Citi drives its growth by focusing on small and medium-sized enterprises globally.

Citi is taking a significant step towards expanding its commercial banking business by directing its attention towards small and medium-sized enterprises (SMEs) that have, until now, been off its radar. This new focus aims not only to diversify its customer base but also to double the revenue generated by this sector, which currently represents a small fraction of its total income. With a recent restructuring of its market approach, Citi has hired a prominent banker from Barclays to lead its efforts focused on the UK, where companies with annual revenues between $10 million and $3 billion are expected to become a key pillar of its growth strategy. This move is not isolated, as the bank has also launched its first dedicated SME unit in Japan, joining a growing number of countries where Citi has established similar operations over the past two years, including Canada, Switzerland, Germany, France, and Ireland. This strategic shift is noteworthy, given that Citi has historically focused exclusively on serving large corporations. The decision to enter the SME space comes at a time when regional banks are facing constraints due to high interest rates, limiting their lending capacity. This could provide Citi with a competitive advantage in a market where demand for financing remains high. The integration of technology also plays a crucial role in this new strategy. Citi has acquired a stake in Numerated, a fintech that uses artificial intelligence to optimize loan analysis and management for businesses. This synergy between traditional banking and technological innovation could not only enhance Citi's operational efficiency but also provide its clients with more agile and tailored solutions. Despite reporting over $3 billion in commercial banking revenue last year, the bank firmly believes it has the potential to double this figure, driven by its new strategy focused on SMEs. The key to this growth may lie in the bank's ability to offer payment and financing services that were previously reserved exclusively for its larger clients. The profitability of this new unit has shown promise. In 2021, the return on equity for its commercial banking division exceeded 30%, making it one of the most profitable within Citi. This stands in stark contrast to the bank's overall profitability, which was just over 7% in the second quarter of 2023. Initial signs of success in this new approach are encouraging for the bank's executives, as they indicate a positive market response to the services offered to a historically underserved customer segment. Tasnim Ghiawadwala, who leads Citi's commercial banking division, has emphasized that the bank is well-positioned to offer medium-sized companies the same high-quality services it provides to larger corporations. This focus on service equality could be a differentiating factor in the competitive banking landscape, where banks are increasingly pushed to diversify to maintain their relevance. As Citi ventures into this new territory, it is not alone in this pursuit. Competitors such as Bank of America and Wells Fargo are also looking towards SMEs as a growth and expansion avenue. Bank of America has prioritized the expansion of its commercial loans, while Wells Fargo has been strengthening its investment banking to enhance fees for its small and medium-sized clients. Citi's strategy represents a radical change not only in its market approach but also in how the value of small and medium-sized enterprises is perceived within the banking ecosystem. As the bank seeks to position itself as a key player in this space, the success of this initiative could redefine the future of Citi and its relationship with a customer segment that has proven vital to the global economy. In conclusion, Citi's bet on small businesses not only reflects an adaptation to current market conditions but also a long-term vision that could transform its business model. With the right combination of technology, customer focus, and a renewed commitment to commercial banking, the American bank is poised to seize the opportunities arising in this dynamic sector.