Citi’s Corbat warns banks: Don’t become ‘the dumb utility’
Citigroup CEO Michael Corbat said Wednesday that while institutions should be open to partnerships with technology and fintech companies, they need to be careful not to give away too much in the process.
Citi is "very conscious around not being the dumb utility — being very conscious about not giving away unconsciously the client-customer ownership that’s there,” Corbat said.
His comments come just a week after Google announced it would take a major step into finance via a partnership with Citigroup to offer consumer checking accounts. Details around the Google-Citi checking accounts remain murky, but Corbat made it clear he saw benefits for his institution in the deal. He presented the partnership as "an interface between Google search and the Google app” with an embedded tool that could facilitate customer transactions.
“Say you go on and search for a garden hoe, go to a site, and buy it,” Corbat said during a CEO roundtable at a Bank Policy Institute conference. “Google gets the search, but they don’t necessarily capture the end transaction as a part of that. What this is, if you want a bank account — hopefully a Citi account — in there, you’ll be our customer.”
Corbat said that Google will have access to at least some of the data.
“We’ll have access to the data, Google will have access to the transactional data and the search listing that in many cases they already have today,” Corbat continued. "But there will be a convenient point where, again, around single click or whatever the mechanism is, you’ve got the ability to consummate that transaction.”
Overall, Corbat said the conversations between fintechs and banks have evolved over the past five to seven years. He recalled meeting a young Silicon Valley entrepreneur several years ago: "I'm paraphrasing, but he looked at me and pretty much said, 'We've come to eat your lunch, old man.' "
But the tone has changed as fintechs realized the regulatory hurdles involved in banking. "What we've seen in some ways is a coexistence."
"I think in general, the industry is kind of challenging each other and it's making us all better what we do," he said.
Corbat's discussion came as part of a panel involving several other large-bank executives — U.S. Bancorp CEO Andrew Cecere, Synchrony CEO Margaret Keane, Comerica Bank CEO Curtis Farmer and Regions Financial CEO John Turner — who raised other concerns about technology.
“You have to be careful running after those shiny objects,” Keane said. “I think an organization can get lost in, ‘Wow, that [product] looks really cool,’ but no one really wants it.”
But all the CEOs echoed the necessity of working alongside fintech firms to stay competitive.
“Banks have the customer relationship, the balance sheet with the deposits, we have all of financial services, but there are some [fintechs] with some thin slice that they do better and faster and more capable, and they’re unregulated,” Cecere said.
“One lesson we’ve learned for sure is scalability,” he added. “We have to make sure that what works for a hundred works for a million.”
Working with fintechs often means changing up processes that may have been in place for years, Farmer said. “For us, the journey has been really focusing less on our legacy platforms and more on migration," he said.
“Being able to coordinate with a couple of key third party vendors allows us to move quicker to market with probably less customization capabilities.”
Several CEOs agreed, however, that the richest ground for fintechs remains the payment processing industry.
“With consumer payments in particular, you can come in, you don’t have to be regulated, it’s not capital intensive, per say, you get paid to do it when you get swipe fees, and you get consumer data to decide how you’re going to expand those boundaries,” Corbat said.
Cecere echoed that, saying that payments had “the most capabilities and potential value in terms of data and information it can utilize.”
Data was also an object of consternation for several executives. Many of the CEOs repeated the truism that customer data is ultimately owned by the customer, emphasizing that privacy reform in California and Europe would make that doubly important.
“I’m a believer that, if the customer doesn’t want their data shared, we shouldn’t be sharing it,” Keane said. “We’ve all been in a business where we have strong privacy rules and regulation, and I put this at a similar level.”
But Keane also pointed to entities outside of banks that may have a growing role.
“We have to get a better handle on what is really happening outside the industry, and where there's things that are occurring that may not be in the best interest of the customer," she said.
For their part, the CEOs collectively winced at the notion of trying to comply with a patchwork quilt of privacy frameworks in the U.S., even as Europe’s GDPR and California’s emerging privacy laws bring their own headaches.
“It has the ability to be a nightmare,” Corbat said.
Rather than incorporating dozens of privacy schemes across the country, he said, “as an industry, we need to be pushing very hard at the state level not to get into this continual gold plating as we go across the country, and push our local politicians and legislators as much as we can for harmonization.”