What trends are you seeing in the global cash management space and how do these apply to Asia?
Paul Galant: The global trends are perhaps more pronounced in the past 18 months than this industry has ever had. This is due to a very strong regulatory environment and a rising of yields globally. The trends are that global clients and multinationals are looking for control, transparency and actionable advice. ItÆs one thing to be able to provide that at a branch, but itÆs quite another to provide it for a multi-banking system in all global regions. This is where we are focusing our energy, through a combination of the good fortune that we have of being in many countries, but also in being able to provide the technology that pulls all the data together and makes it useable for those treasurers.
What advances has Citigroup had on the technology front in the US and Europe and how does it compare to Asia?
Galant: On the technology side we decided to build global platforms that are modified very slightly, as opposed to being created within a specific country. The best example we have of that is a new global platform weÆve rolled out called TreasuryVision. In our view, its impact on the industry is that it is probably going to do what CitiDirect, our internet banking platform did for Citigroup a couple of years ago.
We are putting a lot of our energy behind it and TreasuryVision essentially meets the trends in the marketplace. It connects our clients not only to their internal systems, but it also connects to their enterprise resource planning (ERP) systems. It connects to the way clients forecast their cash, whether by spreadsheet, fax or workstations, if they have Wall Street systems. Additionally, it connects to every single financial supplier that these clients use - it doesnÆt have to be Citigroup.
Through this connectivity, TreasuryVision takes the data and puts it into a knowledge warehouse, which is staffed by world-class operations staff who are experts in dealing with financial data. Those folks then put the seal of approval on the data. ItÆs really a hybrid between a technology and a service. Once the data is deemed good, it then moves into a transparency model, which gives our clients û treasurers - more control and transparency than they have ever had before.
I remember sitting down with a treasurer who first saw the implemented version, and he said, ôI canÆt believe how much cash I have sitting here and how much I have been borrowing over there.ö
TreasuryVision creates a more effective way of managing liquidity, which is something that the regulators have been after for years. Once the transparency is there, we then move into the analytics and what weÆve found is that clients donÆt have to keep as large a cash cushion anymore because they have transparency and less risk. Then the question for our clients is: ôWhat do you do with the money? Do you put it back into your purchasing department to get the advance of early pay discounts? Do you buy back commercial paper or do you invest in the nine funds that governance allows you to invest in?ö
ItÆs a very comprehensive end-to-end platform that ties all these trends together and some of the largest companies in the world who are early adopters are taking to it very well.
Anthony Nappi: The key issues in the way our business model works is that we try to always look at this business on three plains. Firstly, on a global basis as a large part of our customer base buys us globally. Secondly, regionally, and lastly, by country. The beauty about the TreasuryVision platform is that it is available in every region of the world now. Within Asia, we have two customers up and running. There are a number of other customers in the implementation queue. The platform is uniquely built for the three things that treasurers think about most: control, transparency and optimisation of the liquidity they have either in the region or globally.
There are a couple of other of technology advances that weÆre seeing: one of the things weÆve looked at in the delivery space is being able to provide a treasurer the ability to start booking deposits and investment online. Two months ago, we rolled out an online platform in Asia leveraging CitiDirect. Our online investment option allows treasurers to book deposits online and it will cater for numerous investment vehicles all customised by company. WeÆre starting in Australia and New Zealand and by the end of the year weÆll have about 10 more countries coming on board.
From a treasurersÆ point of view, information is important and control over the information is also important in terms of where to invest. We made significant investments in CitiDirect in addition to the TreasuryVision roll out. Today, in the region, we have 7,800 customers using CitiDirect which represents a 20% growth year-on-year. Both the transaction volumes and the transaction values have increased in the neighbourhood of 50%. WeÆre processing approximately $1.5 trillion of transactions on an annual basis and weÆll continue to enhance and increase the functionality.
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Nappi: One of the things weÆve also been hearing is that many treasurers travel often and they want the ability to approve transactions in an offline method. WeÆve provided that capability to them, in a manner which ensures optimal control, and have made other enhancements such as doing direct debits, which is a key part of our overall collection strategy û these are just two of the many enhancements we have and will continue to make in the coming years. We continue to build out the CitiDirect platform, while at the same time thinking two or three years down the road in terms of what technologies and solutions we can bring. With TreasuryVision, weÆve done this in partnership with Microsoft and leveraging this partnership has been a huge win for us, as they have the bandwidth and investment capability to invest in these new technologies.
Galant: Our involvement with Microsoft is driven by other factors beyond the companyÆs track record as a brilliant software company. Our strategy is that innovation always needs to be taken up to another level. To accomplish this we have established long-term innovation-based relationships with the 10 most important technology and processing companies in the world. The relationship with Microsoft is a very compelling and unique proposition and something that has not happened in the past. WeÆre very serious how we roll out our technology and the beautiful thing about web services and open architecture in the world of internet is that it is becoming a plug and play reality. ItÆs an exciting time to be in the cash management business.
