By David Henry
NEW YORK (Reuters) - Citigroup Inc has plugged into tens of thousands of outside vendors' cash dispensers across the United States this year, part of a plan to cut costs and entice customers after closing hundreds of branches.
It signed up with major U.S. ATM network Allpoint, continued using another, MoneyPass, and now retail customers can access their money, fee-free, at 64,000 machines in assorted stores across the country with a Citi smartphone locator app.
Before Citi fully-embraced that strategy though, it asked customers what they most wanted from a bank that they could not get from smartphones, which customers are increasingly using for payments, checking balances and making deposits.
The answer, Will Howle, Citi's president of U.S. retail banking, said, was access to cash when and where they need it. They have little interest in fancy machines in stylish branches, he said in an interview.
"As we were reducing (branch) locations, we were actually increasing access points through ATMs," he said. "People still want cash and when you need it, it is in the moment."
Analysts say it is unclear whether the strategy will deliver the kind of brand loyalty - just 4,300 of the 64,000 cash machines will have the Citi logo - and profits that Citigroup needs, but it is practical.
"For Citigroup to leverage its ATM network with digital banking to be a super branch-light, national banking player can make sense," said Wells Fargo bank analyst Mike Mayo. "How well they execute it remains to be seen."
Decades ago Citigroup boasted one of the most advanced networks in the industry. During a fierce 1978 snowstorm, its New York City customers could access cash while many rivals kept branches closed, generating a marketing slogan: "The Citi Never Sleeps."
However, the bank was so hobbled by the 2007-2009 financial crisis that it all but disappeared from much of U.S. consumer banking outside of credit cards.
Citi now operates 695 branches in six major U.S. cities, down from just under 1,000 branches in 2013. It has far fewer than big bank rivals such as JPMorgan Chase & Co and even regional lenders such as Huntington Bancshares Inc. [GRAPHIC: http://tmsnrt.rs/2AdO1IM]
Building standalone ATMs – which cost about $50,000 to $100,000 per machine, according to banking consultancy Novantas Inc – would be prohibitively expensive for Citigroup, which is working to cut costs while increasing revenue to meet financial goals for 2020.
And the expense might be for naught with cash machines gradually losing relevance. "Owning machines, depreciating them and shutting them down is very expensive," said Novantas consultant Kevin Travis.
Citigroup would not disclose the costs of its new agreements.
Using external vendors can be 25 percent cheaper than operating proprietary networks because the expense of installation, repair and restocking cash is shared with others, said Brian Bailey, managing director for North America at Cardtronics PLC, which owns Allpoint.
The lower-budget expansion has some drawbacks. Citi had to remove several thousand cash dispensers from its locator app until they were brought up to the bank's standards, Howle said. The shared machines also do not give Citi a chance to promote its own products in gleaming boxes of new-fangled technology.
While most of the machines are in pharmacies, convenience stores and fast-food restaurants, Reuters found a handful where some customers might not feel comfortable, such as a Manhattan massage parlour called the New Paradise Men's Spa.
But Howle said Citi expects to draw in more depositors as they become aware of how ubiquitous its cash dispensers.
Rivals such as JPMorgan, Bank of America Corp and Wells Fargo & Co have tended to gain market share as they have maintained their large physical footprints across the country and shown off new ATMs that can, for instance, dispense cash with the tap of a smartphone.
But even JPMorgan is experimenting with shared networks. It now offers access to some 13,000 Cardtronics machines with a new digital account called Finn by Chase.
Greg McBride, chief financial analyst for Bankrate.com, said Citi's move makes sense.
"Citi has got a very limited branch network, but they're very much a national brand," he said. "There's a hole that has to be filled."
(Reporting by David Henry in New York; Editing by Lauren Tara LaCapra and Susan Thomas)