Sometimes a business decision seems so deeply rooted in common sense that it's hard to imagine why things were ever done differently.
Take the example of Citigroup Inc., which announced Wednesday that it will offer just three kinds of retail checking accounts at its Citibank branches — a basic option, a midtier option and a premium option — with fee waivers based on simplified balance or transaction requirements at each level.
A year ago, the bank had three different account options just for its entry-level customers, and a half-dozen different checking products overall, each with its own schedule of fees and requirements. The old lineup resulted in loads of fine print that customers found confusing, without generating much appreciation for an experience that was intended to provide a more tailored feel.
"What we discovered is that customers appreciate simpler options with clear terms," said Brad Dinsmore, head of Citi's U.S. retail banking business. "Our customers told us that more than options, they wanted more value and they wanted to be rewarded for their business."
Starting with the Nov. 1 statement period, fees on basic accounts will be waived for customers who complete five or more qualifying transactions, such as direct deposits, debit card purchases, bill payments and ATM withdrawals. On the other end of the service spectrum, for CitiGold premium customers, the monthly balance requirement for avoiding fees will be dropped from $100,000 to $50,000 across linked deposit accounts, including money market and retirement products.
The hurdles for fee waivers may be lower, but most customers who fail to meet the thresholds will be charged more for monthly maintenance. Citi has set fees at $8 for basic accounts, $20 for the midtier Citibank account and $30 for the CitiGold account. The company previously charged $3 to $10 for basic accounts, $9.50 to $15 for midtier accounts and $25 for premium accounts.
Dinsmore denied that the new pricing represented an attempt to recoup revenue lost to regulation, such as the new rules governing overdraft fees. According to estimates from Sandler O'Neill & Partners LP, deposit service charges account for only 1% of core operating revenue at Citi, compared with an 8% median for more than 100 large and midsize banks. That speaks to the idea that there is less pressure on Citi to find replacement revenue, though the bank no doubt would like to grow its retail franchise's bottom line.
In any event, the new rates represent a streamlining versus years past, when Citi and other banks developed more expansive pricing menus than they turned out to need, all in the name of customization.
"In the late 1990s this kind of thinking came generally under the banner of customer relationship management, customer segmentation and trying to be in a position to offer and market services on a one-to-one basis," said Bill Bradway, the banker turned analyst who runs Bradway Research LLC in Framingham, Mass. "There was a tremendous amount of sophisticated analytical capabilities that the banks possessed, that dissected and segmented customers into, in some cases, dozens of profiles. I think what we're seeing today is a move back toward a simplification of that process."
To be sure, some banks, particularly regionals such as Fifth Third Bancorp and BBVA Compass, are continuing to bet on the desire for customization, with products that allow customers to choose from a menu of services. But at those banks, customers are the ones selecting the options, which then get layered over a basic account product. That's different from before, when customers would choose from a plethora of account options with a mix of features selected by the bank.
The decision provides a window into the strategy being developed by Manuel Medina-Mora, Citi's chief executive for consumer banking in the Americas.
Medina-Mora, who as the longtime CEO of Banamex helped Citi make big strides in Mexico, has yet to reveal his plans publicly, but the bank is widely expected to focus on affluent clients in New York, Miami, Los Angeles and other the urban markets where its branches are concentrated.
The halving of the balance requirement on CitiGold premium accounts befits such a strategy, Bradway said.
"That's a meaningful move on their part to try to broaden their appeal," he said. "It's more tailored to a mass market, perhaps an emerging, affluent market, that has maybe $50,000 to a couple hundred thousand dollars to invest."
