Sandy Weill, the former Chairman & CEO of Citigroup, famously pioneered the concept of the financial supermarket. Analogous to big box retailers, the financial supermarket construct was designed to provide retail and business clients with convenient one stop shopping for their banking, investment, and insurance needs. The business rationale behind the financial supermarket was grounded in the belief that gaining the ability to holistically serve a client’s financial needs would allow for elevated economies of scope and scale, profitable cross selling opportunities, and increased customer loyalty. Weill’s vision of a financial supermarket manifested itself in Citigroup, as decades of acquisitions created a conglomerate with the scope to provide the full palette of financial products. Despite Citi’s wide ranging capabilities, it failed to develop the necessary synergies across its business units. The customer centric model and its associated highly profitable cross and upselling opportunities never came to fruition; instead Citi became a sprawling and disorganized bank characterized by customer fragmentation and unprofitable business units. In the wake of the 2008 financial crisis, Citi was dismantled and along with it the financial supermarket model. Critics were quick to attack the validity of the universal banking model, citing two major intertwined and insurmountable hurdles preventing its success: the first being siloed and competing business units, and the second the inability to collect, display, and transmit client data. Although these hurdles ultimately proved insurmountable for Citi, they do not prove that the financial supermarket model is inherently flawed, but rather identified problems that can be solved by the tactical implementation of financial technology — ultimately bring to fruition the financial supermarket model and its promised benefits.
Siloed/Competing Business Units
The financial supermarket model was notorious for its siloed and competing business units, a result of decades of a product-centric business model that itself is primarily a result of the design of compensation plans. Financial service firms typical pay their sales reps based on how much of a particular product or service they are able to sell to a client and not on how much revenue the firm receives in totality from a client. For example, a financial advisor is compensated based on the amount of a client’s AUM she manages, whereas an insurance agent is compensated based on the type and amount of insurance he sells. It is likely that the insurance agent has clients that would benefit from advisory services and vice versa. However, rarely does an insurance agent or a financial advisor every introduce their clients to one another. Why? Neither receive any meaningful compensation for their cross selling efforts and they place in jeopardy their respective book of business. Getting back to our example, if the financial advisor makes a mistake with the insurance agent’s client, it raises the possibility that the insurance agent may lose his client. The insurance agent is not meaningfully compensated for his cross selling efforts nor is he compensated for the risk. The possibility of lost business incentivizes sale reps and relationship managers to guard their book of business and not engage in...