What changes do you see at corporates in Asia and what is driving the growth of the business in the region?
Galant: First of all, cash management is becoming very compelling. Not only is it a business that is fundamental, but every single one of CitigroupÆs corporate clients somewhere uses it. Unlike the capital markets, they use it everyday and our interactions and service are very critical. Suddenly the attitude is that it could move the dial for our corporate clients in two ways: firstly, the regulators are telling us that we have to be very accountable and in control across all client segments. If youÆre a corporation, whom are you going to turn to create that? Generally, our clients turn to the cash management business for that solution.
Secondly, rates are moving up and the margins in business are falling because the competition is intensifying. Today, clients find that instead of using price to make their margin, they have to re-engineer to make their margin. The re-engineering starts with the friction that occurs within the financial supply chain. In one case, we have a client that runs a multinational business and theyÆve estimated that getting the friction out of the financial supply chain using services of TreasuryVision was going to provide them $100 million a year of margin. And that is huge opportunity for a consumer business. The treasurer is becoming one of the main drivers of growth for the P&L of the business. This is a very good position for a treasurer to have and one they have aspired to have for some time.
Do you see yourself serving more Asian middle market and multinationals in the future?
Nappi: Absolutely. If you look at our franchise in terms of custom segments you will see that we bank in five segments: multinational corporate, banks, non-bank financials institutions (NBFI), top tier and emerging local corporates, as well as the small medium enterprise (SME) segment. The SME segment, in terms of customer acquisition and overall growth, is the fastest growing and itÆs one we continue to make significant investments in . WeÆve just opened our ninth commercial banking SME franchise in Indonesia and weÆre continually looking at additional countries to open up and service.
There are a number of US and European companies who are in the middle market space that are moving into Asia. We work with a number of banks in the US and Europe to be their distribution arm or service platform in Asia and have thus far been quite successful.
Sridhar Kanthadai: In Asia, weÆve seen significant acquisitions going through in China and India and other countries. As an organisation that is global with consistent platforms and relationships, we are uniquely placed and customers are leveraging the ability to talk to us in their own home country as well as multiple markets.
Nappi: Who would have thought five years ago that a Chinese oil company would actually make a bid to buy an American oil company. It is that kind of growth that markets like China are experiencing and theyÆre looking to banks with pan-Asian and global presence.
Galant: As the emerging market businesses start to globalise and look elsewhere, we are a strong fit with them. They know we are committed to the countries and regions theyÆre in. As they look to achieve cross-regional growth, they are very comfortable with Citigroup in all of their client segments and use us across the product spectrum as the catalyst of their own growth.
You mentioned non-bank financial institutions - within Asia are you finding more regional insurers and fund managers are centralising their cash management business with banks like Citigroup?
Nappi: In the years IÆve been in the business, IÆve always found that the insurance companies, the broker dealers and fund managers too behave more like corporates than banks. They are looking for the same types of banking services. We have a number of very large insurance companies that are looking to outsource their payables and receivables, as well as broker dealer customers who have established shared services centres.
We also see broker dealers looking at sophisticated liquidity management structures and new investment opportunities and we continue to work closely with them to structure solutions that meet their requirements. Their buying behaviour and their thought process is very consistent with that of the multi national corporates and is very sophisticated.
IÆve found over the last 24 months a large number of the non-bank financial institution customers coming to us and looking to Citigroup to be consultative with them across payments, receivables and liquidity management/investments. A number of customers that are on TreasuryVision come from this sector and having that transparency and understanding their liquidity and capital in a given country is really critical to their overall business franchise.
Galant: ItÆs human nature to want control and visibility, and to know exactly what youÆre getting and where youÆre getting it. Whether we had developed TreasuryVision or not, that is where the market is moving.
What challenges are you finding in China and do you foresee greater competition coming from the domestic banks rolling out their own cash management solutions to the corporate world?
Nappi: We have 18 markets around the region, but we have four countries that are key focus countries for us: Japan, India, Korea and China. China is a big growth market in terms of cash management, and weÆve added in excess 50 people over 2005. WeÆve also continued to maintain the largest share of local currency deposits, the largest volume of renminbi transactions and weÆve continued to enhance our relationships with the big four banks. I believe we are the only bank to have host-to-host connectivity with two of the big four domestic banks. WeÆre looking to augment the distribution capability by working with other partners in China and give us in excess of 20,000 distribution points.
Every other month there seems to a new regulatory change or improvement and weÆve reacted to that by becoming the first bank to offer physical cash pooling and we continue to build out our entrust loan capability and our liquidity structure. Approximately 90% of our transactions come in electronically and if they are cross-border transactions they need to be checked due to foreign exchange regulations.
