With the ability to disrupt existing business models with their use of new technologies, any fintech firm that bids for Citibank’s Indian assets could, if successful, leapfrog ahead by offering innovative new solutions for financial services needs.
Citibank’s decision to exit the Indian consumer banking business will open up huge opportunities for players like the Tata Group, the public sector State Bank of India (SBI), private Indian banks like HDFC Bank, ICICI Bank, Kotak Mahindra bank, Axis Bank and IndusInd Bank and a host of newly minted fintech players who are growing exponentially in the Indian market.
The last development is considered particularly significant as the fintech sector is quickly disrupting the traditional banking industry and creating new market opportunities for both consumers and businesses.
The Institute of South Asian Studies has defined fintech as: “a disruptive innovation that entails the use of technology to carry out traditional finance functions, including payments, credit, insurance and wealth management. It is rapidly changing the landscape of the financial sector. At its simplest, it makes access to finance easier for customers and consumers by cutting costs...”
It would normally take a new player decades of hard ground work and very deep pockets to replicate a retail portfolio such as Citibank’s. But for India’s fintech firms, which are widely acknowledged as being at or, at times, even ahead of the global curve on fintech innovations, it would make sense to raise funds to buy out Citi’s retail business and then use their technology backbone to scale up the operation to a level where they could challenge the brick and mortar leaders in the pack.
This would make business sense as Indian fintech firms already offer among the highest returns among such firms anywhere in the world. The country has two other major advantages to facilitate the growth of fintech – the world’s largest biometric data base and one of the world’s most extensive digital infrastructure backbone. Then, more than half of all Indians use at least one fintech product, making it the country with the second highest fintech penetration.
Over the years, Citibank has built one of India’s most profitable and valuable consumer banking businesses with a combination of aggressive marketing strategies and innovative use of technologies.
Citigroup Inc trounced first-quarter profit expectations, thanks to a rebound in the broader economy and a jump in investment banking activity, and said it will exit some overseas businesses as new chief executive Jane Fraser starts to make her mark on the country's third-largest lender.
The bank reported $7.94 billion in profit, triple the $2.54 billion it made a year earlier, as it released funds set aside to cover pandemic loan losses and cashed in on a boom in listed shell company deals which has boosted underwriting income across Wall Street.
Analysts said back of the envelope calculations show the Citibank consumer business in India could be worth $2 billion. It includes 2.9 million retail customers, 2.7 million credit card subscribers, 1.2 million bank account holders and 35 branches with $23 billion in deposits.
That makes it India’s sixth largest card issuer. But where it scores over its larger rivals is in the quality of its cards business. Media reports suggest that Citibank has built a very high-quality cards portfolio with several high net worth customers whose average card spend exceeds the industry average.
Citibank has announced that it will exit its Indian consumer banking business completely as part of a global restructuring of its portfolio whereby it will withdraw from 13 major markets including China, Australia, South Korea, Malaysia, Thailand, Russia and some other countries.
"While the 13 markets have excellent businesses, we don't have the scale we need to compete. We believe our capital, investment dollars and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia,” said Citibank’s new CEO Jane Fraser, who took over last September as the first woman to head a Wall Street bank.
Though unit-wise figures are not available, media reports suggest Citibank’s Indian consumer banking business is profitable on a standalone basis with annual revenues of about $1 billion.
Then, the fact that not only Citibank, but also most foreign banks earn profits on their consumer banking portfolios in India shows that the regulatory overhang in this country is at least comparable to other free markets and that there is considerable ease of doing business here.
The fact is: Consumer banking throughout the world is dominated by domestic banks because they under the psyche of consumers best. Typically, in most large markets, domestic banks take up the first five slots in consumer banking leaving the MNCs to slug it out for the 5th-10th positions.
What this latest exit will do is intensify the competition banks face from fintech companies as consumers move increasingly to app-based services for their regular consumer finance needs.