When it comes to credit card rewards, I am as bad as the next guy (or gal). Perhaps, even worse. When Discover declares a 5% kicker, as they do this quarter with gasoline, Uber, and Lyft, I shift everything in those verticals to the Discover It card. When Chase counters in the same period that Freedom Card will have a 5% bonus at grocery stores and home improvements, the same thing happens, except by default, my American Express Blue Cash Preferred pays 6% at grocery stores, so I do not shift that spending, but be certain Home Depot will be seeing me whip out my Chase Preferred card. Call me a rewards chaser, but it works for me. Points shift my spend, and I don’t care who does not like it. I am cheap and will even put a Post-It on my wife’s credit card so she can keep this in order and not miss a cash-back bonus.
Citi, the grand-father of bank card rewards faces an issue in their retail banking area, as Bloomberg reports today. According to their recent reporting, deposits are down. Deposits are essential for banks to run because they improve funding. Citi helped build their business on a rewards program with American Airlines, which has been successful for almost 40 years. Can this help?
- As the world’s biggest credit-card issuer, Citigroup Inc. has enough plastic in American wallets to tile a path from its New York headquarters to the southern tip of Florida.
- Yet many of those 28 million clients park their savings elsewhere.
- The gap between Citigroup’s credit-card strength and the rest of its retail banking franchise has grown starker in recent years: Citigroup’s deposits from U.S. consumers shrank by $5.4 billion in 2017 and 2018 as a slew of competitors launched or expanded digital platforms. Goldman Sachs Group Inc., for example, has amassed tens of billions of dollars in retail deposits, mostly from the U.S., since opening an online bank dubbed Marcus in 2016.
Bloomberg supports their argument with a chart that illustrates how Goldman’s Marcus account in Q42016 impacted Citi’s growth in deposits, and how numbers continued to fall as Citi introduced their digital bank. Citi’s numbers are rebounding, but they now are running up against JPMC’s Sapphire Banking, a direct competitor.
- Citigroup’s strategy shows the advantages that large traditional banks wield as they look to fend off disruptors chasing billions of dollars in annual revenue. While new entrants have proven it’s possible to snap up customers with lower-cost technology, giant banks have ample resources to roll out counter-offers, as well as relationships with millions of Americans and decades of data on their habits.
Good luck to Citi as they build a retail-based rewards program. They did it before and can do it again, though the mantra must be compelling.
In the meantime, as we move into Q3 in 6 weeks, prepare for the Discover point shift to Restaurants and PayPal and Chase’s next announcement, but nobody will pry my 6% Amex reward card for groceries, at least until someone offers 7% cashback!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group