Effect of the Internet on the Competitive Landscape of Banking

2021-05-06 11:41:18
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Citibank is a US bank that offers the customer, corporate and financial solutions. It is one of the several companies under the conglomerate giant Citigroup. Founded in 1812 as City Bank of New York, the banks name was later changed to First Bank City Bank of New York. The companys name was later changed to Citigroup and Citibank was instituted as the main unit to offer financial services and banking for the group of companies. The bank is the third largest bank in the US and has 4000 branches in 36 places around the globe. The Asian Market contributes close to 20% of the banks revenues while the online service platform is amongst the most thriving with over 15 million customers. Owing to extreme competition in 2000, Citibank put the focus on an e-business strategy. An internet platform was meant to make it possible for the companys customers that have the same needs to undertake businesses online.

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The case majors on Citibanks challenges in serving its corporate customers with needs of diverse nature. The paper examines the effect that the internet has had on the competitive landscape of the banks corporate banking; illustrates how the bank has successfully changed its traditional money management into an e-business and how Citibank protects its clients from its strategic alliances.

The impact of the Internet on the competitive landscape of corporate banking

Towards analysing the impact of the internet of the competitive landscape of banks corporate banking, it is important to define the competitive landscape. A competitive landscape refers to the structure of analysis that assists a business to determine its primary online and offline competitors market presence through customer along the value chain and geographical market. The rival strategies may then be examined using products service, strengths, weaknesses, and expansion or growth models.

These effects of the internet on the competitive landscape on corporate banking for Citibank includes: demand increase of corporate customers for e-transactions such as e-payments and e-invoicing; transformation from traditional banking to online banking as a result of growing global banks and e-services became a necessity for clients to avoid paperwork. Furthermore, the internet had the effect of compelling the banks corporate banking to offer more sophisticated e-business solutions and the emergence of collaborations between multinational companies (MNCs) with Citibank to develop innovations in e-business. These impacts are discussed in detail the next paragraph.

To start with, the internet has increased the demand of corporate customers for e-transactions. When the company had come up with expertise and developed coverage models for its customer segments, more and more of its clients expanded their businesses globally and became e-enabled. This increased the demand on the companys e-transaction by its corporate banking clients. They also demanded an additional range of services in that line of business. They wanted to make payments, get payment collections online and have more efficient web-enabled financial processes. They demanded electronic e-invoicing, automated applications for payments to debtors as well as online payment guarantees.

In addition to increasing the demand for e-transactions, the internet had the impact of changing the corporate banking of Citibank from traditional banking to online banking. Citibank invested continuously in technology to promote both inbound and outbound electronic banking systems. The middle markets were pushing the growing need for internet banking capabilities. A study revealed that by mid-2001, more than half of the middle market firms in the USA and Canada were using the banks online banking as opposed to traditional banking. Over 50% of them claimed that their offerings represented an important constituent of their relationship with the bank and management of cash.

Besides, the internet had the impact of saving costs of their corporate bankers and enabling them to concentrate on their core-competencies. The bank offered array financial services on bank transaction services, corporate financial services and treasury market services. Because of Citibanks e-business strategy, most corporate banking clients desired to have integrated systems that could offer them maximum convenience and efficiency. They began to view services regarding the efficiency and effectiveness offered by e-banking. On the competitive landscape, Citibank was forced to determine what the firms were anticipating and looking for and keep up with the customers/ clients needs.

The internet and hence e-banking resulted in corporate banking customers viewing paperless banking as a necessity. Avoiding paperwork in banking became a necessity for increasing efficiency and effectiveness in service delivery. Most corporate banking clients indicated that online offerings represented an important component of their banking relationships.

Similarly, it forced the banks corporate banking to offer more complex e-business solutions. With the increased use and demand for online banking services, customers developed needs that are more sophisticated, the banks, on the other hand, were compelled to keep up with these needs of customers. Existing as well as potential e-banking clients were looking for methods to integrate and improve their payment processes. The customers were becoming more concerned with technological solutions that enabled them avoid payment disputes and hence the information flow was deemed as important as the process itself.

