered by the RCC made it obvious for

countries to join it rather than go on their own. Average costs in 1999 were 40% less

than they were 3 years earlier, and it is projected that the marginal cost of adding 5

million cards will be a third of the current average costs. The creation of starter kits also means that new countries can be added with relative ease and at far less expense.

The decreasing costs of telecommunications and the cost savings from standardizing

hardware, software, and procedures enable RCC to reap ever increasing economies of

scale as each new country joins its fold, and as businesses of member countries grow.

The RCC concept combines both centralization and decentralization ideas to meet

specific local business needs and low costs of processing at the same time. The business

strategy, marketing, credit evaluation, and customer service for credit cards continue to

be decentralized in each country to cater to local market conditions and needs. The

front-end data capture and printing of customer statements are also decentralized to each

country. What is centralized is the back-end transaction processing and data repository.

The control and active management of credit card businesses continue to be with

country managers and the business gains are reflected in the financial performance of

each country. The RCC provides the technology infrastructure for lowering operational

costs, diffusing best practices, and attracting the needed technical talent.

The RCC experience provided the experiential base for subsequent re-architecting

of the technology of the consumer bank. The experience and expertise that RCC had

built up would be repositioned to serve the processing requirements of the Asia-Pacific

Consumer Bank.

V. Re-Architecting the IT Infrastructure

The appointment of George DiNardo as the new Chief Technology Officer signalled the

banks strategic intent to develop a new technology infrastructure for capitalizing the opportunities from rapid economic growth in Asian countries which is expected to

continue well into the twenty-first century. Recipient of Information Weeks CIO of the Year Award for 1988, DiNardo had been with Mellon Bank in Pittsburgh from 1969 to

1991 and was its executive vice president of their information systems function from

1985 to 1991. Prior to joining Citicorp, he was a consulting partner for Coopers and

Lybrand, and professor of information systems at a leading university. He crisply

summed up his job portfolio at Citicorp:

My job is to introduce the most advanced technology possible in Asia and I spent

35 years doing that for other banks, Bankers Trust and Mellon Bank. I am truly a

bank businessman and a technologist . . . I have also been given the responsibility

for all reengineering efforts in Citibank Asia.

According to George DiNardo, the Citibanking vision requires that

A customer going anywhere in the world is able to transact the same way wherever

he goes. It is moving to (the concept of) Citibank recognizes you, and relationship

manages you. If you have $100,000 with Citibank, you have certain services free,

and it will be the same wherever you go. Its the ability to use the ATM wherever you are.

Moving toward this level of global banking requires that a Citibank branch

anywhere in the world have access to the customers addresses, customary services, and relationships anywhere else in the world. It would have been costly to achieve this with

the current decentralized computing structure, where each country in the Asia Pacific

has its own host computer and where each country has a different technology platform.

It would also be difficult to ensure simultaneous roll-out across countries of new

products. Hence, the foundational changes to computing at Citibank Asia Pacific begin

with the centralization of processing, and having a uniform backroom platform. The

bank standardized on an IBM MVS platform. DiNardo explained the logic of

centralization for Citibank Asia:

The old days of having the computer centre next to you are gone. Where should

your computer centre beremote! Now, with fibre, put your console, command centre in your main office, and your big box is remote.

Your command centre is here in Singapore. . . . The telecommunications are

improving enough that we can centralize. The economies of large IBMs are important to

banking. I have promised that if we regionalize on a new single system, we will get a

saving. It will cost $50m to do this, but we will break even in year two, and we should

have a $50m running rate cost reduction at the end of year four. We will put the largest

IBM box we can get in a centre in Singapore. I have promised a 1020% computing reduction every year. How am I going to do that? You buy the biggest building, so you

can pull any computer in anytime, backup for 100% uptime, 99.9% on-time completion

of batch jobs. Therefore you dont need backup all over Asia. You put in all the other

countries account processing, and transmit all the rest.

