Citibank OnlineIntroductionHistoryThe Service OfferingCitibank OnlineIntroductionMark Parsells, President and the Chief Operating Officer of Citibank Online, is responsible for Citigroup’s online banking strategy and implementation. Prior to his arrival at Citibank, several different strategies had been pursued and with multiple Internet-based products launched. While Citibank had demonstrated a commitment to developing an effective Internet presence and a willingness to experiment with Internet strategy over the previous two years, Parsells knew that the bank would soon expect positive and demonstrable returns on the large investments made thusfar. In addition, his strategy and its subsequent execution needed to prepare Citibank for long-term competition with an increasing number of entrants with novel business models and strategies, many of whom lacked short-term profit expectations. The following questions direct his efforts:- What is the right mix of price, service, online access, and physical presence?- What is the right positioning for the online service, and on what terms or features would they compete?- In what ways was a large and profitable bank with millions of accounts helpful to establishing a competitive online service in this space, and to what extent was it a liability? What assets could be leveraged, and what legacies needed to be overcome?- Is Citibank Online evaluating its success with appropriate metrics?HistoryCitibank’s initial online consumer products took two forms: Direct Access and Citi F/I. Direct Access was essentially a version of Citibank’s old dial-up PC banking service retrofitted for the web. The primary purpose was simply to provide accountholders with basic information regarding their accounts. Citi F/I was an Internet-only bank. It was a separate organization within Citibank with the expressed purpose of dis-intermediating the traditional banking business.The brick and mortar division was thought to be too old, too slow, too big, and too burdened with existing systems and processes to offer a competitive and compelling online offering. Also, basedon reports from such research firms as Jupiter that predicted 400% annual growth in online banking, Internet pure-play banks were likely to attract large amounts of capital and huge valuations. With these advantages, and accepting that Internet-only banks were the future of the banking industry, Citi F/I hoped to ultimately put the traditional bank out of business, cannibalizing Citibank’s accounts before another online entrant did so.Citi F/I, the group’s initial consumer online banking product, began development in June 1997 with John Reed, Citigroup’s former Chairman and Co-Chief Executive Officer as its champion. After more than two years of development, Citi F/I was launched to the public. In comparison, Wingspan.com, an online competitor launched its service five months after development began. Initial public reception for Citi F/I was lukewarm. Other online banks had also discovered that the initial market predictions were overly optimistic, and found attracting account holders difficult.After interviewing with CitiGroup’s top Internet management, including Reed, Parsells was hired in February of 2000. Arriving for his first day at Citibank on February 28, 2000, he faced a difficult situation: Reed, the spiritual leader of Citigroup’s Internet vision which had attracted ___________________________________________________________________________________________________________This case was prepared by Ben Gibbon under the supervision of Professor Glen Urban. The case was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright c 2000 by the Massachusetts Institute of Technology Sloan School of Management.- 1 -Parsells, announced his resignation on that same day. Clearly, big changes were likely for Citibank’s online consumer division. In addition to Reed’s resignation, the current banking product was not meeting expectations, and the attitude towards the overall Internet efforts of Reed’s Internet division e-Citi was one of resentment from some of the line groups. Regarding banking specifically, general consensus was that the Citi F/I project had taken too long, cost too much money, and generated little in return. Prior to Citibank, Parsells had worked at Wingspan.com, one of the online banking divisions of BankOne. At Wingspan.com, he was the head of strategic planning and business development and General Manager of the Wingspan Marketplace, Wingspan’s group that sold loan and insurance products. Like Citi F/I, Wingspan.com was a separate entity from its parent firm, and for many of the same reasons cited for Citi F/I’s separation: Existing processes, metrics, incentives and personnel would make it difficult for the existing bank to implement an effective online strategy at “Internet speed”. While Wingspan.com was more effective developing and launching its service, it too was unable to attract the numbers of new accounts its market researchhad suggested was possible.Through his experience at Wingspan.com and with the help of new or revised research, Parsells concluded that the price-based Internet-only model was fatally flawed. The Internet-only banks were based on research of online users in 1997 and 1998. Users of these banks rarely doubted theInternet’s security, despised going into branches, disliked “old economy” brand names and made choices primarily by price. New online customers, however, that came online in 1999 and 2000 were very different. Their needs were almost the opposite of the “early adopters”. These customers wanted a trusted, traditional brand to keep their personal information secure, remain financially solvent, protect their assets, and deliver great customer service. They also wanted access to their accounts across multiple channels, including the Internet, phone, branches, ATM and interactive voice response (IVR). Convenience and value, defined as easy access to all accounts in one place and services like free electronic bill payment, were more important to these customers than price alone.Competitive EnvironmentThe online banking industry took essentially two forms: Traditional Banks offering access to accounts over the Internet, and pure-play or Online-only banks.Traditional BanksThe Traditional banking sector is