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Citi Australia takes on big banks

Citi Australia is challenging the big four banks dominance on credit cards, and intends on taking market share through marketing to new customers and cross selling to its existing clients.

According to The Australian, Citi is the fifth-largest credit card player with around 10% of the market, narrowly behind National Australia Bank (ASX: NAB) with 12.5%. Citi current offers a mortgage plus product which combines mortgages with credit cards and deposit accounts. Citi Australia’s head Stephen Roberts has told the newspaper that the potential is there to challenge, as Citi is clearly the biggest player in the credit card market outside the major banks.

Citi is also the nation’s 12th largest home-loan lender, but has just 0.7% of the market. Citi’s mortgage book grew by 12% to $8.1 billion in the year to December 31. Macquarie Group (ASX: MQG) saw its mortgage book grow by 55% to $6.2 billion in the last six months, as lenders attempt to wrestle market share away from the big four banks. Between them, the four majors control over 90% of the home mortgage market.

The Commonwealth Bank (ASX: CBA) dominates home lending with a 27.2% market share, followed by Westpac Banking Corporation (ASX: WBC) with 25.6%, National Australia Bank with around 17% and ANZ Bank (ASX: ANZ) with an estimated 16%.

Citi is most likely looking to ramp up its retail banking business, much like Macquarie, to offset poor results in their investment banking divisions. Investment banking revenues rely to a large extent on activity in securities markets, such as mergers and acquisitions, initial public offerings (IPOs), large capital raisings and trading. However, IPOs are few and far between, much like mergers and acquisitions, and companies currently appear averse to raising large sums of capital.

All that means investment banking operations which were once profitable are now reporting losses, and are struggling to remain in business.

Foolish takeaway

For consumers, the news is good news. More direct competition in the retail banking markets should mean cheaper borrowing rates, across a range of products such as mortgages, credit cards and personal loans.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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