Initially, the major saving will come from avoiding the building of another

computer centre in Hong Kong. Savings arise also from having all processing in one

site, with only one other hot backup site, as compared to having processing distributed

in 14 countries, with each country having its own backup. Citibank will be leveraging

off the networks that are already in place as a result of the regional card centre. Another

significant source of savings comes from the centralization of software development.

Citibank is aiming for uniformity in its backroom processing software. Citibank

replaced individual country systems that have evolved over time with a $20 million

integrated back-office banking applications package from Systematics. The strength of

the Systematics package is that it has evolved significantly through its sale to more than

400 banks, and therefore offers many functions and features. It uses a traditional design

based on the MVS/CICS/COBOL platform, and has been proven to support high

volumes. According to DiNardo, the idea is to not reinvent the wheel by writing yet

another in-house back-office processing system, but to take this package and turn the 2000 Citibank systems professionals loose on innovation . . . its delivery and panache

that counts . . . to create reusable modules to be called in through Systematics user exits.

Systematics has promised to keep the exits constant through time. The plan also calls for eventual conversion of all other programs to the Systematics format, for example,

using the same approach to data modelling, COBOL programming, and naming

conventions.

A new Asia-Pacific data center running an IBM ES/9000 model 821 mainframe

was set up in Singapores Science Park on the western part of the island in October 1994. The hot-site backup running an IBM ES/9000 model 500 was located in

Singapores Chai Chee Industrial Park on the eastern part of the island.

The conversion of the Asia Pacific countries to Systematics was completed by the

end of 1997. Work then began on Y2k certification. Citibank has one of the more

stringent Y2k certification processes in the world, and is estimated to have spent $600m

globally over three years on Y2k certification.14 However, a senior executive noted that

Y2k certification was easier and probably less costly in Citibank Asia Pacific because

the backend systems had been centralized and standardized prior to the certification

process.

VI. Building Common Front-End Systems

Running in parallel with the IT infrastructure changes was a reengineering effort. Peter

Mills, then director of business improvement, noted that the goal was to:

Create common business processes that may result in common front-end systems

that are compatible with our back-end platforms. As part of the re-architecting of

Citibanks technology infrastructure, we initiated several process reengineering projects to develop new process templates for Asia-Pacific. For example, we will

use the redesigned Australian mortgage process and the new Taiwan auto business

process as templates for other countries.

A common thread that emerged from both the reengineering and infrastructural

change efforts is the idea of incorporating best practice. In the area of software

development, the emphasis on adopting best practice among the Citibank countries is a

guard against the common trap of settling for the lowest common denominator in the

process of standardization. The commitment to develop a reengineering template

incorporating the best redesigned processes from each country, for use in developing

common systems is another embodiment of this idea. DiNardo explained what is being

practised in Citibank Asia Pacific:

The purchase of the Systematics package provides the bank with increased

functionality and standardized processing without significant systems development

effort. In-house development effort will be focused on strategic products such as those

for currency trading, Citiplus, and the SABRE front-end teller and platform systems.

The approach to future systems development will no longer be one of letting a hundred flowers bloom. There will no longer be systems development or enhancement only for individual countries. Any country requiring any change needs to convince at least two

other countries to support it.Any changes made would then be made for all Citibank

countries in Asia. Several countries have now been identified as likely centers of

excellence for front-end software development: Taiwan for auto loans processing,

Australia for mortgage products, Hong Kong for personal finance products; India,

Philippines, and Singapore will become centers for application software development,

design, and the generation of high quality code at competitive cost.

The reengineering of business processes in Singapore provides a glimpse of how

Citibank intends to introduce best practices in banking products and service delivery,

which would be built into common front-end systems. Citibank has been in Singapore

for more than 90 years. It started out as a wholesale bank. The consumer bank business

was started later in the 1960s. Being a foreign bank, it is allowed to set up only three

branches in Singapore. Nonetheless, Citibank has done very well in Singapore.

Customer accounts have more than tripled since 1989, largely due to the successful

introduction of Citibanks Visa card business. There has been an accompanying tenfold increase in profit in the same period.

