Making Borders Disappear
Citibank Asia-Pacific pushes centralization from Turkey to Guam
By Clinton Wilder
Issue date: Feb. 27, 1995
George Dinardo is bringing his own version of Western culture to the Asia-Pacific region. DiNardo, chief technology officer at Citibank N.A. Asia-Pacific Consumer Bank, has adopted the motto: "All for one, one for all!"
The Three Musketeers would be proud. For nearly a decade, companies have wrestled with the challenge of consolidating back-office processing to one location and freeing up business units to develop money-making products and services. But few have tried anything on the scale of Citibank's four-year, $200 million project to bring processing from 15 Asian nations under one roof in the city-state of Singapore.
Crunch Control
Citibank Asia-Pacific's ambitious goal: standardize its consumer-bank processing and products across the diverse cultures of the world's fastest-growing business region. With operations spanning the Pacific Rim from Turkey to South Korea to Australia, Citibank intends to let its Singapore headquarters control mainframe data-crunching. At the same time, bank operations in individual countries will become "centers of excellence" that develop retail-banking products and associated information technology (IT), most of it based on client-server systems, for use in the region.
"The global nature of Citibank banking will be reinforced in Asia," says DiNardo, a former top information systems (IS) executive at Mellon Bank N.A. and InformationWeek's 1988 Technology Chief of the Year. DiNardo moved to Singapore when he joined Citibank Asia-Pacific in October 1993. "We don't want 15 countries developing 15 versions of the same product," he says. "The priority is delivering our products to market in half the time. The fact that we're going to save a fortune is secondary."
Under DiNardo's two-pronged approach, Citibank Asia-Pacific will standardize and centralize back-office functions such as check processing, savings and time-deposit record-keeping, loan processing, and general ledger in Singapore.
Individual countries will develop strategic, "touch-the-customer" business processes and software applications that they'll share with Citibank operations in Asia. Australia and Hong Kong, for example, will be centers of excellence that operations in other countries will turn to for systems such as home banking by telephone. Similarly, Citibank India is developing on-site loan-processing terminals for car dealers that will be extended to the entire region.
"This degree of centralization is a huge step to take in Asia," says Ajit Kanagasundram, Citibank Asia-Pacific's Sri Lanka-born IT director. "George [DiNardo] came here to do what a lot of U.S. banks have done, but this is a bigger geographic spread. For anyone else to reproduce our infrastructure would be difficult."
Equally difficult to match will be Citibank's estimated three-year return on its $50 million investment in new mainframe hardware and software. Roughly $20 million will buy a suite of mainframe back-office applications from Systematics Inc. in Little Rock, Ark., including its Financial Management System general ledger, Impacs check processing system, and Customer Information File customer records systems.
Citibank will run the Systematics applications on a massive IBM ES/9000 model 821 mainframe that tickles self-described "big-iron bigot" DiNardo pink. The machine will operate in a Citibank data center opened last October in Singapore's Science Park. For hot-site backup, Citibank runs an IBM ES/9000 model 500 in Singapore's Chai Chee Industrial Park.
Driving the bank's massive technology overhaul is an ambitious business goal: to be Asia's largest and most efficient global consumer bank. That goal builds on a global vision of consumer banking that Citibank already has succeeded in implementing, says Laura Stuart, president of Stuart Research, a consulting firm in Cambridge, Mass. "Citibank is one of the very few large banks from any country that has achieved retail success in countries outside its own," she says.
Bucking The Trend
Most banks attempting overseas consumer ventures tend to partner with a local bank. Stuart cites National Australia Bank Ltd., the Royal Bank of Scotland Group Plc., and Allied Irish Banks Plc. as examples of banks with partners in the United States. But Citibank is bucking the trend by establishing its own brand name in local markets.
Citibank wants to be the provider of choice for newly affluent consumers in nations such as Malaysia and Indonesia, who often travel abroad on business or vacation. It wants to provide them with regional debit cards that can be used in any country--with the cardholder's native language automa tically appearing on the automatic teller machine screen no matter where they are. Citibank Asia-Pacific also wants to become the regional leader of the fast-growing credit-card business. Citibank, already the largest issuer of credit cards in Asia outside of Japan, is the only U.S. bank with a worldwide consumer banking business. In 1989, it offered two credit cards in three nations; by 1994, its product line had grown to nine different cards in 10 countries.
