Citigroup (C - Free Report) has jumped on the bandwagon and seeks to strengthen its retail deposit base with the help of technology. The company plans to introduce a new app, likely be launched in the current quarter, which is expected to help grow deposits. The app is also expected to support expansion of its wealth management operations.
With no intention to open new branches, Citigroup’s plan seems to be the best option. David Chubak, head of Citigroup’s global retail banking and mortgage, citing customer research conducted by the bank, said, “People are willing to switch to a bank that is able to provide this kind of mobile-first experience.”
With just around 700 branches in the six key metropolitan areas of New York, Chicago, Miami, Washington, D.C., Los Angeles and San Francisco, Citigroup has the lowest number (in terms of number of branches) among the big banks. Notably, JPMorgan (JPM - Free Report) has roughly 5,100 branches, Bank of America (BAC - Free Report) 4,400 and Wells Fargo (WFC - Free Report) 5,800.
This gap is expected to further widen with JPMorgan and Bank of America planning to expand to newer areas by opening branches along with their apps. Further, Citigroup’s cost of deposits is among the highest, as a large portion comes from institutional and wealthy clients who demand higher interest rates.
Therefore, as Citigroup plans to lower its cost of funding amid increasing competition for deposits (due to increase in interest rates), online-only bank is a good option. The bank’s new app will still face competition from JPMorgan’s Finn, Aspiration, digital bank of Ally Financial and Marcus by Goldman Sachs.
Also, as the company targets cutting $1.5 billion of expenses from its consumer bank by 2020 to reach the financial targets, opening new brick-and-mortar branch locations seems unlikely for now. Michael Corbat, the CEO, at an investors conference in May said, “We're completely focused on the implementation and execution of our national digital banking platform.”
With these initiatives, Citigroup anticipates to lower cost of deposit and use technology to reach out to potential new customers.
Shares of Citigroup have lost 9.7% so far this year compared wih the industry’s decline of 5.2%.
Currently, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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