The increase in account volume however, has been accomplished without any

major increase in staff or changes in processes. Staff, processes, and infrastructure that

were originally designed to support about 50,000 accounts are strained when they have

to support an account volume of about 250,000. This has contributed to a drop in

customers perception of service levels. Annual surveys conducted indicated that customer satisfaction has dropped from a high of 90% in 1987 to a low of 65% in 1993.

Some departments are experiencing high overtime and employee turnover. A cultural

assessment study conducted by consultants confirmed that some employees did not feel

valued and trusted. Frontline operations were also paper intensive and perceived to have

significant opportunities for improvements. In addition, there was the need to achieve

the vision of Citibanking, which required cross-product integration as a basis for

relationship banking.

The project was carried out in three phases: (1) building the case for action, (2)

design, and (3) implementation. In the first two phases, the consultants worked closely

with four Citibankers who were assigned full time to the reengineering project. After six

months, the team had completed phase two and had come up with a list of 28

recommended process changes. Three core processes were identified for changedelivery of services to the customer, marketing, and transaction processing. The

delivery process included account opening and servicing, credit, and customer problem

resolution. The team found that it was encumbered with many hand-offs, a maker-checker mindset where transactions had to be checked by someone other than the originating employee, and unclear accountability for problem resolution. The

transaction processing process was basically the back-end processing for the

transactions originating in the branches. The major observation here was that the

processing was fragmented by product or system. The marketing processes were

currently also product focused, and there was limited understanding of customer

segments and individual customers.

The vision that the team presented included a streamlined front-end delivery

process with clear accountability and quick turnaround on customer problem resolution,

a unified approach to transaction processing, and segment-focused, cross-product

marketing. They felt that the most radical change required would be that of the

organizational culture. One aspect of culture manifested in the many maker-checker was a legacy of the days when the bank was a wholesale bank, and each transaction

value was very high while volume was relatively low. In the retail bank business, the

high volume and low individual value of transactions required a different mindset.

Other aspects of Citibank culture that would need to change included the emphasis and

the incentive system that rewarded product innovation and individuality. The process

changes required a culture that focused more on relationships with customers and on

team efforts.

The team also set detailed targets for each of the core processes. Among the many

set for the delivery processes, examples are a rise in the percentage of customers who

were highly satisfied from 64% to 80%, an increase in the percentage of customers

served within 5 minutes from 71% to 80%, and improved transaction processing

accuracy from 2 errors per 5,000 transactions to 1 error per 5,000 transactions. Detailed

targets for productivity and cost improvements were also set. These targets were in

effect also a list of measures that would be used to evaluate each process on a recurring

basis.

In phase three, three implementation teamsservice delivery, operations, and product development and marketinginvolving many more employees were formed. Each team was headed by the vice president in charge of the function. The role of the

consultants in phase three was scaled back. Some resistance was encountered to the

recommended changes. George DiNardo and Peter Mills addressed the problem of

resistance by having discussions with key stakeholders of the processes to be

reengineered, and by focusing on a number of projects. Before the end of the first year,

the consultants had been phased out. The Citibank implementation teams were driving

their own implementation.

A major part of implementation was to develop and implement the information

systems needed to support the reengineered processes. One resulting new system is

SABRE (Strategic Asia Pacific Branch Retail Environment). SABRE consists of two

complementary subsystems: SABRE I is at the teller level and provides automated

support for signature verification, paperless teller transactions, and Citicard transactions.

SABRE II includes the phone banking systems, together with facilities for

telemarketing and cross-product marketing at the branches. The bank developed the

SABRE system in-house, because it considers this to be a strategic product. SABRE I

has been a great success and is considered to be best of breed. Today, the SABRE

platform itself is of strategic importance as a vehicle to deliver Citibanking to

customers, and to enable cross-selling of multiple products to customers.

VII. Managing Change

The changes to the IT architecture and business processes are not trivial. George

DiNardo, as chief technology officer, was a catalyst for change, and his ability to

communicate convincingly with senior officers of the bank in corporate headquarters

and in Asia was an important asset. He brought a different perspective to technology

management, starting from the premise that the IT infrastructure had to be standardized

to obtain the maximum benefit for the bank. Countries wanting to be different will have

to justify it, quite a change from the days when country managers decided the types of

technology they wanted for each country.

