Citi bets on FIG business

Munir Nanji and Bharat Sarpeshkar talk about why banking the banks is big business in the world of transaction services.

For any institution providing transaction banking services there are four major customer segments -- banks, corporates, investment managers and the public sector. Long the domain of a few big players, competition in the bank segment is heating up.

"Banking has evolved in a way where you have to partner to succeed," said Munir Nanji, Asia-Pacific and Japan head of the bank services group at Citi global transaction services (GTS). "Banks realise this."

Citi, one of the region's largest transaction banks, is betting on an increased number of financial institution partnerships with the creation of a new bank services group within its GTS business. Appointed to his position only this past March, Nanji is joined by a team of senior professionals across the region. The global bank services group was created as a dedicated vertical in 2008.

Nanji said Citi is building the segment because, as Asia's middle class grows to more than a billion people, local institutions increasingly need robust systems to process rapidly rising payment volumes and a services reach that will give their clients access to markets as far flung as Africa and the US.

"Take the supply chain of a typical corporate in China that is buying products from various parts of the world. It is importing from the US, from Korea and from Vietnam and all of this stuff needs different currencies. [The company would] like to have a network of connectivity. The Chinese bank it works with can partner with us and use Citi's gateway to access the world without building relationships in every market."

The cost of building the necessary infrastructure to provide these services is in the hundreds of millions, according to most bank executives -- money that the majority of institutions, even well-capitalised Asian ones, typically do not have on hand. Enter the mega-bank partner. J.P. Morgan is well known outside the US as 'the banker's bank,' and BNY Mellon, Deutsche Bank and Wells Fargo Bank also have dedicated businesses providing these services.

There are a number of ways banks can partner. The most common partnership is a correspondent banking relationship. These are typically structured so that when a local bank, say one from Thailand, needs to make a payment in the US, they can do so through the network of its global partner, for example Citi, and vice versa. Back-office processing partnerships are also common, these include outsourcing of document or payment processing, for example to Wells Fargo's trade processing centre in Hong Kong, or completely white labelling a large institution's core banking system, for example as OCBC has done with J.P. Morgan's platform. Nanji said demand for trade product partnerships is currently very high.

This past week, Citi announced a new mandate from Vietnam's Techcombank. It will provide additional trade finance credit lines to customers of the Vietnamese institution as well as more local services to its clients in the country. Interestingly, Techcombank is 20% owned by HSBC. In addition to the Vietnamese mandate, US-based SunTrust Bank outsourced letter of credit confirmation in Asia and other international markets to Citi last September.

Transaction services for banks, while not a new offering for Citi, is a new business line. "We've always had a financial institutions group [FIG] business," said Bharat Sarpeshkar, global head of Citi's bank services group and Nanji's boss. "But as the breadth of services offered by FIG has grown so large, we needed to restore focus on the core transaction product set."

The bank services group now contributes 10% of Citi's transaction services revenue globally according to Sarpeshkar. He added that the business has a lot of "upside" potential for growth. Currently, the group has about 25 senior core professionals -- including those in Asia -- located around the world and is hiring, especially in Latin America and the Middle East.

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