Global Payments Evolution. Simon McConnell Clearing and FI Payments - EMEA

Transcription

1 Global Payments Evolution Simon McConnell Clearing and FI Payments - EMEA

2 1. Global Payments Landscape

3 Forecasted Growth in Transaction Banking Despite challenges, Wholesale Transaction Banking remains attractive now and into the future. Transaction banking business represent around one quarter of total banking revenue Historically stable with predictable business development and upward revenue trends Attractive margins and low capital absorption in comparison with other traditional banking activities Combined payments and transaction-banking revenues will reach an estimated US$1.1 trillion by 2022 Revenue mix expected to shift from payment fees to account-related revenue, as pressure on transaction fees persists Source: Boston Consulting Group, Global Payments Landscape

4 Forecasted Growth in Global Payments The worldwide payments market was worth US$377 trillion in 2012 and this value is expected to increase to US$712 trillion by 2022 Percentage of Total Value of Worldwide Payments 2012 North America Europe Middle East Asia 2022 Latin America Africa Intra Regional Trade US$4.0 US$5.0 Trillion US$ Trillion US$1 1.5 Trillion US$ Trillion US$ Billion US$ Billion US$ Billion Source: Boston Consulting Group. 2 Global Payments Landscape

5 Megatrends Continue to Shape Transaction Banking Landscape Shifting Global Trade Patterns As emerging economies expand and develop local payment infrastructure, on-shore clearing capabilities to acquire flows locally are becoming more and more prominent Shift in trade patterns and currency usage can lead to FX opportunities Emerging Payment Types and Technologies Access to cutting edge payment mechanisms need not involve direct product development Collaboration in shaping and supporting new channels can provide linkage to flows Regulatory Environment/Risk Management New regulations create an implicit need for solutions that can go far beyond the intention and culminate in a comprehensive and valuable toolkit Mechanisms supporting better measurement, reporting and transparency are the need of the hour Increased Pressure on Revenue and Expenses Pressure on banks to do more with less Requires banks to ensure they are maximising the value from their flows 3 Global Payments Landscape

6 ... and Drive Changes in the Payments Landscape Emergence of a New Global Currency On SWIFT and in value, RMB becomes very significant in the global payments space RMB ranked No.11 as a world payment currency, overtakes RUB, NOK and THB in first half of 2013 UK has become an important off-shore RMB centre: UK has surpassed Singapore since June 2012 and become the No.1 in RMB payments with China and Hong Kong By July 2013, over 20 countries have established swap lines with China, including UK China internationalises RMB with simplification of trade payments and collections, relaxation on requirements of regulatory approvals for cross border lending and cross border trade financing Payments = US$247,162 billion Off-shore RMB Centres and Share in Payments Value Growing Significance of Low Value Payments Growing significance of ACH payments requires banks to consider the ability to settle cross-border payments using domestic low-value clearing infrastructure Global trade and e-commerce growth have accelerated use of ACH payments 21 billion USD transfers processed via NACHA in 2012, up by 4.19% over billion EUR ACH credit transfers affected via SEPA in the last 12 months Regional and national initiatives serve as catalyst: In Europe, SEPA deadline of February 2014 will bring EUR ACH payment standardisation across 32 countries Immediate/Faster Payments available in UK, Mexico, South Africa; launched in Nigeria and Poland in Sweden, Singapore, Australia, HK, US, India and Ireland are all in the various stages of evaluation/implementation Considerations for Banks 5.1% UK 3.8% Singapore Opportunity: Low value payments enables banks to improve their margins on existing transactions and increase transaction income from underserved market sectors 79.0% Hong Kong 0.6% Taiwan Infrastructure: Banks have to consider impact of connecting to multiple real-time services Business Model: Partnering with a proven global payments expert offers the fastest, most capital efficient way of meeting bank s global ACH/faster Payments requirements 4 Global Payments Landscape

