Embracing Change in Payments

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Gary Porter
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1 Embracing Change in Payments Mark McNulty Global Head of FI Payments & Clearing Saad Rahman European Clearing Product Manager & GPI lead

Speaker Information Mark McNulty Global Head of FI Payments & Clearing Citi Treasury and Trade Solutions Mark is the Head of Global Clearing and FI Payments at Citi Treasury and Trade Solutions.

This entails developing strategies and execution plans to deliver on the potential of the payments business while continually enhancing the client experience of the Financial Institutions segment.

2 Speaker Information Mark McNulty Global Head of FI Payments & Clearing Citi Treasury and Trade Solutions Mark is the Head of Global Clearing and FI Payments at Citi Treasury and Trade Solutions. Assuming this role in November 2014, Mark is responsible for the continued growth, development and transformation of the FI Payments product set. This entails developing strategies and execution plans to deliver on the potential of the payments business while continually enhancing the client experience of the Financial Institutions segment. Prior to his current role, Mark was the Head of EMEA Clearing and FI Payments, based in Dublin. He was responsible for managing High Value Clearing across EMEA for Corporate, Public Sector and FI clients with specific focus on our European Clearing offering to Bank and FI Clients; and for the market management function for the broader FI payments product set within Europe, Middle East, and Africa. Mark has been with Citi since 1999 and has held various roles across the organization including within Client Delivery and Finance before moving into Treasury and Trade Solutions Product Management in 2006 when he became head of the European Funds Transfer product in Citi Europe PLC. Mark represents Citi on several industry bodies including serving on the Board of CHAPS Clearing Company in the UK. Mark holds a Bachelor of Commerce degree from University College Dublin and is a qualified accountant, and a member of the Chartered Institute of Management Accountants. Saad Rahman European Clearing Product Manager & GPI lead Citi Treasury and Trade Solutions 2 Saad Rahman is a product manager within Treasury and Trade Services business of Citibank managing European Clearing product globally. He joined Citi in 2010 in Implementations before moving to EMEA payments to manage corporate payment solutions. In addition to his responsibilities of payments business his core areas of focus are client centric innovative payment solutions and impact of regulatory and competitive landscape on payment business. He is also driving GPI and other payments initiative at Citi. In a career spanning over 16 years he has worked in Banking, Fintech and consulting industries across Europe, Asia and North America. Saad holds a Bachelor in Engineering and an MBA from Institute of Business Administration, Karachi.

Payments Landscape is transforming Cross Border Payments continue to grow primarily with: Settlement through the Correspondent Bank network Messaging

Regulatory Change PSD2 Drivers of competiveness Convenience Superior client experience Adjacent value added services Price gpi Evolving the current

3 Payments Landscape is transforming Cross Border Payments continue to grow primarily with: Settlement through the Correspondent Bank network Messaging through SWIFT Dominant Cross Border Payment Model Ongoing Transformation Faster Payment adoption ISO adoption New Entrants/Non Bank Players Regulatory Change PSD2 Drivers of competiveness Convenience Superior client experience Adjacent value added services Price gpi Evolving the current cross border payment model Driven by E-commerce growth Globalization Customer Expectations- Millennials Regulator consumer advocacy Technological advancements

4 Overview Correspondent Banking Opportunities What is gpi? Client Implications Correspondent Banking Pricing implication

What is the objective of GPI SWIFT global

deliver an enhanced cross-border payments

a sustainable model for the suppliers (banks),

lack of transparency on the status of payments

and settlement time Enhanced tracking and

5 What is the objective of GPI SWIFT global payment innovation (gpi) is an initiative to deliver an enhanced cross-border payments experience for the underlying customer through a sustainable model for the suppliers (banks), addressing the challenges that stem from the lack of transparency on the status of payments Address lack of transparency on cost, status and settlement time Enhanced tracking and reconciliation Better visibility on payment charges Faster and more efficient model Evolution for sustainability Reduce inefficiency Improve post transaction servicing Evolve the Correspondent Banking model Foundation of next generation value proposition

6 Sample Message and Confirmation Flow GPI Tracker I got a confirmation that beneficiary received $39,970 I was informed that the $39,970 I received corresponds to the $40,000 that was sent by the sender UETR UETR UETR UETR $40,000 $40,000 $39,990 $39,975 $39,970 Sender ORBK CITIUS IBK1 BNBK Beneficiary Payment flow Confirmation flow

7 GPI Timeline Official Launch 46 Banks sign-up Q Q UAT Live gpi Traffic 11 Banks live 92 Committed Q ~30 banks live Q Q ~25 banks live Fedwire supports GPI gpi tracker and API live Q ~33 banks live CHIPS supports gpi Citi s GPI Status Today Live on Citi London and NY on following currencies: o USD o GBP o EUR Processing 3,000 transactions per day Member of: Initiative Group, Pilot Group and Vision Group API Go Live Timeline Updating the status of a payment transaction Getting a payment transaction Getting the history of payment transactions Searching for payment transactions Getting invalid events Pilot Live May 6 May 20 May 6 May 20 May 20 Jun 24 Jun 24 Jun 24 Jun 24 Jun 24

