BOSTON - Citigroup Inc.'s success in using the Internet to pick up customers its branch network does not reach has some observers talking about whether Citi might give its online banking business more operational autonomy.
Such a shift would be a turnabout of sorts for Citi, which closed the stand-alone Citi f/i online bank in 2001. Since then it has tightened the ties between online banking and the rest of its retail operation, citing customers' demand for access to the branches.
But George Tubin, a senior analyst at TowerGroup, cited conversations with Citi insiders during a presentation here last week, declaring the company is "starting to think now about maybe rolling off their Internet bank."
Separating its online and branch channels, Mr. Tubin said, would make Citi "like ING." That would be the branchless, stripped-down ING Bank FSB of Wilmington, Del., an arm of the Dutch giant ING Group NV.
ING, which has built a substantial Internet-only customer base with ING Direct, has caught the attention of Citi's retail executives.
In her keynote address Thursday at the Road Maps for Growth conference, Catherine Palmieri, the managing director of Citibank.com, noted that in one quarter ING Direct added 250,000 U.S. customers. (ING Direct said in its first-quarter report that it had more than 2.5 million U.S. customers.)
And companies with fuller-service offerings such as E-Trade Financial Corp. have demonstrated that many customers are willing to bank solely online, and have taken market share from branched banking companies with this strategy, Ms. Palmieri said.
Ms. Palmieri, who was in the audience during Mr. Tubin's Thursday presentation, declined to be interviewed for this article. (The conference was presented by TowerGroup, a MasterCard International market research unit.)
Mark Rodgers, a spokesman for Citi, told American Banker in an e-mail Friday, "We have no plans to spin off Citibank Online or operate it independently of the branches."
There are many shades of gray in between full autonomy and complete integration, of course. In an interview after his presentation, Mr. Tubin said that softening the online channel's ties to the branch would offer some advantages.
First, he said, the Web operation would be able to develop Internet-specific products and promotions and act more promptly than if it had to clear strategic shifts with the branch business. "You're able to make changes much more quickly."
Furthermore, Mr. Tubin said, the online unit would have better financial results without the burden of maintaining branch support, especially for products that have been specifically designed to eliminate branch visits.
Many Citi customers who open accounts online live nowhere near a branch, and many others rarely visit one. Mr. Rodgers said that in an average month 90% of Citi's online banking customers do not visit a branch.
"A large portion of our online banking applications already come from consumers outside our branch areas," he said by e-mail. "It is part of our strategy of fostering organic growth for our retail banking business."
That is a much higher number than most banks; Mr. Tubin said that industrywide only 15% of online banking customers do not visit a branch during an average month. He also said that 40% of the people who open Citi accounts online do not live near a branch, a figure that Citi itself uses.
With some products and promotions, Citi already treats online customers differently. Last year it offered Apple Computer Co.'s popular iPod digital audio players to people who opened an account online and paid bills electronically. And it issues refunds to its EZ Checking customers who do not live near a branch and are charged fees to use another bank's automated teller machines; EZ Checking customers who live near a Citi branch do not get these refunds.
Mr. Tubin said that Citi is also "strongly looking into" selling its online bill-payment software for other banks to rebrand and use. (Citi did this several years ago but stopped in 1999 or 2000, he said.)
Mr. Rodgers said that selling such software "is something that we have done on occasion in the past," and that "we continue to explore business opportunities such as this to expand revenue."
Chris Musto, a vice president for research at Watchfire GomezPro in Waltham, Mass., said in a phone interview that Citi is "in a relatively unique position to carry out" a separation of its Web site and its branch business, "in that its branch footprint is not national but its brand name is."
Mr. Musto said he is not surprised to hear that Citi may be considering such a separation, even if its branch customers' reliance on the Web would make it impractical. "For some time Citi has been touting its success in getting out-of-footprint customers," he said.
