Citibank Recharts Its Technology Course

The bank whose proprietary technologies were the model for today's most fundamental banking systems makes a 180 degree turnaround to fashion a major outsourcing strategy. It's a grand, evolving scheme expected to proceed unabated despite plans to merge with Travelers Before last month's torrent of news coverage gushed from the audacious Citicorp/Travelers merger announcement, there had been a quieter revolution occurring within Citibank, not nearly as thunderous but equally radical. For 30 years, Citibank was a technology hothouse, a place where the not-invented-here mentality reigned supreme, where many of today's leading financial technologists got their technology training-foremost among them Citibank chairman and chief executive officer John S. Reed. The bank is credited with inventing or rolling out on an unprecedented scale such now-ubiquitous banking technologies as branch-wide networks of automated teller machines, credit card authorization systems, electronic payments networks, and transaction processing systems. But in the last two years-especially the last two months-Citibank has begun to unwind its centralized technology bedrock, estimated to cost over $1.8 billion annually-the highest in the industry-in favor of a more decentralized technology organization. Of all financial services organizations who have structured major technology outsourcing strategies in the last several years, perhaps most fascinating to observe is the standards-based technology outsourcing strategy now unfolding at Citibank. What makes this story even more interesting is that Citibank climbed to world prominence, and Walter Wriston became, along with J.P. Morgan and Bank of America founder AP. Giannini, one of history's most important bankers chiefly because of Citibank's in-house technical organization, its proprietary technologies, and the deployment of those technologies to achieve a custom business strategy. Citibank's new outsourcing strategy, if not yet cohesive, is at least beginning to take shape. It's a strategy that will likely continue independent of Travelers and Salomon Smith Barney for some time to come, industry observers agree, despite-or because of-the merger's girth, raison d'etre, and the technological sophistication of all three organizations. Genesis of a strategy Citibank is redirecting much of its technology spending to outside IT organizations who provide commercially available, nonproprietary software applications for specific business processes and manage systems for data distribution, transaction processing, voice, and imaging services-freeing up the bank to focus on banking-not technology-competencies. In March 1998 Citibank tapped AT&T Solutions to consolidate 11 disparate data networks the bank uses into a single new, state-of-the-art network owned and managed by AT&T, a deal valued at $750 million over five years. It was the single, largest networking outsourcing agreement in the banking industry to date. Then, last month, Citibank was on the verge of signing a multi-million deal to buy electronic mail software to transmit massive data files over the AT&T network to Citibank offices in 98 countries. The deal had not yet been sealed, so Stan Welland, Citibank's technology infrastructure chief, would not reveal the seller. But sources say it's likely to be Microsoft because Microsoft's Exchange email product is the only industrial-strength package compatible with AT&T's data network-as yet, though Hewlett-Packard's Open Mail product may be next up on AT&T's network. These deals come on the heels of an $889 million restructuring chargeCitibank announced late last year for global operations and technology consolidation and standardization, reconfiguration of front-end distribution processes, and outsourcing various technological functions, the company disclosed. It will eliminate a net 7,500 jobs, or 8% of its workforce over the next 12 to 15 months, and payback is expected to be achieved within two years. …