How are you adapting or competing in the payments arena to ensure these services remain profitable?
Citi continues to make significant investment in its regional and global payment capabilities. This is important given the fiercely competitive environment from both traditional banks and newer entrants. This investment is critical to ensure that Citi has a clear value proposition and relevance for our clients given the increasing trends on digitisation, globalisation, e-commerce which requires platforms to manage scale given the resultant miniaturisation of payments and new client selling models. As a result, developing standards and scalability on APIs, increasing connectivity to wallets, making payments and foreign exchange conversion frictionless and connecting the new financial market infrastructure such as instant payments or e-billing are important areas to invest in and ensure a market leading capability. For a long time, the challenge on making cash receivables more efficient has been a priority for the majority of banks. Digitisation is making this more of a reality and alternatives to traditional methods of doing business (e.g., cash and cheques) are becoming available. Clients are also operating in a more global marketplace and the importance of offering seamless cross currency payments is very much at the fore.
The speed of change in the global payments landscape is accelerating. It is therefore important for banks like to Citi to engage more proactively with fintechs. This is already part of Citi’s culture and whilst fintech companies are competitors they are also our clients and partners. As a result of this collaboration the speed to market, scale and commercialisation has increased significantly. So, in summary, leveraging technology and Citi’s network combined with new payment schemes (e.g., faster payments), connectivity with digital wallets and collaboration with strategic partners is helping to grow market share and drive profitability. Spring by Citi is a great example of where we are working with strategic partners to enhance our client’s ability to collect from consumers across multiple payment channels.
What in your mind is the greatest reason for regular non-commercial cross-border payments made in the Middle East and why?
Outside of commercial flows and treasury payments, the largest flow is probably remittances, which constitute a payment market of $55-60bn per annum. The remittance market exists given the relatively high number of expats working in the MENA region. Additionally, religious travel and multilateral agency payment volumes are also significant.
Do you foresee blockchain or even crypto currencies taking a greater role in trade finance and supply chain payments?
Absolutely. Where there is risk in a business flow the case for blockchain solutions is strong. Citi, through our network of innovation labs, is working with partners and ecosystems to develop blockchain solutions that will eventually become mainstream. A good example is Komgo where Citi and a number of other partners are working to digitalise the trade and commodities finance sector through a blockchain based open platform. The signs are promising, and I would expect blockchain to become key element of trade solutions in the coming years.
Crypto currencies are also seeing a growing amount of interest with Central Banks developing digital strategies and policies. In the coming years, Central Bank Digital Currency (CBDC) could be issued in either ‘retail’ or ‘wholesale’ varieties and could be expressed as either tokens or accounts. CBDC is a claim on the central bank, i.e., a liability on the balance sheet of the central bank. It is redeemable at par value on demand in national currency units. While regulatory interest in CBDC was stimulated by the development of bigtech stablecoins, some argue that they should be represented through the more familiar technology of accounts. The regulation of stablecoins has yet to be determined and it is a real test of whether regulators will adopt a technologically neutral approach. It could be argued that stablecoins are (or should be) nothing more than E-money expressed as tokens. If this were the case then all of the regulations applying to E-money would apply to stablecoins: they could not pay interest, they would be fully collateralized, they would be direct claims on the stablecoin issuer, and the user would expect re-deemability at par value on demand in national currency.
The platform economy exhibits ‘winner takes all’ tendencies but in the case of digital money there is probably space for a number of contenders. After all, new roads create more traffic, not less. The digital payments market is likely to grow significantly. The real question for regulators is to ensure that the competition between different formats for digital money proceeds on a level playing field.
Payment solutions were in an intense development phase before Covid-19, so has the pandemic made any directly attributable changes or additions?
Without doubt the pandemic has accelerated digital transformation globally. Payments are no exception. The MENA region was already on a trajectory of digital payment growth and this has been further fuelled by respective government strategies and changing client sales models. In a world that is rapidly becoming a platform economy or hyper connected where 24/7 or “always on” are becoming normal, it is important to provide connectivity and choice for payments for our clients. Across MENA we are witnessing the implementation of faster or instant payments schemes (e.g., Bahrain, UAE, Morocco, Jordan & Pakistan) as well as e-billing platforms such as e-fawateer. This progress is helping to transform the way governments and organisations conduct business and drives efficiency through digitisation. E-commerce and supply chain stability through the more efficiency and quicker settlement of payments.
However, digital progress is not just limited to payments. A banks’ engagement with client is also critical and investment in areas such as digital on-boarding, self-servicing, digital signatures, online ERP file testing are just some areas that are benefiting from investments in new technology. Let us also not forget another important lesson from the pandemic that has demonstrated the importance of technology, and that is operational resilience and risk management. Ensuring that robust platforms are in place to manage client flows in contingency environments are extremely important and reinforce the importance of scale, network and technology investment strategy.
What are your chief concerns when thinking about your payment’s activities?
The main concerns for me remain around cyber security and regulatory compliance. Given Citi’s global network and role as globally systemic important bank the need to execute payments efficiently, safely and adhering to regulatory frameworks is critical. Digitisation is, and has to continue to, play a key role here given the volumes of payments involved, the global reach of Citi’s network and the complexity of our clients’ operations.