Banking digitization in the face of disruption

Rajesh Mehta

Every day, a huge amount of money flows around the world, mostly crossing borders using formal banking channels. The money oils the wheels of the global economy.

As the head of Citi treasury and trade solutions (TTS) for Asia-Pacific based in Hong Kong, Rajesh Mehta’s job is to help corporate clients process those flows, whether it’s foreign exchange conversions for cross-border flows or financing supply chains around the world. When exporters deal with buyers in new countries, this office helps them mitigate risks from dealing with unknown counterparties. It also extends guarantees or standby letters of credit, if needed.

Globally, TTS represents about 13 percent of Citi’s business in terms of revenues and roughly 22 percent of Citi’s profits. In Asia, this unit accounts for about 15 percent of Citi’s revenues and about 26 percent of profits. Asia is also the fastest growing contributor to Citi’s TTS business globally, growing at a rate of about 12 percent in the last three years. And despite concerns over global growth, Citi’s TTS business has consistently grown in the last five and half years.

But this is also a business that has changed dramatically in recent years on the back of rapid technological advances. Citi—
which has a full banking license in 98 countries and serves clients in 62 other countries—sees itself in a good position to constructively transform. “Rather than be disrupted, we choose to disrupt ourselves to ensure that we take full advantage of technological possibilities,” Mehta said.

These days, Mehta has become an evangelist of digitization, working with stakeholders, including governments and the rest of the banking industry, to help accelerate the journey toward digitization, whether it’s through information dissemination or facilitation of policy dialogues.

In a wider socioeconomic sense, Mehta points out that digitization makes sense in all of Asia as this enables financial inclusion and brings greater transparency and efficiency, which most developing economies can plow back into more productive activities.

It spawns new digital services and e-commerce, in turn giving more fuel to economies from a consumer spending or savings point of view.

For Citi, this means devoting a lot of investments, creative energy and mindset shift. At the core of it all is digitizing how data, analytics and new technologies could be harnessed.

“We are also changing the ‘what’ so there’s a huge focus on product innovation. In the past, we would largely be serving the treasury departments of large companies since they were involved in liquidity, working capital, payments, and day-to-day financial operations. But increasingly, as companies are getting more digital, they are selling directly to consumers,” Mehta said in a recent interview with the Inquirer.

He notes that 20 years ago, people would go to a travel agency, sit down, look at the glossy brochures and book their arrangements. Now, people go online and do the entire booking themselves. As corporate clients themselves embrace new technologies and change their sales and distribution models to cater more directly to consumers, banks like Citi need to enable such transactions.

Artificial intelligence (AI) and machine learning are part of the transformation. Citi’s Payments Insights, for instance, uses AI to help clients trace their payments and receipt of funds.

“There’s visibility and transparency about where the money is and whether the person you’re trying to pay has been paid,” he said.

Another service called Citibank Payment Outlier Detection (CPOD) helps corporate treasuries identify anomalies in their payments. AI and machine learning are harnessed to identify outliers—which clients find very helpful because the system flags payments to suppliers that are higher than usual, he explained.

AI is also deployed to reconcile payments, especially as a lot of clients are selling directly to customers.

Citi is also cognizant that there are other companies that do individually one or two things exceptionally well.

“So we are increasingly partnering with these smaller fintech companies to pick up and add their innovations to our offerings, the way one would bolt on a Lego block,” Mehta said.

Arlene Nethercott, TTS country head, said one example of digital innovation that was unique to the Philippines was Citi’s digitization of the import payment process clients.

“We looked at user experience—which was very manual—and developed a digital solution around registration, foreign exchange conversions and payments,” she said.

“Overall, the Philippines is very much aligned with a digital mindset. So while the country is a check-based economy at the moment, we see huge opportunity to use technology to digitize cash. We’re not yet there, but what Citi Philippines is trying to do is to bring global expertise that can be helpful in this market,” she added.

The launch of the National Retail Payment System (NRPS) system two years ago set the regulatory framework around electronic payments in the country.

“As a consumer today, you will see that once you transfer funds from your account to the account of another person, these funds are transferred in full value. This is one of the biggest improvements made by the NRPS because inter-bank transfers in the Philippines are challenging in terms of predicting the amount that the beneficiary will be receiving due to various charges, either in fixed charges or a percentage of the amount credited,” she said.

Under the new electronic funds transfer service PESONet, for instance, customers of participating banks, e-money issuers or mobile money operators can transfer funds in Philippine peso currency to another customer of other participating banks, e-money issuers or mobile money operators. This is deemed the most convenient, affordable, reliable and secure electronic funds transfer service that government agencies and businesses can use to pay each other and individual persons, especially for non-urgent transactions.

Citi, for its part, ranks first in terms of PesoNet outward clearing value, accounting for a market share of over 20 percent share. In terms of volume, it ranks among the top 10.

By 2020, the Bangko Sentral ng Pilipinas aims to migrate 20 percent of payments in the country to cashless solutions.

As Citi’s TTS serves institutions, large companies, banks and governments that are increasingly dealing directly with consumers, Mehta said that the bank had pivoted its business to enable new types of commerce, such as linking payrolls into electronic wallets, collecting sales proceeds from a wallet, paying clients’ suppliers through PesoNet or receiving payments from clients through PesoNet.

Across the region, Citi expects e-wallet payments will increase by 45 percent by 2021, representing the fastest growing payment instrument in this part of the world. Online bank transfers, supported by instant payment schemes, are projected to grow by 26 percent by 2021, representing the second fastest growing instrument.

“Today, consumers determine how they pay, especially as many of them in most of Asia are millennials,” he said.