FRAMINGHAM (06/30/2000) - Citibank confirmed this week that it has decided to close its online-only bank, Citi f/i, and to fold some of its features into the online arm of its regular banking service.
According to Citibank spokesman Mark Rodgers, a deadline for closing Citi f/i and incorporating it into the company's mainstream banking operations hasn't been set yet.
"What we're doing now is taking the best features of both of these services and combining them into one," he said.
Citibank has about 450,000 online customers, most of whom use Citibank's Direct Access service - not the stand-alone Citi f/i. Its customers are offered better prices on banking products but don't have access to Citibank's physical branches.
"Some customers are comfortable dealing with us on the Internet alone, and we will continue to offer them that option," Rodgers said. "But most clients also want the ability to tap into our financial centers."
Industry observers were divided on whether Citibank is doing the right thing.
"I would have liked to see [Citi f/i] continue," said Brook Newcomb, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. "They really should stick to their guns on this."
Newcomb said independent online banks have an advantage over bank-affiliated Web sites because they can offer not only lower prices due to their lower overheads, but they can also offer products from a variety of vendors.
John Reed, who retired from his position as Citigroup Inc.'s chairman in April, recently told a gathering of financial industry executives that banks are not going to be able to survive in the new economy by integrating the Internet into their existing business models.
Instead, he said, companies should start new online ventures, hand over their brand names and customer lists and then stand back.
Citi f/i was one of Reed's projects. Another project he said he admired was WingspanBank.com, Bank One Corp.'s Internet-only venture.
"I thought it was a good idea," he said. "But it lost momentum."
Bank One CEO Jamie Dimon recently said he was exploring "all options" for WingspanBank, presumably including a spin-off or sale.
Although many question Citibank's move, others say they see Citi f/i as a failed experiment.
"Now, from an efficiency and effectiveness standpoint, the goal is to converge," said Lee Spirer, head of the financial services practice at Internet strategy firm Mainspring Communications Inc. in Cambridge, Massachusetts. "To get more leverage out of the existing brand and platforms, the physical and online worlds have to merge."