Citibank is known for its sharp focus on retail banking, especially credit cards. The sub-prime crisis of 2008 forced the bank on the back foot but in the last two years, it has returned with some aggressive moves on the retail banking front including the launch of its Premier Miles card, the country’s first airlines-agnostic mileage-points-linked credit card.
With just 42 branches across the country, Citi carries the image of an exclusive bank that caters only to the affluent. In this interview with The Hindu in Bangalore, where he was on a visit last week, Jonathan Larsen, Global Head of Retail Banking and Head of Consumer Banking, Asia Pacific, says that the bank’s limited network is not by choice and is due to central bank regulations. “As a consumer bank, we are more interested in cities than in countries,” says 46-yea- old Mr. Larsen, who’s based in Hong Kong, adding that given the chance, Citi would build a similar network as a local bank. Excerpts:
From your perch in Citibank and in Hong Kong, how do you see the global economy moving right now?
I think we are finally seeing some level of growth resuming. To say that this is a strong recovery is premature. It’s going to be a long slow journey in Europe, a very long period of low growth. I think policymakers have actually done a pretty good job, Mario Draghi in particular, in actually keeping the euro together and dispelling the fear in global markets relating to Europe that we saw in the last couple of years. China and India are growing a little more slowly than we expected. External demand is still a factor for China, and it is taking time for them to rebuild their economy. India is very different. The real story for India over the long-term is the consumer story. Interestingly, despite a slower macro environment, we are actually seeing strong growth and demand for services among our customers. So, it is a mixed picture with a relatively slower outlook for the next couple of years.
As a consumer banker, what will be the challenge of operating in an environment like this for you?
I do not think we are going to shape our strategy based on short-term economic cycles. What we have learned is that we have to be very clear about what businesses we are in, what we are good at doing, where we can compete, where we can differentiate our offering, and this is especially relevant when we are a relatively small footprint bank in a very large market with very large entrenched competitors, like in India.
What has been your experience promoting digital banking in emerging markets like India?
Let me answer that in a couple of ways. One is that it is very clear that digitisation is, along with globalisation and urbanisation, one of the three major trends reshaping the world, and, in particular, the consumer landscape in all the industries, not just ours. Banking has partially been transformed but certainly not totally at this point. The technology exists today to digitise pretty much everything that banks do. But there are a lot of other factors at play and very important customer behavioural characteristics.
It is interesting that the prevailing view in the late 90s was that branches would disappear altogether and that banking would be virtualised but nothing of that sort has happened. What has really happened is that digital is really just one more channels that has overlaid on everything that existed in the past and bank branches remain very much a reality. Customer behaviour takes time to adapt. Partly, it is the role of cash in the society; many emerging markets tend to be heavily cash-based. It’s going to take a long time to completely displace that. So the way we think about it is that we are not in a either or world, we are in a world where we have got to actually think of where our consumers are, what their needs are, what their preferences are, and have a range of channels to meet them.
In India, Citibank has the image of being an elite bank. Are you comfortable with that or would you like to change it?
We are who we are. If you look at our past, we have made mistakes. One of the mistakes was getting into the consumer finance business and opening 650 branches around the country and going after a target market that certainly for us was not something that was viable, so we exited it.
No one could accuse us of being elitist at that time. In our credit card business we are full spectrum. We are not interested in pushing the boundaries of creditworthiness. That is not a smart strategy in a place like India for someone like us. Take the Suvidha business which we started right here in Bangalore. At the time, it was an experiment to see whether it would be possible to build a more broadly based business that did not just speak to affluent clients. And it happened to coincide with the rapid expansion of the software and BPO industry here and we were able to sort of ride that wave and be a bank of choice. It is a really good example of us, finding our way to be relevant to the market. So, I do not think we are deliberately elitist, we’ve only got 42 branches. We are not ICICI or HDFC, we never will be, we cannot possibly address the market on the scale that those banks do.
What has prevented you from going beyond 42 branches? Is it just the central bank’s regulations or is it that you are also comfortable with this kind of a number?
No, we would love to have more branches. As a consumer bank, we are more interested in cities than we are in countries. Our strategy is to focus on the top 150 cities in the world. We are in 132 of them today. We are the only bank that is anywhere close to that. There really are no global consumer banks left in the world apart from Citi. The post-crisis era has seen a shake-out of pretty significant proportions and you have seen many banks that have had a broad footprint, exit from entire regions. So, for us these top cities are critical; nine of those are in India. Under current regulations, there are simply no licences available in those places. It just does not make economic sense for us to go, open Citibank branches in rural areas or in third-tier cities.
That is not your style of banking?
It is not about style of banking but there’s just no way we can make money. And if we cannot make money, we just cannot do it.
But don’t you think that has to be counter-balanced with financial inclusion?
Of course, I think one of our missions as a company is to support financial inclusion in any way we can. Financial inclusion is not going to be our core business strategy. We don’t know how to make money out of doing that right now. If we did, it could be a different discussion, so we don’t know how to do that.
I don’t think any bank has cracked that in India…
Yes. And it is a fact that we contribute in many other ways to financial inclusion. We’ve had many discussions with the government about the possibility of implementing cost-effective payments, for example, for the distribution of welfare and using things like mobile technology to support that. We definitely have technology and solutions that could be hugely helpful in these areas, and we think leveraging those kinds of capabilities is probably a much more constructive way for us to be contributing to social inclusion and financial inclusion than to force us to open five branches in places that no one has ever heard of before. We are very conscious of the need to give back in markets around the world where we built successful businesses. Incidentally, we are the only foreign bank empanelled for Aadhar.
How does India’s regulatory environment compare with other countries you do business in?
It’s a complex regulatory environment here and is a highly restrictive one for foreign banks. We have large local banks that are listed here but they are 80 per cent owned by foreigners. What’s the difference between a foreign-owned listed local bank and a bank that has been here for 110 years, hugely committed to the country and doing everything in its power to behave with absolute responsibility and integrity? Why would the regulatory framework not encourage us? That’s a fair question to ask and we understand the social inclusion objectives of the governments and not just the government in India, as we do in many countries. We do recognise the need to contribute beyond our direct business activities.
Indian banks with large branch networks are shifting customers to the digital platform. So, a small branch network need not be a constraint. Isn’t it?
Yeah, of course, in general, we have been a challenger competitor in emerging markets. We were never a large embedded local bank. We always had a smaller foot print. In many cases, it was due to regulations but also because of choice and if we did not have any constraints in this matter we will certainly build the same size of network as a local bank. Branches still play a very important role in making it convenient for customers to sign up with us to understand our range of services. I think there is a psychological need that people have to see that the bank actually physically exists in the market. It is probably pretty deeply engrained. I do not think it is peculiar to India, it would exist everywhere. And India is really a big place and these are really big cities. So to have just six branches in Mumbai and two in Bangalore is clearly a constraint. It is a big constraint even in a digitised world.