8 Citi s Implementation of GPI Our Experience 1) Ensuring that Citi s payment processing and SWIFT interfaces are compliant with GPI message formats - this phase involved technical development in core transaction processing systems to develop following key features/ functionalities Time and Effort Compliance with GPI MT103 and MT199 format GPI Directory and Payment initiation Overall Time Phase 6 months Processing Status updates via MT199 GPI Intermediary role - passing on status received from Bene GPI Beneficiary role - update to previous bank Business Analysis Development and Testing Planning 2) Integrating the GPI features in our client facing tools - development required to enhance client facing tools to show GPI status updates and UETR Time and Effort Development of API to connect to and download SWIFT tracker data Integration with client facing channels Overall Time Phase Business Analysis 11 months Development and Testing Planning Effort (man months) 2 months 5 months 1 month Effort (man months) 2 months 7 months 2 months 3) Integrating SWIFT Cloud based GUI tracker in our processes - Ensuring customer service teams have access to SWIFT Tracker GUI to service our clients in response to queries related to GPI transactions Time and Effort Training and Process documentation Technical changes to access GUI Overall Time Overall Effort 4 months 1 month

9 New Business Practice Beyond Track and Trace Wave 1 Tracking Transparency of charging Wave 2 Further digitization of customer experience Fraud recovery enhancements Wave 3 Evolved intra-bank operating model (e.g. pre-check of bene acct number) A role for DLT? Nostro reconciliation POC being progressed by SWIFT New Technology

10 SWIFT s gpi Adoption Initiatives Path to Scale 2017 UETR between gpi banks SR2017 Non-gpi banks: UETR receipt enabled SR 2018 Non-gpi banks: UETR sending enabled? Adoption drives: Benefits for banks clients, and Scale for new features offering efficiencies for banks 2016 SWIFT FMUs 2017 Fedwire Chips 2018 RMB JPY CHF

11 Overview Correspondent Banking Opportunities What is gpi? Client Implications Correspondent Banking Pricing implication Cost Optimization Value Add Services

GPI Use by a Corporate Client Hypothetical Case Study Tracking Corp X derives value add from

reconciliation process, payment confirmations i. Redefined MVP includes GPI tracker ii.

Routing via GPI banks demanded Cost Optimization Corp X actively analyses fee deductions to

12 GPI Use by a Corporate Client Hypothetical Case Study Tracking Corp X derives value add from the tracker as it develops process efficiencies e.g. reconciliation process, payment confirmations i. Redefined MVP includes GPI tracker ii. Service efficiencies iii. Routing via GPI banks demanded Cost Optimization Corp X actively analyses fee deductions to optimize the cost of payments Implications for the Industry i. Pricing pressures targeted on deductions ii. Less tolerance for pricing inconsistencies iii. Value add opportunity for originating bank- analytics and advisory

Wave 1 Corporate Demand Commercial Integration XXXX XXXX XXXX Wave2 Expedited Fraud Stop and Wave 2 Recovery Ease of

13 Immediate and Potential Efficiencies Increased adaption will drive evolution of additional features offering incremental efficiencies. Wave 1 Corporate Demand Commercial Integration XXXX XXXX XXXX Wave2 Expedited Fraud Stop and Wave 2 Recovery Ease of Implementation (potential indirect participation Wave 3 models) Bank Adoption Wave 1 Service Reconcilement System wide Efficiencies Wave3 Extended Remittance information Up Front STP validation Adoption Drives Functionality Expansion

14 Overview Correspondent Banking Opportunities What is gpi? Client Implications Correspondent Banking Pricing implication Cost Optimization Value Add Services Top Line Pressures Shifting Pricing models

15 Pricing Implications Pre GPI Transparency on demand Post GPI Seamless Transparency Cross-subsidization Pricing for Value Pricing for Value Pricing models to evolve in sophistication Core services transaction pricing for value at sender/bene level at client level at transaction type level Treasury versus Commercial at market level - e.g. Debits versus Credits and incorporate multiple value points: Intraday liquidity facilities Reporting tools (SWIFT or proprietary) Compliance Other (e.g. customizations, complex investigations)

16 Overview Correspondent Banking Opportunities What is gpi? Competitive Considerations Efficiency Opportunities Enhanced Risk Management Client Implications Correspondent Banking Pricing implication Cost Optimization Value Add Services Top Line Pressures Shifting Pricing models

17 GPI Opportunities GPI Competitive Opportunities Competitive Advantage Participation Models Client Usage Tracking Cost Optimization MVP GPI Tracker Reporting Value Add Reporting Advisory, Digitization Speed to market Product Differentiators Direct vs. Indirect participation? GPI Efficiency & Risk Opportunities Process Efficiency Reduced level of exception management Enhanced Risk Management Enhancements to fraud recovery processes

18 Sample Disclosure in Citi s Self-service Tools Citi s Payment Flow Manager Citi will be passing on GPI information to its bank clients via self-service tools Upcoming module in Citi s PFM gpi Details

19 Citi s FI Insights Understand Your Flows and Pricing An analytical tool that synthesizes your payments data into simple, intuitive dashboards providing actionable information. Examine revenue implication of pricing discrepancies by flow type Review of geographical distribution of your flows

20 To GPI or Not to GPI?

21 Benefits of GPI Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing Denis Waitley Sustainability Relative ease of integration Pricing Client Demand Efficiencies & Risk Status Quo GPI

Business Intelligence solutions for gpi A portfolio of BI products & services to support your gpi business journey

Business Intelligence solutions for gpi A portfolio of BI products & services to support your gpi business journey A portfolio of BI products & services to support your gpi business journey May Yan Lee 16 November 2018 Join Teleconference (Phone) or Integrated VoIP (PC headset) For Phone Click Country/Region to select