Kanthadai: I think that Chinese banks are getting savvier and we welcome that, as it improves the market as a whole. That drives more products and capabilities. If the infrastructure builds out and the WTO accepts them, the playing field is going to level. The partnerships we have in China are serving us very well.
Galant: What weÆre seeing today amongst the local banks - whom I often view as tougher competition for Citigroup than the other global banks - is that they have the local branch networks and operate with different financial pressures than we do. TheyÆre playing their game on the field in a way that gives them a lot of flexibility. We recognise that their end customers are not always our target clients. We might not be the right lender to them or the best relationship for them, but there is no reason that we canÆt help to develop the banking industry for them.
In developing that industry, we want to become the quality supplier for local banks in markets where they need to provide best-in-class electronic banking, best-in-class control, cross-border, transparency and liquidity. Essentially, these banks have a choice to make - they can build the tools themselves or turn to other suppliers. When they are looking for suppliers, weÆd like for them to come to us because we can be good business partners to them. We aspire to have a wholesale business that provides these local banks with best of class products, like a TreasuryVision on a white label basis. In this scenario, the local banks would take the products and use them as software and and use Citigroup as the processor. WeÆre very open in how we think about this business and it is driven by knowing that you canÆt always compete head-to-head with the local banks.
Nappi: What is interesting in China is that we a very large share of the US dollar clearing business and the local banks are using our international branch network to facilitate the transactions for their own customer base.
Galant: The same thing could be said about India. There is a business momentum afoot that is hard to imagine. There are some very worthwhile local banks in India that have real vision, drive and their domestic corporate clients are globalising, but they need a strong partner.
Do you see significant interest and growth of shared service centres and liquidity management in Asia?
Nappi: In terms of shared service centres (SSC), we have approximately 80 SSC customers in the region where we are the financial services provider. We view the shared service centre business as very important. WeÆve brought in a managing director to manage this portion of the business for us and weÆre developing value-added services that meet the needs of shared service centre clients.
In Singapore, we have also begun the process of establishing a shared service centre advisory board and this is a group of prospective and existing customers we are working with to help us identify what the key business needs are this in turn facilitates the process of assisting us in crafting our strategy and investment processes to build solutions and facilitate their needs.
When you think about a shared service centre, the key win comes from reducing the overall cost. Shared service centres are established for a number of reasons. Control and cost reduction are the two primary reasons and then building an organisation of best practice that will be scalable and efficient, which as the business grows, can contain incremental costs.
There is also a lot of interest in helping customers evaluate whether to move to shared service centre and if they are keen, where should they do it. The traditional countries have always been Hong Kong, Singapore, Australia and the Philippines, but now India and China are top of mind. Twenty four to thirty six months ago much of the focus was on expense management and companies asking themselves ôWhat are the activities that I provide that are accretive to my shareholders and let me get rid of those activities that are not core value-added activities and outsource them to a third partyö. In the financial services space, theyÆve looked to the banks as the right people to outsource to.
Today things have evolved and the focus is clearly around liquidity management and investments. Treasurers want to gets their arms around understanding what liquidity they have in which countries, and how they can consolidate that liquidity in a central structure either physically or notionally. Once clients have the visibility around their liquidity, where can they invest to obtain the greatest yield.
Galant: Today, in the cash management business, we find ourselves looking at things that a few years ago were thought of as outside our bailiwick. I believe that the reason for this is because cash management itself has been redefined once or twice in the last decade as encompassing a fair bit more than what was previously thought of.
If you look back 10 years, we made payments and we collected money. We did this through physical and electronic means, but that was what the client expectation was. Our clients were telling us ôGive us good operations, give us good technology. DonÆt screw up, but if you do, make sure you have enough capital to fix it.ö Today, clients are saying, ôCash management banks are connected to all of our buyers, suppliers, and itÆs a complex regulatory environment. Whom do we turn to in order to make sure weÆre compliant?ö Well, my answer is, you turn to the companies that understand financial data, that have accountability and have capital if something goes wrong.
Client identity management is also becoming a key component of our business and a further sign of the evolution of international cash management. As an example, something that weÆre doing - which is a bit surprising, - is running an identity management business. A bank like Citigroup is very good at guaranteeing identity, and if we couldnÆt do that, then we couldnÆt keep client accounts safe. ItÆs a very interesting time to be in the business.
Kanthadai: From our perspective, clearly the interest in liquidity management is being seen in terms of the conversations we have with customers. Managing liquidity is very different for individual companies and our ability to pull together what is meaningful for the customer differentiates us from any other people in the marketplace. We are able to pull together globally consistent locally relevant solutions for customers on a standardized platform and that is the Holy Grail for treasurers.