Mark Smith, Head of Treasury and Trade Solutions for EMEA at Citi, discusses payments innovation, investments, ISO 20022, and how banks can monetise on Open Banking
What are the key trends and innovations in payments and digitisation to watch in 2021 and beyond?
The COVID-19 pandemic has impacted all of us in many different ways, but regarding our industry, there is no doubt that it has been an immense catalyst for digitisation. About 80% of our clients see digitisation and automation combined as a key treasury goal for them. Also, they see a large migration of their operations into digital continuing at a steady pace and we’re working to enable that. For example, Citi’s digital account opening now covers 85% of our network and about 90% of accounts are being opened that way.
Besides digitisation, we have an increased focus on resilience – business model resilience, supply chain resilience, and ultimately treasury resilience. Our treasury clients had to adapt to the new environment. We have noticed that business resilience is making a significant transition into more ecommerce-based flows, both for consumers and in the business-to-business (B2B) space.
In terms of innovation, we would highlight Spring by Citi, which facilitates ecommerce collections, another key growth area as well. This solution is targeted at B2C (business-to-consumers) but it's expanding to B2B flows as well and we're rolling that out across our broader global network.
Innovation in payments digitisation will continue at a fast pace. COVID-19 acted as a catalyst for the acceleration, and we see more and more of that. We see this change in the underlying business model as irreversible, which is positive because the irreversible adoption of new digital trends allows us to do business quicker and more efficiently.
Where are major investments and innovations taking place?
Fundamentally, the success of industry initiatives and the adoption of the customer-led preferences lies in how the broader financial ecosystem works swiftly and in harmony to adopt and integrate them. A large amount of investment and innovation will go to risk management systems. We're increasingly seeing machine learning used to analyse data to enable decision automation and identify outliers, which improves risk management. We have a lot more data available for smarter decision making than ever before.
There's a lot of work around ISO 20022 that I can expand on a bit later. Fundamentally, there is significant change expected along with investment over the next several years into this platform capability.
We see instant payments as being of huge importance in the crucial area of supporting the digitally-enabled frictionless movement of money. At Citi, instant payments are live in about 25 markets globally across our network. We are continuing to invest heavily in that. In our EMEA region, we've got another four markets going live in 2021, which gives a sense not only of our commitment to building out capability but the speed of client adoption as well. We're continuing to build connectivity because we are the ‘global instant payment bank’.
Instant payments have tremendous potential because when you think about the investments, the innovation, and the connectivity that is possible in the domestic instant payment platforms, combined with our network, you can quickly get to cross-border instant payment capabilities. We're building international connectivity between flows as instant payments roll out into more markets with different domestic schemes across the globe. Instant payments can go one step further as well, by starting to connect to digital wallets in either the sending country or the receiving country.
This is an exciting innovation and shows the speed, acceleration, and velocity of money and the ability to see what that money is linked to. Thus creating many more data-driven insights.
Is ISO 20022 a catalyst for banks to embrace payments innovation? How prepared are European banks? What are the migration strategies & challenges for banks?
Cross-border payments take place on fragmented systems, are subject to local practices, variances, have inconsistent message standards, and so on. ISO 20022 will lead to a much more structured dataset than we currently possess. The data that ISO 20022 will provide is about 2 to 3 times richer than our conventional formats. So fundamentally, the richness of data is a core part of the benefit that ISO 20022’s brings.
The benefits for our clients with this richer data are ease of reconciliation, ease of tracking, and speedier payments due to improved compliance processes because banks need to know where the money's going to and coming from. From that perspective, the availability of that data will increase this efficiency which enables us to process a greater number of payments more quickly and efficiently. The result is again, new data, efficiency, and the consistency of reconciliation.
This is a busy time for global initiatives and numerous plans are starting… For SWIFT, there are plans to start migrating in November 2022. In Europe (including the UK), we're starting to see market infrastructures migrate at slightly different times - the UK migration starts in June 2022 and finishes the following year. The objective is to be in line with the SWIFT migration - November 2022. There’s a thoughtful large scale programme management that's required for that interoperability between these different FMIs and different networks.