7 Beyond SEPA Compliance New Opportunities As SEPA compliance dust settles, organisations attention is shifting towards how to best reap investment benefits from SEPA. It is important to consider both immediate and re-engineering opportunities. Immediate Evaluate SEPA decisions and temporary solutions (e.g. manual workarounds) which helped to meet the deadline. Put in place a plan for future deadlines ( e.g. Niche schemes) Re-engineer Leverage SEPA to fundamentally reengineer cash management structure XML Conversion Services Account location or bank rationalisation Mandate Management services and process Receivables Centralisation & ROBO SDD scheme selection B2B reachability Further technology rationalisation harmonisation of reconciliation Additional Optional Services, e.g. COR1? Payments Centralisation & POBO Future deadlines: Niche schemes, non-euro member states in 2016, new Euro states, waivers, Expand geographic scope beyond SEPA Nordics, UK, Switzerland

8 2. Regulatory Changes

9 Regulatory Themes and Industry Changes Regulations and industry changes impacting the Payments industry can be classified under three major themes. Systemic Risk Reduction and Control Transparency and Consumer Protection Standardisation and Convergence Regulations and Industry Changes Basel III FATCA CPS-IOSCO Standards Dodd-Frank Act New Liquidity Standards and Clearing Rule Changes mandated by Central Banks Dodd-Frank Act Rule 1073 Dodd-Frank Act Durbin Amendment National Account Mobility Initiatives Data protection laws Real-time Payment Systems (convergence of RTGS and ACH) SEPA and similar payment format/rule standardisation (e.g. ASEAN) Same-day settlement; Expedited payments concepts Cheque convergence to electronic Implications More costly intra-day liquidity Higher collateral for clearing Rapidly changing clearing rules for member banks Resolution Planning exercises being completed by systematically important banks and clearing infrastructures Clearing Infrastructures reviewing and overhauling Risk Management practices Legal entity implications Transparency of charges in the payments chain Price controls on debit card transactions Pressure on card interchange fees Pressure on traditional correspondent banking fees and charges Challenges for global applications data storage location and application hosting locations; lengthy regulatory approval cycles Increasing technology investment to support changing clearing infrastructures New technology architecture and operational workflow requirements Pressure on payment fees and float Narrowing competitive differentiation opportunity 5 Regulatory Changes

10 Update on Payment Services Directive II EU Commission is currently reviewing PSD II with continued advocacy by Citi Recent Developments Proposed Payment Services Directive II and regulation on Card Interchange Fees published in the 24 th of July 2013 by the EU Commission It is not expected that the directive will be rushed through before May 2014 EU elections and therefore unlikely that PSD II will be agreed and adopted before Q1/Q Proposed Changes in the PSD II 1. Introduction of third party payment providers (TPPs) can perform services with access to the customer's account and initiating payments.the provider will be licensed under PSD II. Specific for online banking in the context of e-commerce transactions over the web. PSD II established the right for all users (consumer and corporate) to make use of such service providers.. Customers encouraged to give away their personalised security details in order to enable the TPP to access online banking portal and to initiate the payment on their behalf. The TPP will be able to do so without first enrolling with the account holding bank TPP will re-use the customer's authentication details and perform an impersonation (which in case of fraud would be a man-in-the-middleattack ). The burden of proof would always remain with the account holding bank, which will not be able to proof that a third party accessed the account. 2. Payment systems that are designated by the Settlement Finality Directive (e.g. Target2, Euro 1, CHAPS etc.) should allow indirect participation to non-bank payment institutions: Potential concern is that direct participating banks would have to take indirect non-bank payment institutions onto their books. 3. Directive maintains the ability to agree different liability rules and some of the operational code of conduct related elements with corporate clients (as compared to consumers) 4. The initial concern that the Commission would propose strict liability for PSD transactions that have one leg outside the EU, has been removed and additional information requirements proposed for all currencies and transactions with one leg outside the EU, are now limited to consumer information requirements and will not impact corporations/business users. 7 Regulatory Changes