The RCC experience provides a useful model for the current consumer bank

consolidation. The in-depth technical expertise gained from running a regional data

centre would be directly relevant to the new infrastructure that Citibank is putting in

place for Consumer Banking. Not surprisingly, Ajit was asked to set up and run the data

centre for the new Asian Pacific Consumer Banking technology infrastructure.

However, the new infrastructure is more than just scaling up to process more

transactions. The business of Citibanking in Global Consumer Banking is more diverse

and complex than cards and requires the internalization of many business parameters in

developing software to support back-end banking operations. Correspondingly, the

business impact is also far greater. Citibank, as an American bank operating in Asia, is

subjected to restrictions on the number of branches allowed in each country. The

reliance on an electronic interface with customers and for an electronic channel for

delivery of banking services is significantly higher than many local banks. Citibank sees

the new technological infrastructure as a key enabler for flexibility in its product and

service offerings throughout Asia at a competitive cost.

The conversion to a new technology infrastructure at Citibank Asia Pacific meant

some loss of control over computing for the Citibank country managers. DiNardo felt

that there had not been serious opposition to the changes, although country managers

were understandably nervous about the sweeping changes. He stated:

Its an idea whose time has come. The Asia Pacific high profit margin must be maintained! They all know this. They know the value of what were doing. Computer costs will be down for them, it will affect their bottom line. There is no longer any

desire for the sophisticated manager to have his/her own mainframe computer. They

know that I have done it 700 times already. No one objects to the logic of the idea. We

will insist on a postimplementation audit. The country managers in Asia did see that to

survive the next 10 years something like this is necessary. Its all about customer service.

However, it is the level of service and support from the center that country

managers are concerned about. The standardization and centralization strategy

obviously restricted flexibility in country operations. It was adopted consciously and the

gain in integrated customer service and economies of scale is substantial. Nonetheless,

the issue of responsiveness to local needs is unlikely to go away, and there are concerns

about how priorities for enhancements will be handled if there are not enough resources

and capacity to meet requests in a timely manner. In 1999, George DiNardo retired from

Citibank. Without his forceful personality to enforce standardization, countries requests for customization will be more difficult to resist.

VIII. New Challenges: Merger and the Internet

By 1998, when Citicorp merged with Travelers, Citibank Asia Pacific had largely

completed its centralization of back-end processing for consumer banking. The other

regions began a little later but had also been centralizing their IT infrastructure for

several years. At the time of the merger, Citicorp was three-quarters of the way through

a huge back-office restructuring effort, under Mary Taylor, head of Citibanks operations and technology division. She took restructuring one step further, pulling

together the operations and technology for the corporate and consumer sides of the

bank. Today, Citibanks data centers have gone from 66 to 12 worldwide. Ms. Taylor notes that

The consumer bank handles huge volumes of transactions that are of much

smaller value. The corporate bank handles fewer transactions but with large dollar

value. There are real synergies you can take advantage of because you can add more

transactions without really impacting capacity.15

Outside of the United States, the main data centers are now in Dublin, London,

Singapore, Hong Kong, and Sydney, and together serve over 100 countries.

The merger with the Travelers Group posed another set of challenges to the

banks infrastructure. The merger offered the opportunity of providing a financial services supermarket to customers. However, to do so requires integration of

information systems, customer databases, product lines, and multiple transaction

types.16 The integration options that are open to Citigroup are broadly total integration of platforms, servers, risk management and front- and back-office operationsor instead establish a data warehouse for customer information, accessed by object-

oriented middleware.17 The latter option is more expedient and avoids the need for risky reengineering of business processes. However, total system integration offers

more effective cross-selling of products and risk management. The decisions made are

likely to have implications for the IT infrastructure in the Asia Pacific given the banks desire for increasing standardization globally.

The other global trend that affects Citibank Asia Pacific is the rise of Internet

banking. E-banking offers some unique opportunities and threats to established banks.