Progress Noted
Citibank's regional centralization strategy is already bearing fruit. The bank beat out Hong Kong Bank in 1993 to become the issuer of affinity Visa and MasterCard for Passages, a joint frequent-flyer program of Singapore Airlines and Cathay Pacific Ltd. It won the contract despite very close business ties--such as executives sitting on both boards--between Hong Kong Bank and Cathay Pacific. "The fact that we have centralized credit-card processing made the difference," says Citibank's Kanagasundram. "Our ability
to roll out a product across the region gave us a business advantage."
Citibank's Asian business practices boil down to "do it bigger, and do it cheaper." That means taking advantage of economies of scale, which the bank does with its Visa cards. In 1989, Citibank issued Visa cards in just three Asian countries, its annual Visa revenue was $57 million, and it calculated its annual processing cost per Visa card at a relatively high $23.10. But by mid-1994, Citibank had expanded Visa cards to 11 Asian countries, and revenue had increased to $1.6 billion. That helped the bank cut its annual cost per card to just $7.38-and boosted the profit on Asia's Visa operations to $120 million.
Profits like that inspired Citibank to push credit cards heavily in the region. Although sign-up and annual fees vary from country to country, most Asian consumers pay a hefty price for the privilege of plastic. "The Asian cultural fear of losing face is a basis on which we sell," says John Harding, Citibank Asia-Pacific's manager of systems and programming. "If your colleague has a credit card, you need to have one too." Beliefs like that, Harding estimates, help the bank turn a profit of $40 on every Asian card, compared with $30 in the United States.
To support business initiatives like that centrally, Citibank faces the daunting task of converting each Asian operation's core back-office applications to the Systematics software in Singapore. Between now and a target date of August 1998, 14 of the region's 16 countries will shift to the Singapore data center on a staggered conversion timetable. Countries with their own IBM mainframes will go first and will be followed by AS/400-based operations. The countries that will convert are those with Unix-based operations. The two exceptions are Citibank Australia and Citibank Japan. Australia, which had used a Unisys Corp. mainframe as its host, completed a conversion in December. Citibank Japan is an autonomous operation reporting directly to Citibank global headquarters in New York and will not convert its processing to the site in Singapore.
Surprisingly, Citibank managers in Singapore say the most formidable barriers to centralization are not cultural, but technological. Despite strong national differences and initial resistance, Citibank business managers in Thailand, for example, now are willing to use the core software and business techniques developed in Hong Kong for mortgage processing in their own country. Says Australian Peter Mills, a Citibank Asia-Pacific VP: "My experience on the international staff here is that countries like to take [as operational models] successes from other countries."
One significant factor will work against Citibank's plan to save money by consolidating its data centers: Telecom expenses in Southeast Asia are 11 times higher than in the United States, according to DiNardo. The reasons? Among others, government regulation and virtually no competition.
"There's no MCI over here," says Dan Hartman, a Citibank VP. Although some Asian provi ders, such as Telecom Malaysia, are undergoing gradual privatization efforts, most remain government-owned and highly regulated.
Cost Of Doing Business
That means a hefty bill as Citibank ships data from 15 countries to and from Singapore over the bank's IBM SNA (Systems Network Architecture) backbone on mainly 64-Kbps international leased lines.
"International banks traditionally have wanted each country to be standalone and self-sufficient," says Stuart of Stuart Research. "Citibank is going counter to conventional wisdom." The bank is also betting on the continuation of deregulation, increased technology know-how, and lower telecom rates. It's a pretty safe bet; recently, Singapore Telecom announced it would cut rates by 15%.
Banking on long-term trends is really what Citibank's massive Asian centralization and business-processes standardization is all about. As what global economists refer to as the Asian Century approaches, DiNardo and his staff want to ensure that the Uni ted States' largest bank is positioned to be a truly global player in worldwide consumer banking.
"Citibank was successful in Asia as a decentralized operation, but we can't keep doing that if we want to offer new products and services quickly enough in the future," says Chile native Sergio Arenada, a Citibank VP responsible (along with Hartman) for converting six AS/400-based country operations to the ES/9000.
"Citibank always thinks five to eight years out," Arenada adds. "In a region growing this fast, we need to expand quickly to capture new markets and market share."
Now if technology chief DiNardo can just learn to say 'En Garde!' in Chinese.
Photo: Lee Chong Hui
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