Strategy:The Potential Of e-banking

Citibank's Suvidha gambit has been a success so far. A look at how the bank's online thrust paid off.

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It's the kind of statistic that would make Scott McNealy of Sun Microsystems flash his famous toothy grin: it would normally take a bank eight middling brick-and-mortar branches to manage the 180,000 accounts Citibank's Suvidha has totalled up in two cities, Bangalore and Mumbai. Citibank does this with a couple of call centres (two to be exact, and these are shared with the card call centres), two front-offices to satisfy customers who insist on a physical interface, and a high-end Sun server at Chennai which crunches through transactions at the speed of light.

By all accounts (oops! Didn't mean to pun), Suvidha (Hindi for convenience), which started off in Bangalore in early 1998, as an experiment in what Citibank terms 'new millennium banking'-Philadelphia was the other 'lab' chosen-is a success. Executives claim that the bank had broken even in Bangalore by March 2000, when the number of accounts crossed 120,000. The bank's efforts to encourage customers to interact with it electronically-using telephones, internet, and Automated Teller Machines (ATMs)-had worked.

The underlying logic about an electronic transaction costing as much as 66 per cent less than a physical one (even in a country like India where even skilled labour isn't really scarce or expensive) seemed sound. As did the bank's business strategy: with an array of services (See Making Things Easy) and a low minimum-balance requirement (Rs 1,000 as opposed to Rs 100,000 in the case of Citibank's normal savings accounts) Suvidha would attract deposits. These would cost the bank 4.5 per cent, but could be loaned out, earning interest at anything between 12 per cent (in the case of loans to blue-chips) and 19 per cent (in the case of personal loans). As Nanoo Pamnani, the 55-year-old CEO of Citi's Indian operations puts it: ''Suvidha is part of our strategy to broadbase our offerings in India.'' Increased volumes and the lower cost of transactions, the bank believed then, would more than make up for slimmer margins.

Thirty-four months, 150,000 accounts, and a deposit-base of over Rs 500 crore later, there's nothing to prove that Citi's strategy in Bangalore hasn't paid off. ''The potential of e-banking is huge,'' says H.N. Sinor, the Managing Director of ICICI Bank, another aggressive player in the electronic banking segment. ''With the increase in connectivity, the number of users will explode.''

To cash in on this boom, Citibank launched Suvidha in Mumbai in July and in Delhi in October. In an effort to build its customer base in the least possible time and at the lowest possible cost, the bank is focusing its efforts on bulk (customer) acquisitions through companies (almost two-third of Suvidha's 150,000 customers in Bangalore were acquired thus). In five months, Citi's sales team has roped in 80 companies in Mumbai (15 in two months in Delhi).

Scalability shouldn't prove a problem. The Sun server in Chennai, which came at a cost of Rs 10 crore, has an awesome processing power and leaves little need for an upgrade. And scaling up in terms of other infrastructure like ATM controllers, call centres, and switches shouldn't pose a problem for Citibank. The front-end could prove a trifle more expensive. Each ATM outlet sets the bank back by Rs 34 lakh, and each swiping machine it provides to the merchant establishments who accept Suvidha debit cards (there are 6,500 of them) costs Rs 35,000.

Exults a confident Deepak Chadnani, who heads the Suvidha project: ''In both cities we are on track with the original plan and shall touch 150,000 customer base in each city in one-and-half years.'' Still, that may not be easy as it sounds. Competitors like HDFC Bank, ICICI Bank, and HSBC are eyeing the same target segment Suvidha is. Avers Neeraj Swaroop, Country Head (Marketing and Retail Assets), hdfc Bank: ''Things are different now. In Bangalore, Citi had no competition. Now, many of us are well entrenched in the market. It's not going to be a cake-walk for Suvidha.''

That's a fact: both in Mumbai and Delhi, early starters ICICI Bank and HDFC Bank have managed to establish themselves. ICICI Bank, for instance, has 225,000 customers, 59 ATMs, and 12 physical branches in Mumbai; 325,000, 56, and 12 in Delhi. And hdfc Bank has already gobbled up 225 corporate payroll accounts in the two cities have 37 branches, 53 ATMs, and three lakh accounts.

Citi could also find it difficult to differentiate its offering from those of its competitors. A Suvidha customer has access to a range of online services line trading in shares online using the services of e-brokers affiliated to the bank, buying the units of specified mutual funds, and availing a loan. Only, both HDFC Bank and ICICI Bank also offer these services. And like the Suvidha ATM card, HDFC's too doubles up as a debit card. An undaunted Chandnani says: ''We are already offering a bouquet of useful services and shall keep on adding to it.'' He's silent when asked about Suvidha's next destination, but BT learns that it could be a destination (or destinations) chosen from Chennai, Calcutta, Hyderabad, Pune, Ahmedabad, Baroda, and Jaipur. Can Suvidha succeed in a competitive environment characterised by several me-too offerings? It could: both Sinor and Swaroop are quick to point out that the potential market is big enough for many banks to dip into. But till that happens, like the Citi, Pamnani, and Chandnani will never sleep.