C Citigroup Inc

Citigroup is offering customer incentives such as paying for Hulu or Spotify service

By Telis Demos 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 6, 2019).

Open a checking account at Citigroup Inc. and you may get a free Costco membership.

And a subscription to Amazon Prime, and several months of Hulu or Spotify. That could be on top of a Citi Bike membership and an invitation to a private party with graffiti artist Queen Andrea.

It wasn't so long ago that a bank account's primary perks were checkbooks and lollipops. These days, banks are pulling out all the stops to attract checking-account deposits.

Banks prize checking-account cash above nearly all other kinds of funding. Customers rarely move that money to other banks, don't expect much if anything in interest and often seek out their banks' other services.

But depositors have been shifting cash into savings and money-market accounts that have lifted their rates in recent years, raising banks' overall funding cost. Total interest expense at U.S. banks rose 70% from the first quarter of 2018 to the first quarter of 2019, according to the Federal Deposit Insurance Corp. Meanwhile, interest income rose just 16%.

So banks are finding new ways to stand out in a crowded field -- and lower their cost of funding.

In June, Citigroup began piloting a program to give some customers of its top-tier Citigold account a $200 annual rebate if they use their checking accounts to pay for a range of services from partner retailers. Customers could cover a Costco Gold Star annual membership at $60, for example, and still have enough left over for an $119 Amazon Prime subscription.

It is a twist on the sign-up bonuses banks have been offering new customers in recent years in lieu of raising interest rates on checking accounts. While these offers can help banks rake in new money quickly, they come with a few drawbacks.

Some customers hop around from bank to bank to collect bonuses, much like they do with credit cards. One-time cash payments, unlike rebates, also can be considered taxable income in some cases.

"Consumers have not stopped looking for bigger payouts," said Dustin Allen, senior director for global deposits at Nomis Solutions, a technology firm that works with banks to price products. "But banks really want you to keep a lot of money in your checking account. So you're seeing this rise in other benefits."

Washington Federal Inc., a Seattle-based regional bank, offers identity-fraud and cellphone insurance with some checking accounts. JPMorgan Chase & Co. last year introduced a Sapphire Banking checking account that comes with a bevy of perks, an attempt to capture some of the magic of the Sapphire Reserve and Preferred credit cards.

Citigroup already offers a host of noninterest perks to Citigold customers, including investment services and financial advice, free money transfers, ATM-fee reimbursement world-wide, rewards points and special lounges in branches.

The bank is looking to attract wealthy customers. Citigold account holders must have $200,000 with the bank across deposit, retirement or investment accounts.

It also is trying to appeal to younger customers, a group that is more likely to be tempted to shop around for a bank relationship. While just 4% of Americans switched their primary bank accounts last year, according to market-research firm J.D. Power, the rate jumped to 9% for people under 40.

Yet it has become harder for banks to distinguish their offerings. The basic features of most checking accounts are the same, and once-novel mobile apps have become commonplace.

For Citigroup, recurring rebates tied to subscription services offer a way to more deeply burrow into their customers' lives.

"It's so much more engaging when clients are getting something like Amazon Prime for free versus just giving you $119," said Debjani Majumdar, who oversees Citigold strategy and client benefits. "It's this notion of an emotional connection and relationship attachment."

Write to Telis Demos at telis.demos@wsj.com

Corrections & Amplifications Citigroup is offering incentives such as paying for Hulu or Amazon Prime subscriptions. A headline on an earlier version of this article incorrectly stated that the bank would pay for Netflix subscriptions. (July 5, 2019)

(END) Dow Jones Newswires

July 06, 2019 02:47 ET (06:47 GMT)

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