Citigroup--Once The Deals Are Signed, Technology Must Create
In business, as in life, it is seldom the safe bet that garners glory. More often than not, it is those who take risks, attempting to advance before success is clear, who leave the fray, leading the pack.
When Citicorp (parent of Citibank) decided to merge with Travelers Group (parent of Salomon Smith Barney, Travelers Life and Annuity and Primerica Financial Services) to form Citigroup back in 1998, cultivating the potential synergies of the deal was, technically, against the law.
Still on the books was the anachronous Glass-Steagall Act, (or Bank Act of 1933) put in place to remedy the tenuous diagnosis that banks involved in the securities industry had helped hasten their post-crash demise by being engaged with a rather fickle partner-the stock market (over 11,000 banks or 40 percent of the banks in the U.S. had failed when the Act was passed).
That wall between the banking and securities industry was still in place when the Citicorp/Travelers deal was signed in anticipation of the act being swept away within the following five years.
It only took one.
In November of 1999, President Clinton signed the Financial Modernization Bill into law, replacing Glass-Steagall with the Gramm-Leach-Bliley Act. The executives of Citigroup were suddenly in a position to merge-truly merge-the disparate pieces of their vast empire, covering almost every aspect of the financial services realm. Citicorp had gambled and won. Citigroup now had to make it work.
"It's one thing to bring these firms together, it's another thing to bring their technology together," says Rob Hegarty, director of investment management technology research with TowerGroup, a research company specializing in the impact and direction of technology within the financial services industry. "It's an entirely separate effort."
Before, however, a technology integration plan was devised, Citigroup had to review the major objectives and goals behind its merger. The first was the belief that a large number of customers were desirous of a one-stop-shopping financial services supermarket where they could easily obtain information and make purchases related to everything from banking to brokerage to insurance, transfer money between accounts and access a portfolio-wide view of their financial holdings.
A second major goal was constructing and connecting customer-database systems (in a permissioned environment-Citigroup boasts a strict privacy policy) so that targeted cross-selling within and across business lines became a reality. "The real game here, the end game to all of this and the reason firms are big on convergence is the cross-sell opportunity," says Hegarty, "so the way the technology can leverage the cross sell is really through finding relationships between the different stores of data they have." The theory goes that a new Citibank auto-loan customer would automatically receive information on Travelers' auto insurance.
A third objective was that, rather than having to look outside for their technology and processing needs, Citigroup companies would be able to leverage each other's systems and strengths-think of using your cousin's washing machine rather than going to the Laundromat and paying somebody else.
Steve Clifford, a managing director with Salomon Smith Barney (SSB) involved in interactive marketing, knew the make and model of the washing machines at Citibank because he had worked there until joining Shearson Lehman Brothers in 1991. Shearson's 1993 combination with Smith Barney, followed by a number of mergers, acquisitions and corporate name changes brought Clifford and Citibank back into the same family when the Citicorp/Travelers deal was signed.
"Because I have that experience at the bank Citibank, I knew about a lot of crown jewels back there so I took advantage of them right away," says Clifford. Specifically, Clifford incorporated the bill-pay system used by Citibank Online into SSB operations. Additionally, SSB has developed a financial management account (FMA)-a banking and brokerage account against which customers can use a debit card (ATM) and write checks. The checks and ATM card, in turn, have bounce protection based on the margin-loan capabilities of the associated brokerage account. "So, we are covering brokerage and banking with a single sweep in one account," says Clifford.
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