Citi bank announced its exit from consumer banking from multiple countries. This makes one ponder over the possible cascading impact it could have on the banking Industry. What looks imminent is the end of the concept of a ‘Global Universal Bank’. A concept which gathered momentum in mid-nineties when large US and European MNC banks went on to expand their geographical footprint and established businesses across client segment (Consumer, Wealth, SME and Corporates). For many like me , who started their banking careers in early 2000, this news is nothing short of a ‘teenage heart break’. We were the generation who bought into this concept and were soon converted into believers. Let’s have a broader view around the Story of MNC Bank’s exit
CITI Bank never slept for 5 decades
Citi is not alone in this, but is certainly the most talked about because of its sheer dominance. European lenders like RBS and Barclays were amongst the first ones to shift their focus to the domestic markets. This was followed by many others who either curtailed their expansion into other markets or completely exited. Consumer Banking was expected to be hit the hardest. It’s known that Consumer banking is a ‘large volume low value’ business compared to its siblings like Transaction banking and Investment banking. Scale is key for consumer banking business to become sustainable. This may seem elementary now, but it took more than 5 decades for a bank which ‘never slept’, to come to this conclusion that scale can’t be achieved in these 13 countries ( and perhaps many more ). There is certainly more than what meets the eye.
Impact of liberalized Indian economy
If I were to talk about India alone, just about two decades ago, Private sectors banks were starting to build businesses and they came in with state of the art ‘core banking’ systems. PSUs followed suit albeit much slowly. MNC banks were way ahead of the curve in terms of their technology and had a head start. They leveraged on what they had in other developed markets and completely revolutionized the way banking was done in India . Around the same time, the liberalized Indian economy gave a turbo boost to certain sunrise industries. Sectors like like Telecom , Insurance , Software, Consumer durables, Pharma, Automobiles , NBFCs, Travel etc. scaled up . The localized management of these MNC banks thrived on ‘think global ,act local’ mantra. They planned to built successful businesses which catered to a fast growing middle income population of India. This middle class drove the consumption led economy in India and had high aspirations. They were a perfect fit for MNC banks both as employees of Corporate clients and as Individual customers.
MNC Banks Think Global Act Local Mantra
Things changed dramatically for consumer banking in the post financial crisis world. Payment industry in particular, has exploded like never before with the inclusion of non-banking players. What looked like the strength of the MNC banks about two decades ago, is now turning out to be their weak link. Domestic players have raced ahead in putting tech-aided solutions while MNC banks are still grappling with legacy systems. The localized and empowered management has caved in to more regional & global decision making matrices after the 2008 financial crisis. The Scale that has been achieved by the non-banking entities and local banks now looks unsurmountable. Keeping these facts in mind, Citi’s decision and the timing makes a lot of sense.
Cash Management in Banking
That brings me to my last point on this subject -What does it mean for the business that I am a part of – Transaction banking . More specifically ‘Cash management’? Amongst all other banking products, Cash management is closest to its consumer banking sibling. The challenges that MNC banks faced in consumer banking are likely to haunt cash management businesses too. What is adding to its grief, is the increased cost of regulatory compliance. Future is not going to be easy for sure. There is a belief that MNCs will continue to bank with MNC banks ( largely due to global relationships and Credit ratings of the bank) , but that alone is not enough to build sustainable models. What are the options that we have then?
VCR moment for MNC Banks
It may sound funny to many, but I look at this as a ‘VCR’ moment for Cash Management business of MNC banks. The video cassette recorder-VCR was arguably the best invention of 80s. You could get home a movie theatre of your own. The growing middle class which contributed most to the footfalls at movie theatres had no reason to go to the theatre. The rules of the game changed in very quick time. The soothsayers would have released the obituary of the movie theatres, but they were proved wrong. VCR made way to CDs/DVDs and now to OTTs but movie theatres survived and thrived. They survived because they played the game with new rules. They shifted their focus from the underlying ‘Product’ (the movie) to an ‘Experience’. Single screen moved to multiscreen bringing in efficiency , food became tastier, more presentable and more expensive adding a new revenue stream. Ambience got a face lift and location shifted to cost effective shopping malls from expensive real estate .We can watch all that we want to watch on our handheld devices or larger than life LED screens , but going to a theatre is an experience which we still enjoy and cherish.
To Conclude, If the cash management business of MNC banks has to thrive, the focus has to shift from the product to an ‘experience’. We have to move from ‘provide solutions’ to ‘make available the best & updated solutions’. The look and feel has to change and the delivery mechanisms too. It’s less about the technology that you use, but more about how easy it is for your client to use . I am confident that we shall conquer our VCR moment and emerge as winners eventually so that I still get to earn my daily bread . Amen !
The above views are personal views of Mr. Verma and not his employer. Should you have any queries, please reach out to the writer on Vaibhav101@hotmail.com