The Role of Retail Banking in the U.S. Banking Industry

The Role of Retail Banking in the 

U.S. Banking Industry: Risk, Return, and Industry Structure

1. Introduction

     The U.S. banking industry is experiencing renewed interest in retail banking. These activities—broadly defined as the range of products and services provided to consumers and small businesses—have grown in importance over the past several years. Retail-related positions now account for larger shares of commercial bank balance sheets, and the number of bank branches continues to grow. 

   The recent focus on retail contrasts sharply with industry views held during the 1990s, when banks’ attention turned to broadening products, diversifying revenues, substituting alternative delivery channels for branches, and offering a multitude of financial services to all types of retail, corporate, and wholesale customers.This “return to retail” is reflected in a greater number of media reports on retail banking activities, in the frequency with which retail banking activities have been mentioned in banks’ public statements, and in the attention given to these activities by industry analysts.1 A 2004 report by Standard and Poor’s—“Retail Sector Anchors Large Complex Banks in U.S.

In Their Own Words: How Banks Describe Their Retail Banking Activities

    These descriptions are from the 2005 annual reports of four large banks. This group certainly does not constitute an exhaustive list of institutions that provide detailed information on their retail banking activities. However, the passages cited here are representative of the information provided by large banking
organizations that identify distinct retail business segments in their annual reports.

American Banking System

RETAIL BANKING

      With branch locations concentrated in urban centers, and nearly three-quarters of 3,730 branches in emerging markets, Citibank's footprint is unique among financial institutions.

     Citibank serves a full range of consumer banking needs, including checking and savings accounts, loans, wealth management advice and small business services. In 2011, Citi joined with the Small Business Administration to announce a three-year commitment to lend $24 billion to America's small businesses, and by the end of 2013, Citi had surpassed that commitment by $2.6 billion.

    Citi's Banamex franchise serves 21 million clients in Mexico, where the bank has a leading position in retail banking, consumer credit, corporate and investment banking, securities brokerage, transaction services, wealth management, bank insurance, and mutual and pension funds. In 2013, Global Finance magazine recognized Banamex as Best Bank, Best Consumer Internet Bank Best Corporate/Institutional Internet Bank in Mexico. For the Latin America region, Banamex was honored as Best Online Treasury Services.

      In 2013, Citibank optimized its branch footprint, further concentrating its presence in urban centers. Citi opened branches in key U.S. cities, including Chicago, Miami, New York and Washington, D.C., and its first flagship on the West Coast in Los Angeles. Citi Smart Banking branches, designed around technology that offers the finest customer experience in the industry, were opened in many cities around the world, including Rio de Janeiro and Warsaw. Citi also was one of the first two global banks approved to establish a presence in the Shanghai Free Trade Zone in China.

     With the vast majority of client transactions occurring outside of branches, Citi pioneered a new distribution model in which a branch is just one touchpoint in a network that includes flagships, traditional branches, kiosks, multi-functional ATMs and digital channels. In Malaysia, the Philippines and Singapore, Citi marked the global launch of Citibank Express next-generation ATM that allows clients to access nearly all the services available at a traditional branch.

     In Asia Pacific, Citi and AIA Group Limited announced the largest bancassurance agreement ever signed. The agreement provides the opportunity to offer life insurance products in one of the world's fastest-growing wealth management regions where affluent clients increasingly seek financial protection for their family and assets.

     In 2013, The Asset magazine named Citi Best Wealth Manager in Asia, and Private Banker International named Citigold Private Client as Outstanding Wealth Management Service for the Affluent. Bank Investment Consultant named 10 Citigold Financial Advisors among the top advisors of 2013.

The Citi Mortgage business, which provides loans for home purchase and refinance transactions, originated $58 billion in new loans in 2013 in the U.S. The business continued to focus on deepening customer relationships by aligning with Citibank's U.S. retail bank branches in major metropolitan areas. Citi Mortgage remained highly committed to foreclosure prevention, conducting its third consecutive Road to Recovery Tour, a series of events offering private counseling for clients whose financial difficulties affect the ability to make mortgage payments. The 2013 Road to Recovery Tour hosted 30 homeowner assistance events in cities across the U.S., from Las Vegas and Miami to Boston and Minneapolis.

Citi Commercial Bank provides small and middle-market companies with global access to award-winning products from its institutional and consumer platforms. In 2013, Citi Commercial Bank enhanced its service to clients in more than 100 cities worldwide. By taking advantage of its unparalleled global footprint, the Commercial Bank expanded its client base for companies operating in multiple countries and improved the client experience by reducing lending turnaround times by 38 percent while significantly increasing domestic and offshore assets. Citi Commercial Bank has been an important partner for companies as they continue to broaden their reach across key urban centers around the world

Consumer Businesses

CREDIT CARDS

    Citi is the world's largest credit card issuer, with 142 million accounts, $365 billion in annual purchase sales and $150 billion in receivables across Citi Branded Cards and Citi Retail Services.

   Citi Branded Cards provides payment and credit solutions to consumers and small businesses in 34 countries. With more than 52 million accounts in circulation, the business had annual purchase sales of $290 billion and a loan portfolio of $104 billion.

   In 2013, Citi continued to deliver value, convenience and the power of our global network to cardmembers. Citi Prestige® card, a global credit card built upon the bank's unique relationships and capabilities worldwide, launched in Colombia, Hong Kong, Malaysia, Mexico, Singapore and the U.S. The card offers exceptional rewards, including global benefits, special offers and an annual relationship bonus.

    Further enhancing global value for clients, Citi launched Hotel Privileges for Citi debit and credit card clients in Bahrain, the Czech Republic, Egypt, Greece, Hungary, Poland, Russia, Spain, the United Arab Emirates and the United Kingdom.

American Banking Hot News

American Banking Hot News

   Citi's Global Consumer Bank (GCB) serves 62 million clients in 35 countries with a strategic focus on markets and segments in which the bank's unique global network, brand, and customer-centric products and services provide a competitive advantage. GCB aims to deliver a remarkable experience to clients through industry-leading products and services, next-generation retail formats and world-class digital channels.

   Operating across Citi's four regions – Asia Pacific; Europe, the Middle East and Africa; Latin America; and North America – the GCB's growth plan is aligned with Citi's long-term strategy to harness for customers the dominant secular trends of globalization, urbanization and digitization. Well-positioned and well-diversified, we serve high credit quality, globally minded consumers in the world's top cities.

    GCB's primary business lines are Credit Cards, Retail Banking, Mortgages and Commercial Banking, which together generate nearly half their revenues outside North America. As of December 31, 2013, these businesses held $332 billion in deposits, had $302 billion in loans and managed $168 billion in assets. GCB operates approximately 3,730 branches in more than 700 cities worldwide, with a strong presence in 121 of the 150 cities that contribute a third of global gross domestic product growth.

     In 2013, GCB generated $10.8 billion in pretax earnings, nearly half of Citicorp's total. Revenue growth in the emerging markets – especially in Latin America and Asia – partly offset a decline in U.S. revenues resulting from the challenging economic environment. Globally, key business drivers reflect continued momentum: Consumer loans grew 2 percent, cards purchase sales increased 3 percent, assets under management rose 8 percent and average deposits were up 2 percent, with growth concentrated in checking and savings accounts.