For example, Internet transactions cost about one-tenth of traditional bank counter

transactions, according to William Lo, chief executive of Citibank Hong Kongs consumer banking operations.18 Citibank, with its long tradition of technology-enabled

banking initiatives appears well placed to take advantage of the Internet. However, it

has not been smooth sailing.

Citigroup has spent about $400m on e-banking, more than other large banks.19 In

1999, Citigroup recorded a $172m net loss in e-banking.20 Citigroups biggest

consumer banking initiatives are either in test phase, or have only been soft-launched.

Citi f/i, (f/i stands for financial interactive) rolled out quietly in mid-1999, and will not

be widely marketed yet.21 There are those who believe that Internet banking will take

off when the most common devices for connecting to the Web are mobile phones. This

may be particularly true in Asia where mobile phone ownership is much higher than PC

ownership. In 1999, a trial service began in Singapore with carrier Mobile One to let

users perform retail banking functions using cell phones. The long-term goal is to allow

customers to switch easily among banking, credit card, insurance and brokerage

services using the cell phone.22

In contrast to retail e-banking initiatives, Citibanks corporate e-banking initiatives appear to be more well received. In 1999, Citibank launched a well-regarded

small-business siteBizzed.com, which is expected to make a profit in two years.23 In May 1999, Citibank also launched a B-to-B e-commerce systemCitibank Commercethat lets customers order products, monitor order status, complete settlement and reconciliation processes. Interestingly, it was first made available in the

Asia Pacific region.24 It targets 8,000 Citibank corporate customers in the Asia Pacific

region and will be introduced to the United States, Europe, and Latin America later in

2000.25 The service has its competitors even in the region. For example, the Singapore

government and Visa International recently launched an on-line business-to-business

trading network for companies and financial institutions in Singapore, called the

Commerce Exchange.

The rise of Internet banking also has strong implications for the banks IT infrastructure. Citicorp is converting its technology platforms to make them more Web

compatible. For example, its internal data networks are being converted worldwide to

TCP/1P, with the help of AT&T. E-Citi, Citigroups Internet banking innovation group, is developing middleware that links the mainframe environment to the Web

architecture.26 At present, most of the core products will remain on mainframes, but

they will increasingly be linked to Web-based front-ends. Internet-based direct banking

initiatives are already using different core banking systems. Sanchez, a client/server

based core banking system, is being used to support Citi f/i. Citibank is also considering

Sanchez as part of an ongoing effort to standardize operations and processes across the banks various consumer businesses.27 To that end, all four of Citibanks regional consumer banking operations have the option to independently acquire Sanchez for their

core retail banking system. Sanchezs potential advantages compared to mainframe core retail banking systems, such as Systematics, are responsiveness to time-to- market

demands, and channel integration requirements. Questions about scalability of

client/server systems to meet traditional retail banking volumes however remain.

While Citibank Asia Pacific has managed the transition to centralized back-end

processing, it continues to face new challenges from global trends in bank mergers and

Internet banking. Virtual banks without brick and mortar compete with established

banks and have the advantage of lower overheads, greater agility and speed of response

to the market. Nonbank companies like AOL and Microsoft are also offering financial

services and compete on the pervasiveness of their customer reach, as well as the large

set of potentially complementary products and services. Sunil Sreenivasan, chief

executive of Citibank Singapore, clearly recognizes the implications for Citibank:

In the future, the list of competitors in financial services will include unfamiliar

names such as telcos, power companies, and dot-com companies. What is frightening to

us traditionalists is that we will have to cannibalize our own products in order to avoid

others cannibalizing those very same products. Or put more extremely, we may in

certain respects need to commit suicide in order to survive.

Case Study Questions 1. What business strategy has Citicorp been pursuing in Asia?

2. Evaluate Citibanks Asia Pacific information technology (IT) infrastructure and systems in light of this strategy. How well do they support it?

3. How well do Citibanks infrastructural changes made in the 1990s support the merger with Travelers Group and Citigroups efforts to deal with the impact of the Internet on the banking and financial services industries? What management,

organization, and technology issues will Citibank need to address?