The timelines vary amongst all the different users of the ISO 20022 framework. When I think about global initiatives and catalysts for significant change, ISO 20022 is a significant date. The end date that we're all looking at is November 2025. By then, we're expecting at least 80% of high-value payment volumes will use the new format. All main central banks for all of the main currencies will utilise ISO 20022.
How are banks managing this? All banks are attempting to meet this timeline, not only the Europe-based banks. There are huge benefits: standardisation, richer data and improved speed/velocity within the system that will ultimately benefit our clients, instead of the varied and inconsistent data fields that are currently inherent in all systems across different countries and networks.
What are the most relevant areas for business value creation in Open Banking, and how can banks exploit and monetise these areas?
Open Banking is not just a payments use case. There are lots of different use cases that we can see in Open Banking. Other examples certainly cover our liquidity management – where’s my balance? what's the rate? what's the currency? how can I initiate payments? Can I move those balances to different banks? Can I check I’m sending my payment to the right place?
There are broader benefits to clients' treasury management as well as others over and above this. We think about the potential use cases within trade flows - whether that's the supply chain, working capital loans, or other forms of trade finance.
The opportunity here is substantial. For example, the efficiencies that can be delivered through the validation of direct debits through Open Banking (that is present in several countries already). So you know where the money's going and you know if it’s going to the right place. You get immediate confirmation back. Other benefits include centralising the liquidity and having increased visibility around that.
Through Open Banking, you can utilise a single provider to facilitate and gather information back from other deposit providers to give you that insight into where’s your money? how much is it? what currency? This happens in real-time through the Open Banking rails that we have.
When I think about use cases in payments, we've talked before about the B2C collection. I see this being a big enabler for further expansion. Many think about Open Banking developments in Europe, but we've seen this expand way beyond this region. For example, across broader EMEA, we're starting to see it at various stages - Nigeria, Kenya, South Africa are all adopting Open Banking as an “ethos” which is opening up the marketplace to different opportunities.
This adoption is very encouraging, but the positive aspects of these advancements will be lost if we don’t have standardisation. We need this to create efficiency and promote connectivity, among other things. With API being such a crucial means of connecting to Open Banking Work, the standardisation of many of the API specs will enable rapid future growth.
We're seeing rapid expansion and use of API, including an exponential use of our API connectivity method, not only from the calls that take place but also from the number of our clients that are using it. This clearly indicates the adoption of the new, almost linked, Open Banking rails that we see. We expected the trend for using APIs for connectivity to your bank is going to take off versus the more traditional methods and we have laid the foundations for this in our business.
Digitisation, ISO 20022, and Open Banking are all about the ease of doing business with your financial provider. Citi considers itself to be a platform for financial growth and financial commerce because our network is global. We are placing ourselves in our clients’ shoes and consider: how can we provide a better platform for ease of doing business? How can we make sure that making your payment is easier, quicker, transparent, and comes with data that allows you to have that reconciliation process?
Fundamentally clients’ interests are focused on ease of doing business, seeing where money is, how to consolidate it, or how to manage risks better. All of this encompasses the ease of doing business with your financial provider. The inhibitors we've seen in the past will be pushed away as all of these new, exciting, innovative, and cross-market wide changes are taking place.
About Mark Smith
Mark Smith is the Head of Treasury and Trade Solutions (TTS) business for Europe, the Middle East, and Africa (EMEA) based in London. Mark is responsible for leading the growth of the TTS business in our largest region, increasing our competitiveness with our team across a set of diverse markets and disciplines, delivering innovative services in payment, cash management, and trade financing to meet the rapidly evolving needs of our clients. Before his current role, Mark held the position of Global Head of Liquidity Management Services (LMS) in TTS since 2015. Mark joined Citi in 1998 as a management associate in the European Markets Treasury business.
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