Citi urges incumbents to grow their own challenger brands as new entrants shrink the market

Citi urges incumbents to grow their own challenger brands as new entrants shrink the market

Incumbent banks operating on ageing technology stacks are looking at a 30% revenue hit as new digital-first challengers enter the market, according to a report produced by Citibank.

Citi says that traditional banks need to partner with technology companies to develop their own digital-first 'Bank X' challenger brands to see off the threat from nimbler new entrants.

The blue chip bank says that while incumbents diverted technology spend to meet regulatory and compliance challenges, they were blindsided by a new wave of competitors using technology and digital channels to deliver a better digital customer experience.

"Legacy banks often have data that is stuck in multiple silos supported by core banking technology that was literally built in the age of black and white television," states Citi in a state-of-the-market report. "Manual intervention is high, which slows down operating speed, reduces flexibility, increases costs, and ultimately degrades efficiency and experience. Because a lot of digital technology isn’t part of core banking technology, challenger banks tend to be quicker at incorporating new products and processes onto their platforms and help to easily connect with third-party products — offering more choices to the end user."

The challenge for incumbent banks, the report continues, is that while digitalisation can lower costs by 30-50% - primarily through a decline in full-time employees as technology disintermediates workers - new competition and greater transparency are likely to lower revenues by 10-30%.

"We expect the digital disruption risk to start in payments and then widen to other financial products," states the report. "The tipping point for incumbent banks is if their core businesses of savings and loans are impacted."

To avert the impending extinction-level event, banks need to "re-invent themselves and re-imagine banking" by building their own digital offshoots.

"This involves legacy banks partnering with technology companies to create effective joint ventures as well as moving into more disruptive technology and business models to transform themselves into digital competitors," the report concludes. "By creating their own Bank X, we believe legacy banks can transform themselves from slow moving caterpillars to agile butterflies."

Citi is taking its own medicine, spending $8 billion on tech last year - a sum greater than that invested by VCs across the entire US financial technology startup scene during the same period - phasing out analog processes and pouring huge sums into fintech startups and digital banking initiatives.

Comments: (2)

João Bohner
João Bohner - Independent Consultant - Carapicuiba 29 March, 2019, 16:581 like 1 like

Let’s put the finger directly on the 'wound':


"...disruption is constrained by legacy systems and structures."


Without addressing this wound, every effort to digital disruption will be costly (*), complex, and the results will be disappointing.


The Architecture of "Bank of the Future" (already built) proposes the following solutions:


For "legacy systems":

Eliminate them through full STP of the financial activities.


For "structures":

Reshape the current financial backend processing.

Make it handling the financial activities corporately rather than by 'products'.

This eliminates all 'silos', replacing them with a single source of knowledge for the Bank.


Banks do not know how to do this.

It is up to us Architects and Technologists to show the way.

The technology for this is already available.





(*)IT costs per customer per year in USD:

From Banking Reloaded by Frank Schwab, Speaker, Innovator & Founder at on Oct 12, 2013

Google:               3.4

Facebook:          3.8

eBay:                  7.4

Tier1/2   Bank 200.0


Bradley Howard
Bradley Howard - Endava - London 01 April, 2019, 09:041 like 1 like

To underline João's point above, even Monzo's cost per account is £15.

It's unlikely Monzo's servicing cost will lower to Google or Facebook (it's much more like the FAANG's will rise...), but if I were a traditional bank I'd aim for that £15 target.

(See Monzo's annual report for some fascinating insight).