11 3. Partnership Opportunities

12 Benefit from Trends through Partnership Growth Driven by New Global Dynamics Banks intermediating flows over an extensive network can benchmark pricing points such as beneficiary deductions locally rather than go through the trial and error method and leave money on the table 1 assisting you to Drive Revenue by leveraging a robust Global Branch Network Lower transaction costs to our clients by formulating interbank charging agreements with numerous of banks at reduced rates Generate incremental fee income from capturing FX from cross-border payments Capabilities to Address Client Needs Offer one-stop-shop solutions for domestic and international payments needs Flexible infrastructure and active collaboration provides the opportunity to acquire more share of the growing global payments wallet 2 increasing Client Stickiness with innovative tools and expansion of payment types Responding to a New Regulatory Environment Thought leadership and shared intellectual property can help to meet the evolving needs of clients and respond to the ever-increasing regulatory demands Improve data capture and quality, as well as analytics, to improve client and regulatory insight 3 solutioning for Transparency and Control for effective response to regulatory changes (i.e. Dodd-Frank 1073) Streamlined Technology and Processing Differentiate yourself in the market with state-of-the-art proprietary back-end technology platform, with on-going enhancements and updates Leveraging the partner with multitude of correspondent relationships and branch networks 4 gaining Cost Efficiencies by leveraging technology platforms and transactions processing 8 Partnership Opportunities

13 Client Example: PTSB Partners with Citi London for SEPA Processing Citi s solutions allow banks to address regulatory and market changes without major upfront investment. The Challenge The Solution Migration of domestic clearing volumes from the Irish Legacy scheme to the SEPA Credit Transfer and Direct Debits schemes without major upfront costs permanent tsb leveraged Citi's SEPA platform and Indirect Participant offering to migrate existing volumes to SEPA The Results Citi to provide permanent tsb clients with full access to the SEPA schemes ahead of the February 2014 end date Processing of approximately 45 million transactions annually on behalf of permanent tsb Permanent tsb is able to provide account-holders with the full range of SEPA Services, providing clients access to low cost payments and receivables across the Single Euro Payments Area Use of Citi s extensive investment in SEPA capabilities to quickly and easily offer this landmark service to clients Key Benefits Time to market Leverage existing partner bank infrastructure Move from a fixed to a variable cost model Protect client base against increased competition from local and regional banks 9 Partnership Opportunities

14 Client Example: Global Bank Expanding FX Capabilities Citi s solution allows banks to expand their FX capabilities in cross-currency payments whilst improving transactional margin. The Challenge The Solution The Results Global bank needed to derive additional revenue from payment flows to US Eliminate the need for the bank to undertake development in payment conversion capability for local currencies Citi s Global Clearing Multi-currency Gateway capabilities leveraged in converting customer transaction messages from EUR and GBP to USD of the beneficiary account domiciled in the US Transactions eligible for auto conversion identified from information available to Citi about the currency of the relevant beneficiary bank account held in the destination country Transparent FX rates applied on client customers transfers fixed spreads over interbank Reuter s comparable rates refreshed hourly FX conversion process is moved to Citi and bank gets a share of the FX revenue Bring quickly to market the cross-currency payments solutions Key Benefits Increase revenues through FX revenue share Automated foreign exchange conversion for higher STP rates Partner bank local market expertise translating into lower level of erroneous conversions 10 Partnership Opportunities

15 4. Citi

16 FI Payments Why Focus on Product Innovation? Product innovation brings value to clients with emerging needs, driven by market and industry changes Differentiation can only be achieved in the 30% of the payment value chain: Relationship Management, Credit decision and Client Service Robust and user-friendly interfaces deliver immediate benefits of self-service and timely access to information. Help enhance customer relationships by reducing turn around times Innovation is a must for survival, however investment spend restrictions need to be overcome with new partnerships models Citi Payment Flow Manager Provides clients with a user-centric online experience while enabling access to a broad range of Citi solutions Citi Payment Advisor Mobile Mobile-enabled application that allows banks, their customers, or third parties to track the status of a payment at any time and from any mobile device, similar to tracking the status of a package Citi Payments Directory Mobile Mobile-enabled application allows banks to explore a database of institutions worldwide that participate in US Dollar Clearing 11 Citi