We are one decade into the so-called crypto revolution, the one that original crypto zealots in their hay day claimed would eventually replace the traditional banking environment and return the control of money to the people, or so the early rant went for anyone that listened. The truth was that no one expected these events to take place, but everyone has expected the banking community to one day embrace all things crypto, but as major banks have joined fray, one major name has been missing – Citibank.
JPMorgan and its outspoken CEO, Jamie Dimon, have been both demonstrably hot and cold when it comes to the crypto ecosphere. Dimon has called cryptocurrencies a Ponzi scheme and one that, for investors, would end badly. Then, lo and behold, his bank announced the “JPMCoin”, an innovative blockchain flash that would transform the economics of cross-border payment flows and accelerate the bank’s plan for a better, cheaper operating system that would benefit both the bank and its worldwide clients.
The “JPMCoin”, however, would be an internal “instrument” that would enable greater efficiencies, but would never be something the consumer would see or use at the point of sale for general retail purposes. While the attention of the press, analysts, and the crypto community was focused on JPMorgan, Citibank was silent in the wings, without any comment on the foregoing or on its crypto research to date.
The truth is that Citi had been studying the nuances of blockchain technology and whether the use of cryptocurrencies could improve its operating profitability since 2015. In a recent interview, Gulru Atak, one of Citi’s global heads of innovation, admitted that Citi had been conducting research for some time in the background to determine is cryptos or blockchain technology or both could produce ”meaningful improvements in the existing rails.”
At the time, the project was given the name of “CitiCoin”: “The digital asset, which was nothing more than a proof of concept created by Citi’s Dublin innovators, was once internally touted as a way to bolster global, digital-based payments.” After considerable time and study devoted to the project, the development team eventually decided to back away. Their conclusion, based on Citibank’s unique positioning in the correspondent network of global banking, was that there were better ways to achieve the efficiencies that the team desired, i.e., to “improve the existing [payment] rails.”
Atak explained: “[CitiConnect’s goal] was purely to integrate into a blockchain-enabled system on our client’s end and make it connect to our legacy payment processes real-time… Based on our learnings from that experiment, we actually decided to make meaningful improvements in the existing rails by leveraging the payments ecosystem, and within that ecosystem, we are considering the FinTechs as well or the regulators around the world as well, including SWIFT.”
The Citi decision illustrates the differences in how these two banking giants approach the world of global banking. JPMorgan has always maintained a major foothold, by means of its Chase cash management division, in the world of capital movement services. Its network of banking partners, which includes 80% of the S&P 500 participants, submits some $6 billion per day in money transfers that yields the bank a tidy return of $9 trillion a year. Citibank’s network may be just as formidable, but not for money transfer purposes. Their set up has more to do with typical banking services, as in originating loans and financing major trade deals.
In that regard, Atak clarified that Citi is by no means walking away from crypto technologies altogether. It has merely redirected its focus to other mainline activities of the bank: “Our focus is currently more in the trade space and trade finance and trade letters of credit. We are experimenting with this technology, but probably we are a little bit, like, reserved when it comes to making bold public announcements.”
The message is simple. Citibank has been interested in cryptos and the blockchain technology of decentralized ledger maintenance for years. To date, it has learned a great deal, but it is still looking for a “more perfect fit” before making any public announcements. Banks may ignore the wave of innovation to their own peril that blockchain technology will bring to banking over time, or they can get on board early, if only from a defensive perspective. Citibank has made it known that it recognizes the benefits of these new technologies, a good thing for the crypto community at large.