Aside from Silicon Valley startups, an array of financial services firms born outside of traditional consumer banking have sought to mop up deposits in recent years, taking advantage of technology making it easier to verify and approve customers online. Some of the largest entrants, such as Goldman Sachs and American Express Co., have lured consumers by offering competitive interest on savings. Others focus on perks. Discover Financial Services, for example, offers online accounts with a debit card generating 1 percent cash back on purchases.
Citigroup’s strategy may help it come closer to a target set in 2017 to boost revenue from the consumer division by $5.5 billion to about $38 billion by 2020. Last year the bank acknowledged it had fallen behind on that goal.
`Buying’ Customers
Still, some analysts are skeptical that credit-card perks are a sensible way to lure consumers to a digital bank. Online customers are notorious for chasing rewards, shifting their money to other lenders once they’ve scored rich perks for signing up, or to nab a higher interest rate on their savings.
“All you’re doing is basically buying market share and buying customers, but if you can’t keep them, then the money you just spent is not worth it,” said Alyson Clarke, principal analyst at Forrester Research Inc. Offering a higher interest rate, for example, may boost market share, she said. “But it’s not sustainable over the long term.”
When Citigroup launched its digital bank platform last year, its overhauled app let customers open an account within minutes. That came with normal bells and whistles, such as the ability to pay bills, make mobile check deposits and obtain free access to the bank’s 65,000 ATMs.
Citigroup also rolled out a high-yield savings account similar to offerings from Goldman Sachs and AmEx, making it available for depositors outside its branch footprint in New York, Chicago, Miami, Washington, Los Angeles and San Francisco. The new account offers customers in certain zip codes 2.36 percent interest, according to data posted on Bankrate.com. The bank’s website shows branch customers, in contrast, may earn less than a 10th of that on standard savings accounts.
Harder to Leave
To be sure, branchless entrants aren’t the only ones making Citigroup compete for deposits.
Larger lender Bank of America Corp. launched its Preferred Rewards program in 2014, offering people who meet certain deposit criteria perks such as discounted stock trading and better interest rates. JPMorgan Chase & Co. debuted Sapphire Banking last year, building on the success of its Sapphire Reserve Card.
“A lot of it is leveraging what they know about the customer, particularly on the credit-card side,” said Jesse Rosenthal, senior analyst at CreditSights. And “by building products on each other you make it cost the customer to leave.”
This article was provided by Bloomberg News.