Furthermore, the internet led to the emergence of collaborations between multinational companies (MNCs) with Citibank to develop innovations in e-business. Bank-to-corporate connectivity was regarded as the biggest challenge in making it possible to have straight-through processing and cash management across borders. Corporate customers could access SWIFTnet in 1999, enhanced in 2002. In 2007, a legal model of SWIFTnet called Standardized Corporate Environment (SCORE) was introduced. With increasing need for security and authenticity of these connectivity models, using standards to reduce costs became a cooperation space rather than competitive space. However, since most MNCs were impatient with web-enable financial products, they began to build their systems and find ways to cut-off bank intermediaries. Other institutions though approached the bank and made their intention to corporate in future developments. In this way, the internet led to the emergence of competitions or rather collaborations between MNCs and Citibank to come up with e-banking and other business solutions.

How Citibank successfully converted its traditional money management business into an e-business

While responding to stiff competition and dot-com boom in 2000, the bank undertook to provide incorporated solutions that made it possible for online customers to undertake business online. The e-business strategy was founded on three pillars (connect, transform and extend). Its aim was to develop a single web-enabled platform for all its clients to access its services. It targeted various corporate customers like Multinational corporations (MNCs) that needed customised host-to-host product services, and Small Medium-sized enterprises were deemed conservative and not ready to adopt we-based solutions. The bank undertook to come up with systems that integrated its basic repeatable activities and processes.

The companys strategic aim was to change its money management system from traditional to an e-business framework. As Michael Porter puts it, there are two main ways in which a firm or business may compete, and that is on the cost advantage or differentiation of its products. Citibank competitive strategy was not based on price but rather on product differentiation through e-business. The company based its differentiation on the nature of service they offer to its customers. Initially, it involved offering their customers hotlines, relationship managers that comprehended their requirements and experts in products that offered expertise in service as well as continuous investment in inbound and outbound e-banking.

The banks also regionalized its processes by bringing together all records centers in each region/country and moved them to Singapore where integrated data solutions were developed. It also integrated the web to businesses by developing safe databases to the processing of transactions. Similarly, the bank developed straight-through-automated systems that included SWIFTnet and Standardized CORporate Environment (SCORE). These intelligent programs were aimed at making it easier, cheaper and less risky for corporate customers change between banks and improve the legal framework of the models. SWIFTnet was introduced in 1999 and used until 2007 when most big corporate clients started using a new legal model to access SWIFTnet that was known as Standardized CORporate Environment (SCORE). The SCORE model could enable a corporate client to get access to all the participating financial institutions that had only one agreement in place.

Furthermore, the company achieved change from traditional to digital transfer of assets through collaborating with service providers in the industry in for of strategic alliances with the likes of Oracle and Commerce One Inc. The company had tried to invest in technology earlier on its own but failed terribly. In 2000, the company changed approach from individualized approach to using strategic alliances to developed technological infrastructure required to penetrate markets and satisfy the demands of its customers.

Issues should Citibank take into account to ensure successful implementation of transformational process of traditional to digital assets

The bank needs to consider some issues to ensure successful implementation of its transformational process. These issues are discussed below. To start with, the bank needs to focus on the foreign exchange transactions, equities, deposits, settling of trade transactions and insurance policy payments during e-business implementation. In addition, the bank needs to monitor its operational expenses against revenue. For instance, the banks revenue grew by 8% from 2005-06 but its operational expenses increased by 15%. Similarly, in April 2007, the bank announced a turn-around of its ICT operations and 17,000 positions were lost in the process. The process was aimed at saving the company over 10 billion US dollars in three years from then. Furthermore, the bank needs to follow SCORE intelligent model to guarantee successful implementation of traditional to digital assets. Most corporations began making using the SCORE; a legal model to access the existing SWIFTnet. The SCORE model could make it possible for corporate customers to access participating banks that had only one agreement in place. The model also has stipulated rules for information and messages that could be shared within SCORE framework.

The company also had to keep or improve its differentiation approach to competing in the market. Given the fact that the companys differentiation is based on customer service, changing from traditional to digital assets has to maintain at a level that is responsive to the present and future customer demands. The same has to be done at a higher degree of competition in mind.

How Citibank protect its clients from its strategic partners

From the year 200, the company embarked on alliances to be able to make use of the partners and strategic alliances strengths. However, the company has had challenges in managing their clients. The company has tried some things to enable them to manage vendors and suppliers while preventing exploitation of its clients....

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